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 March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ------------------------
Commission File Number 1-13006
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Park National Corporation
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(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
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(Address of principal executive offices) (Zip Code)
(740) 349-8451
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
13,921,383 common shares, no par value per share, outstanding at April 22,
2002.
Page 1 of 21
PARK NATIONAL CORPORATION
CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION 3-12
Item 1. Financial Statements 3-12
Consolidated Balance Sheets as of March 31, 2002 and
and December 31, 2001 (unaudited) 3
Consolidated Condensed Statements of Income for the
Three Months ended March 31, 2002 and 2001 (unaudited) 4,5
Consolidated Condensed Statements of Changes in Stockholders'
Equity for the Three Months ended March 31, 2002 and 2001 (unaudited) 6
Consolidated Statements of Cash Flows for the Three Months
ended March 31, 2002 and 2001 (unaudited) 7,8
Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 13-18
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18
PART II. OTHER INFORMATION 19-20
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19-20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
-2-
PARK NATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in
thousands, except per share data)
March 31, December 31,
2002 2001
- ------------------------------------------------------------------------------------------
Assets:
Cash and due from banks $ 127,346 $ 169,143
- ------------------------------------------------------------------------------------------
Interest bearing deposits 50 50
- ------------------------------------------------------------------------------------------
Securities available-for-sale, at fair value
(amortized cost of $1,396,980 and $1,423,268
at March 31, 2002 and December 31, 2001) 1,401,662 1,436,661
- ------------------------------------------------------------------------------------------
Securities held-to-maturity, at amortized cost
(fair value approximates $27,028 and $27,382
at March 31, 2002 and December 31, 2001) 27,174 27,518
- ------------------------------------------------------------------------------------------
Loans (net of unearned interest) 2,724,534 2,795,808
- ------------------------------------------------------------------------------------------
Allowance for possible loan losses 60,693 59,959
- ------------------------------------------------------------------------------------------
Net loans 2,663,841 2,735,849
- ------------------------------------------------------------------------------------------
Bank premises and equipment, net 39,594 39,910
- ------------------------------------------------------------------------------------------
Other assets 166,236 160,384
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Total assets $ 4,425,903 $ 4,569,515
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Liabilities and Stockholders' Equity:
Deposits:
Noninterest bearing $ 480,163 $ 515,333
- ------------------------------------------------------------------------------------------
Interest bearing 2,850,619 2,798,870
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Total deposits 3,330,782 3,314,203
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Short-term borrowings 305,439 318,311
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Long-term debt 257,498 392,540
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Other liabilities 60,215 76,115
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Total liabilities 3,953,934 4,101,169
- ------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock (No par value; 20,000,000 shares
authorized; 14,540,487 shares issued in 2002
and 14,540,498 issued in 2001) 105,770 105,771
- ------------------------------------------------------------------------------------------
Retained earnings 414,729 403,870
- ------------------------------------------------------------------------------------------
Treasury stock (607,926 shares in 2002
and 599,697 shares in 2001) (51,573) (50,000)
- ------------------------------------------------------------------------------------------
Accumulated other comprehensive income,
net of taxes 3,043 8,705
- ------------------------------------------------------------------------------------------
Total stockholders' equity 471,969 468,346
- ------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 4,425,903 $ 4,569,515
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
PARK NATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended
March 31,
--------------------------
2002 2001
- ---------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 53,192 $ 65,781
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Interest on:
Obligations of U.S. Government,
its agencies and other securities 19,751 12,849
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Obligations of states
and political subdivisions 1,801 1,997
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Other interest income 130 527
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Total interest income 74,874 81,154
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Interest expense:
Interest on deposits:
Demand and savings deposits 3,260 6,586
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Time deposits 15,159 22,478
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Interest on borrowings:
Short-term borrowings 1,112 2,940
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Long-term debt 3,096 3,719
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Total interest expense 22,627 35,723
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Net interest income 52,247 45,431
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Provision for loan losses 4,519 2,259
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Net interest income after
provision for loan losses 47,728 43,172
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Other income 11,795 10,156
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Gain (loss) on sale of securities (210) 142
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Continued
4
PARK NATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(CONTINUED)
(dollars in thousands, except per share data)
Three Months Ended
March 31,
----------------------------
2002 2001
- -----------------------------------------------------------------------------------
Other expense:
Salaries and employee benefits $ 16,251 $ 14,566
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Occupancy expense 1,539 1,517
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Furniture and equipment expense 1,529 1,415
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Other expense 9,897 9,472
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Total other expense 29,216 26,970
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Income before federal income taxes 30,097 26,500
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Federal income taxes 8,649 7,610
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Net income $ 21,448 $ 18,890
===================================================================================
PER SHARE:
Net income:
Basic $ 1.54 $ 1.34
===================================================================================
Diluted $ 1.53 $ 1.34
===================================================================================
Weighted average
Basic 13,936,340 14,090,337
===================================================================================
Diluted 13,973,050 14,116,226
===================================================================================
Cash dividends declared $ 0.76 $ 0.71
===================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
PARK NATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED) (dollars in thousands, except per share data)
Accumulated
THREE MONTHS ENDED MARCH 31, 2002 AND 2001 Treasury Other Compre-
Common Retained Stock Comprehensive hensive
Stock Earnings at Cost Income Income
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BALANCE AT DECEMBER 31, 2000 $119,229 $365,975 ($46,583) $4,028
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income 18,890 $18,890
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Accumulated other comprehensive income,
net of income taxes of $3,940 7,318 7,318
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Total comprehensive income $26,208
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Cash dividends on common stock:
Park at $.71 per share (7,608)
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Cash dividends paid by Security Banc Corporation
prior to merger (2,355)
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Retire treasury stock from Security Banc Corporation merger - 259,280 shares (13,361) 13,361
- --------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased - 85,334 shares (7,379)
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Treasury stock reissued for stock options - 8,585 shares 462
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2001 $105,868 $374,902 ($40,139) $11,346
==========================================================================================================================
====================================================================================================================================
BALANCE AT DECEMBER 31, 2001 $105,771 $403,870 ($50,000) $8,705
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $21,448 $21,448
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Accumulated other comprehensive income,
net of income taxes of ($3,049) (5,662) (5,662)
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Total comprehensive income $15,786
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Cash dividends on common stock:
Park at $.76 per share (10,589)
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Cash paid for fractional shares - 11 shares (1)
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Treasury stock purchased - 31,453 shares (2,973)
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Treasury stock reissued for stock options - 23,224 shares 1,400
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BALANCE AT MARCH 31, 2002 $105,770 $414,729 ($51,573) $3,043
==========================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
PARK NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Three Months Ended
March 31,
---------------------------
2002 2001
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Operating activities:
Net income $ 21,448 $ 18,890
- --------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, amortization and accretion (741) 772
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Provision for loan losses 4,519 2,259
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Amortization of the excess of cost over
net assets of banks purchased 975 988
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Realized investment security losses (gains) 210 (142)
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Changes in assets and liabilities:
Increase in other assets (3,778) (5,417)
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(Decrease) increase in other liabilities (5,294) 3,699
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Net cash provided from operating activities 17,339 21,049
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Investing activities:
Proceeds from sales of:
Available-for-sale securities 99,673 24,968
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Proceeds from maturity of:
Available-for-sale securities 166,553 92,191
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Held-to-maturity securities 344 148
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Purchases of:
Available-for-sale securities (239,113) (141,641)
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Net decrease in interest bearing deposits with other banks 0 1,088
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Net decrease in loans 68,538 41,245
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Purchases of premises and equipment, net (1,027) (1,551)
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Net cash provided from investing activities 94,968 16,448
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Continued
7
PARK NATIONAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(CONTINUED)
(dollars in thousands)
Three Months Ended
March 31,
--------------------------
2002 2001
- --------------------------------------------------------------------------------------
Financing activities:
Net increase in deposits $ 16,579 $ 45,029
- --------------------------------------------------------------------------------------
Net decrease in short-term borrowings (12,872) (26,388)
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Cash paid for fractional shares (1) 0
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Purchase of treasury stock, net (1,573) (6,917)
- --------------------------------------------------------------------------------------
Long-term debt issued 0 80,000
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Repayment of long-term debt (135,042) (147,413)
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Cash dividends paid (21,195) (17,633)
- --------------------------------------------------------------------------------------
Net cash used by financing activities (154,104) (73,322)
- --------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (41,797) (35,825)
- --------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 169,143 169,432
- --------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 127,346 $ 133,607
======================================================================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 24,205 $ 34,897
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Income taxes $ 0 $ 0
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
PARK NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2002 and 2001.
Note 1 - BASIS OF PRESENTATION
The consolidated financial statements included in this report have been prepared
by Park National Corporation (the "Registrant", "Corporation", "Company", or
"Park") without audit. In the opinion of management, all adjustments (consisting
solely of normal recurring accruals) necessary for a fair presentation of
results of operations for the interim periods included herein have been made.
The results of operations for the period ended March 31, 2002 are not
necessarily indicative of the operating results to be anticipated for the fiscal
year ended December 31, 2002.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q, and therefore, do not include
all information and footnotes necessary for a fair presentation of the balance
sheets, condensed statements of income, condensed statements of changes in
stockholders' equity and statements of cash flows in conformity with 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, 2001. Certain amounts in 2001 have been
reclassified to conform to the financial statement presentation used for 2002.
Park does not have any off-balance sheet derivative financial instruments such
as interest-rate swap agreements.
Note 2 - ACQUISITIONS
On March 23, 2001, Park merged with Security Banc Corporation, a $995 million
bank holding company headquartered in Springfield, Ohio in a transaction
accounted for as a pooling-of-interests. Park issued approximately 3,350,000
shares of common stock to the stockholders of Security Banc Corporation based
upon an exchange ratio of .284436 shares of Park common stock for each
outstanding share of Security Banc Corporation common stock. The three financial
institution subsidiaries of Security Banc Corporation (The Security National
Bank and Trust Co., The Citizens National Bank of Urbana, and The Third Savings
and Loan Company) are being operated as two separate banking subsidiaries by
Park.
The Third Savings and Loan Company is now being operated as a separate division
of The Security National Bank and Trust Co. under the name of Unity National and
The Citizens National Bank of Urbana is also being operated as a separate
banking subsidiary of Park.
On December 13, 2001, Security National Bank and Trust Company acquired a branch
office in Jamestown, Ohio. In addition to the fixed assets, the purchase
included $15 million in deposits
-9-
and $3 million in loans. The excess of the cost over net tangible assets
purchased was $1 million and is being amortized using the straight-line method
over seven years.
Note 3 - INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and indefinite lived intangible
assets will no longer be amortized but will be subject to annual impairment
tests in accordance with the statements. Other intangible assets, such as core
deposit intangibles, will continue to be amortized over their useful lives.
Park had approximately $7.5 million of goodwill on its balance sheet at December
31, 2001. This goodwill was evaluated for impairment during the first quarter of
2002 and a determination made that the goodwill was not impaired and that the
book value of the goodwill would continue to be shown as $7.5 million. No
amortization expense is being recorded on the goodwill in 2002 compared to
amortization expense of $94,000 for the first quarter of 2001 and $375,000 for
the year 2001. Application of the nonamortization provisions of the statement
increased net income by $94,000 or $.01 per share in the first quarter of 2002
and is expected to increase net income by $375,000 or $.03 per share for the
entire year.
Note 4 - ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is that amount believed adequate to absorb 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.
ALLOWANCE FOR LOAN LOSSES
-------------------------
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(In Thousands)
- -------------------------------------------------------- -----------------------
- -------------------------------------------------------- -----------------------
2002 2001
- -------------------------------------------------------- -----------------------
Beginning January 1 $59,959 $57,473
- -------------------------------------------------------- -----------------------
Provision for loan losses 4,519 2,259
- -------------------------------------------------------- -----------------------
Losses charged to the reserve (5,205) (3,206)
- -------------------------------------------------------- -----------------------
Recoveries 1,420 1,639
------- -------
- -------------------------------------------------------- -----------------------
Balance March 31, $60,693 $58,165
======= =======
- -------------------------------------------------------- -----------------------
Note 5 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the three month periods ended March 31, 2002 and 2001.
-10-
- ----------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
- --------------------------------------------------------------------------------------- -------------- ---------------
MARCH 31, 2002 2001
- --------------------------------------------------------------------------------------- -------------- ---------------
NUMERATOR:
- --------------------------------------------------------------------------------------- -------------- ---------------
NET INCOME $21,448 $18,890
- --------------------------------------------------------------------------------------- -------------- ---------------
- --------------------------------------------------------------------------------------- -------------- ---------------
DENOMINATOR:
- --------------------------------------------------------------------------------------- -------------- ---------------
DENOMINATOR FOR BASIC EARNINGS PER SHARE (WEIGHTED-AVG. SHARES) 13,936,340 14,090,337
- --------------------------------------------------------------------------------------- -------------- ---------------
- --------------------------------------------------------------------------------------- -------------- ---------------
EFFECT OF DILUTIVE SECURITIES 36,710 25,889
- --------------------------------------------------------------------------------------- -------------- ---------------
- --------------------------------------------------------------------------------------- -------------- ---------------
DENOMINATOR FOR DILUTED EARNINGS PER SHARE (ADJUSTED WEIGHTED-AVERAGE SHARES AND 13,973,050 14,116,226
ASSUMED CONVERSIONS)
- --------------------------------------------------------------------------------------- -------------- ---------------
- --------------------------------------------------------------------------------------- -------------- ---------------
EARNINGS PER SHARE:
- --------------------------------------------------------------------------------------- -------------- ---------------
BASIC EARNINGS PER SHARE $1.54 $1.34
- --------------------------------------------------------------------------------------- -------------- ---------------
DILUTED EARNINGS PER SHARE $1.53 $1.34
- --------------------------------------------------------------------------------------- -------------- ---------------
Note 6 - SEGMENT INFORMATION
The Corporation is a multi-bank holding company headquartered in Newark, Ohio.
The operating segments for the Corporation are its financial institution
subsidiaries. The Corporation's financial institution subsidiaries are The Park
National Bank (PNB), The Richland Trust Company (RTC), Century National Bank
(CNB), The First-Knox National Bank of Mount Vernon (FKNB), United Bank N.A.
(UB), Second National Bank (SNB), The Security National Bank and Trust Co.
(SEC), and The Citizens National Bank of Urbana (CIT).
- ----------------------------------------------------------------------------------------------------------- -----------
Operating Results for the Three Months Ended March 31, 2002 (In Thousands)
- ----------------------------------------------------------------------------------------------------------- -----------
PNB RTC CNB FKNB UB SNB SEC CIT All Other Total
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Net Interest $15,861 $5,777 $5,105 $7,318 $2,147 $3,497 $8,869 $1,751 $1,922 $52,247
Income
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Provision for 1,545 585 240 874 90 275 420 415 75 4,519
Loan Losses
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Other Income 5,192 689 1,198 1,495 289 344 1,951 316 111 11,585
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Other Expense 8,673 2,805 2,746 3,777 1,484 1,774 4,944 1,109 1,904 29,216
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Net Income $7,589 $2,033 $2,209 $2,893 $635 $1,289 $3,778 $377 $645 $21,448
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Balances at
March 31, 2002
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Assets 1,396,530 480,258 436,830 659,485 197,382 317,084 874,610 172,527 (108,803) $4,425,903
- -----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------- -----------
Operating Results for the Three Months Ended March 31, 2001 (In Thousands)
- ----------------------------------------------------------------------------------------------------------- -----------
PNB RTC CNB FKNB UB SNB SEC CIT All Other Total
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Net Interest $14,141 $4,442 $4,431 $6,918 $1,708 $2,807 $8,125 $1,633 $1,226 $45,431
Income
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Provision for 720 270 150 444 60 75 375 135 30 2,259
Loan Losses
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Other Income 4,409 703 890 1,332 303 401 1,750 403 107 10,298
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Other Expense 8,432 2,701 2,410 3,672 1,439 1,763 4,589 1,083 881 26,970
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Net Income $6,516 $1,444 $1,846 $3,071 $396 $1,016 $3,316 $562 $723 $18,890
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Balances at
March 31, 2001
- ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- ---------- -----------
Assets 1,338,720 441,923 408,111 609,875 175,424 302,933 848,066 172,744 (135,811) $4,161,985
- -----------------------------------------------------------------------------------------------------------------------
-11-
The operating results of the Parent Company and Guardian Finance Company (GFC)
in the All Other column are used to reconcile the segment totals to the
consolidated income statements for the quarters ended March 31, 2002 and 2001.
The reconciling amounts for consolidated total assets for both of the quarters
ended March 31, 2002 and 2001 consist of the elimination of intersegment
borrowings, and the assets of the Parent Company and GFC which are not
eliminated.
-12-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis by management contains forward-looking statements
that are provided to assist in the understanding of anticipated future financial
performance. These forward-looking statements involve significant risks and
uncertainties including changes in general economic and financial market
conditions and Park's ability to execute its business plans. 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 Quarters Ended March 31, 2002
and 2001.
NET INTEREST INCOME
Park's principal source of earnings is net interest income, the difference
between total interest income and total interest expense. Net interest income
increased by $6.8 million or 15.0% to $52.2 million for the three months ended
March 31, 2002 compared to $45.4 million for the first quarter of 2001. The
following table compares the average balance and tax equivalent yield/cost for
interest earning assets and interest bearing liabilities for the first quarter
of 2002 with the same quarter in 2001.
- -------------------------------------------------------------------------------------------------
Three Months Ended March 31,
(In Thousands)
- -------------------------------------- --------------------------- ------------------------------
2002 2001
- -------------------------------------- --------------------------- ------------------------------
Average Tax Average Tax
Balance Equivalent Balance Equivalent
% %
- -------------------------------------- -------------- ------------ ---------------- -------------
- -------------------------------------- -------------- ------------ ---------------- -------------
Loans $2,747,018 7.89% $2,929,017 9.15%
- -------------------------------------- -------------- ------------ ---------------- -------------
Taxable Investments 1,246,564 6.43% 772,305 6.75%
- -------------------------------------- -------------- ------------ ---------------- -------------
Tax Exempt Investments 149,032 7.17% 164,903 6.93%
- -------------------------------------- -------------- ------------ ---------------- -------------
Federal Funds Sold 29,765 1.78% 36,460 5.87%
- -------------------------------------- -------------- ------------ ---------------- -------------
Interest Earning Assets $4,172,379 7.38% $3,902,685 8.55%
- -------------------------------------- -------------- ------------ ---------------- -------------
- -------------------------------------- -------------- ------------ ---------------- -------------
Interest Bearing Deposits $2,828,919 2.64% $2,697,633 4.37%
- -------------------------------------- -------------- ------------ ---------------- -------------
Short-term Borrowings 281,448 1.60% 253,713 4.70%
- -------------------------------------- -------------- ------------ ---------------- -------------
Long-term Debt 331,302 3.79% 274,242 5.50%
- -------------------------------------- -------------- ------------ ---------------- -------------
Interest Bearing Liabilities $3,441,669 2.67% $3,225,588 4.49%
- -------------------------------------- -------------- ------------ ---------------- -------------
Excess Interest Earning Assets $730,710 4.71% $ 677,097 4.06%
- -------------------------------------- -------------- ------------ ---------------- -------------
Net Interest Margin 5.18% 4.83%
- -------------------------------------------------------------------------------------------------
Average interest earning assets increased by $270 million or 6.9% to $4,172
million for the quarter ended March 31, 2002 compared to the same quarter in
2001. The average yield on interest earning assets decreased to 7.38% for the
first quarter of 2002 compared to 8.55% for the first quarter of 2001.
-13-
Average loan totals decreased by $182 million or 6.2% to $2,747 million for the
first quarter of 2002 compared to the first quarter of 2001. The demand for
commercial, commercial real estate, and consumer loans and leases secured by
automobiles decreased sharply during the first quarter of 2001 and stayed weak
for the remainder of 2001. The demand for commercial and commercial real estate
loans improved during the first quarter of 2002, but the demand for consumer
loans and leases secured by automobiles remains weak. The demand for fixed rate
long-term residential mortgage loans has been strong for the past several
quarters, but these loans are sold by Park in the secondary market. This
activity, the origination and sale of fixed rate mortgage loans, produced a
significant increase in fee income during the last three quarters of 2001 and
the first quarter of 2002, but did not increase loan balances since the loans
are sold.
Many borrowers took advantage of the low interest rate environment to refinance
their adjustable rate mortgage loan into a fixed rate mortgage loan which
reduces the loan balances reported on the balance sheet.
Total loan balances have decreased each quarter for the past five quarters. The
decrease in loans was $43 million for the first quarter of 2001, $27 million for
the second quarter of 2001, $22 million for the third quarter of 2001, $68
million for the fourth quarter of 2001, and $71 million for the first quarter of
2002. As stated previously, the demand for commercial and commercial real estate
loans improved during the first quarter of 2002, as our commercial lenders have
seen a marked increase in loan applications. Management is hopeful that loan
balances will stabilize during the second quarter of 2002 and increase during
the second half of 2002 as the economy recovers from the recession which started
a year ago.
The average yield on the loan portfolio was 7.89% for the first quarter of 2002
compared to 9.15% for the same period in 2001. The average prime lending rate
for Park's affiliate banks was 4.75% for the first quarter of 2002 compared to
8.62% for the first quarter of 2001. Approximately 25% of Park's loan portfolio
reprices based on the prime lending rate. The yield on Park's loan portfolio is
expected to decrease next quarter as variable rate loans reprice lower and new
loan originations have an average rate that is lower than the current loan
portfolio rate.
Average investment securities including federal funds sold increased by $452
million or 46.4% to $1,425 million for the first quarter of 2002 compared to
$973 million for the first quarter of 2001. The increase in the investment
portfolio was funded by a decrease in loans and by increases in deposits and
total borrowed funds. The average yield on taxable investment securities
decreased to 6.43% for the first quarter of 2002 compared to 6.75% for the same
period in 2001 and the average yield on federal funds sold decreased to 1.78% in
2002 compared to 5.87% for the first quarter of 2001. The yield on taxable
investment securities is expected to decrease next quarter as new investment
purchases yield less than investment maturities. The yield on tax exempt
investments increased to 7.17% for the first quarter of 2002 compared to 6.93%
for the same quarter in 2001. No tax exempt securities were purchased in the
past year and the tax exempt investment maturities yield was less than the
portfolio rate. The average maturity of the investment portfolio was 3.6 years
at March 31, 2002 compared to 3.9 years at March 31, 2001.
Average interest bearing liabilities increased by $216 million or 6.7% to $3,442
million for the quarter ended March 31, 2002 compared to the same quarter in
2001. Average interest bearing deposits increased by $131 million or 4.9% to
$2,829 million for the first quarter of 2002 compared to the same period in
2001. Average short-term borrowings increased by $28 million
-14-
or 10.9% to $281 million and average long-term debt increased by $57 million or
20.8% to $331 million for the first quarter of 2002 compared to the same period
in 2001.
The average cost of interest bearing liabilities decreased by 1.82% to 2.67% in
2002 compared to 4.49% in 2001. The average cost of interest bearing deposits
decreased by 1.73% to 2.64% in 2002 compared to 4.37% in 2001. The average cost
of short-term borrowings decreased by 3.10% to 1.60% in 2002 compared to 4.70%
in 2001 and the average cost of long-term debt decreased by 1.71% to 3.79% in
2002 compared to 5.50% in 2001.
The increase in net interest income of $6.8 million or 15.0% for the quarter
ended March 31, 2002 was due to both an increase in average interest earning
assets of 6.9% and an increase of .65% in the net interest spread (the
difference between the yield on interest earning assets and the cost of interest
bearing liabilities) to 4.71%. The tax equivalent net interest margin (defined
as net interest income divided by average interest earning assets) increased by
...35% to 5.18% for the first quarter of 2002 compared to 4.83% in 2001.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased by $2.26 million or 100% to $4.5 million
for the first quarter of 2002 compared to $2.26 million for the first quarter of
2001. Net charge-offs were $3.8 million in 2002 compared to $1.6 million in
2001. Nonperforming loans, defined as loans that are 90 days past due,
renegotiated loans, and nonaccrual loans were $28.4 million or 1.04% of loans at
March 31, 2002 compared to $27.1 million or .97% of loans at December 31, 2001
and $21.2 million or .73% of loans at March 31, 2001. The reserve for loan
losses as a percentage of outstanding loans was 2.23% at March 31, 2002 compared
to 2.14% at December 31, 2001 and 2.00% at March 31, 2001. See Footnote 4 for a
discussion of the factors considered by management in determining the provision
for loan losses. Management has recently seen improvement in the economy in
central Ohio, and is hopeful that net charge-offs will be reduced next quarter.
NONINTEREST INCOME
Noninterest income increased by $1.6 million or 16.1% to $11.8 million for the
first quarter of 2002 compared to $10.2 million for the first quarter of 2001.
The following table summarizes the change in noninterest income.
----------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
(in thousands)
------------------------------------------------- --------------------------------------------------------
2002 2001 Change
------------------------------------------------- ------------------- ------------------- ----------------
Fees from Fiduciary Activities $2,201 $2,162 $ 39
------------------------------------------------- ------------------- ------------------- ----------------
Service Charges on Deposit Accounts 3,216 3,156 60
------------------------------------------------- ------------------- ------------------- ----------------
Other Service Income 2,868 1,552 1,316
------------------------------------------------- ------------------- ------------------- ----------------
Other Income 3,510 3,286 224
------------------------------------------------- ------------------- ------------------- ----------------
Total $11,795 $10,156 $1,639
----------------------------------------------------------------------------------------------------------
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The large increase in fees earned from Other Service Income 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. The
increase in Other Income was primarily due to increases in check card and ATM
transactions.
GAIN (LOSS) ON SALE OF SECURITIES
The loss on sale of securities of $210,000 for the first quarter of 2002 was due
to the sale of $100 million of U.S. Government Agency collateralized mortgage
obligations. These securities were sold to reduce the maturity extension risk in
the investment portfolio.
The gain on sale of securities of $142,000 for the first quarter of 2001 was due
to the sale of United States Treasury notes with the proceeds reinvested in U.S.
Government Agency mortgage-backed securities. 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 $2.2 million or 8.3% to $29.2 million for the
quarter ended March 31, 2002 compared to $27.0 million for the same period in
2001. Salaries and employee benefits expense increased by $1.7 million or 11.6%
to $16.3 million for the first quarter of 2002 compared to $14.6 million for the
first quarter of 2001. Full time equivalent employees were 1,585 at March 31,
2002 compared to 1,562 at March 31, 2001.
FEDERAL INCOME TAXES
Federal income tax expense was $8.6 million for the first quarter of 2002
compared to $7.6 million for the same period in 2001. The ratio of federal
income tax expense to income before taxes was approximately 28.7% in 2002 and
2001. The primary difference between the effective federal income tax rate and
the statutory rate of 35% is due to tax-exempt interest income from state and
municipal loans and investments, and low income housing tax credits.
NET INCOME
Net income increased by $2.6 million or 13.5% to $21.45 million for the three
months ended March 31, 2002 compared to $18.89 million for the three months
ended March 31, 2001. The annualized first quarter net income to average assets
ratio (ROA) was 1.95% in 2002 compared to 1.85% in 2001. The annualized, first
quarter net income to average equity ratio (ROE) was 18.48% in 2002 compared to
17.33% in 2001.
Diluted earnings per share increased by 14.2% to $1.53 for the first quarter of
2002 compared to $1.34 for the same quarter in 2001.
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COMPARISON OF FINANCIAL CONDITION
AT MARCH 31, 2002 AND DECEMBER 31, 2001
CHANGES IN FINANCIAL CONDITION AND LIQUIDITY
Total assets decreased by $144 million or 3.1% to $4,426 million at March 31,
2002 compared to $4,570 million at December 31, 2001. Total loans decreased by
$71 million or 2.6% to $2,725 million as the demand for loans continues to be
weak. The demand for commercial and commercial real estate loans increased
during the month of March and management is hopeful that total loans will
stabilize during the second quarter and grow during the second half of the year
as the economy recovers from the recession which started a year ago.
Total liabilities decreased by $147 million or 3.6% to $3,954 million at March
31, 2002 compared to $4,101 million at December 31, 2001. Total borrowed money
decreased by $148 million or 20.8% to $563 million at March 31, 2002 compared to
$711 million at December 31, 2001. Borrowed money was repaid with excess
available funds which resulted from the weak loan demand during the first
quarter.
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 61.56% at March 31, 2002 compared to 61.18% at December 31, 2001
and 70.01% at March 31, 2001. Cash and cash equivalents totaled $127 million at
March 31, 2002 compared to $169 million at December 31, 2001 and $134 million at
March 31, 2001. The present funding sources provide more than adequate liquidity
for the Corporation to meet its cash flow needs.
CAPITAL RESOURCES
Stockholders' equity at March 31, 2002 was $472 million or 10.66% of total
assets compared to $468 million or 10.25% of total assets at December 31, 2001
and $452 million or 10.86% of total assets at March 31, 2001.
Financial institution regulators have established guidelines for minimum capital
ratios for banks, thrifts, and bank holding companies. The net unrealized gain
or loss on available-for-sale securities is generally not included in computing
regulatory capital. The minimum leverage capital ratio (defined as stockholders'
equity less intangible assets divided by tangible assets) is 4% and the well
capitalized ratio is greater than or equal to 5%. Park's leverage ratio was
10.10% at March 31, 2002 and 9.97% at December 31, 2001. The minimum Tier I
risk-based capital ratio (defined as leverage capital divided by risk-adjusted
assets) is 4% and the well capitalized ratio is greater than or equal to 6%.
Park's Tier I risk-based capital ratio was
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15.44% at March 31, 2002 and 14.84% at December 31, 2001. The minimum total
risk-based capital ratio (defined as leverage capital plus supplemental capital
divided by risk-adjusted assets) is 8% and the well capitalized ratio is greater
than or equal to 10%. Park's total risk-based capital ratio was 16.70% at March
31, 2002 and 16.09% at December 31, 2001.
The financial institution subsidiaries of Park each met the well capitalized
capital ratio guidelines at March 31, 2002. The following table indicates the
capital ratios for each subsidiary and Park at March 31, 2002:
TIER I TOTAL
LEVERAGE RISK-BASED RISK-BASED
-------- ---------- ----------
- -----------------------------------------------------------------------------------------
Park National Bank 5.93% 8.58% 12.31%
- ------------------------------------------ -------------- ---------------- --------------
Richland Trust Company 6.47% 11.28% 12.54%
- ------------------------------------------ -------------- ---------------- --------------
Century National Bank 5.94% 10.63% 13.10%
- ------------------------------------------ -------------- ---------------- --------------
First-Knox National Bank 5.96% 9.33% 13.42%
- ------------------------------------------ -------------- ---------------- --------------
Second National Bank 6.03% 9.18% 12.81%
- ------------------------------------------ -------------- ---------------- --------------
United Bank, N.A. 6.54% 11.94% 13.20%
- ------------------------------------------ -------------- ---------------- --------------
Security National Bank 5.93% 9.77% 12.70%
- ------------------------------------------ -------------- ---------------- --------------
Citizens National Bank 6.48% 11.83% 16.84%
- ------------------------------------------ -------------- ---------------- --------------
Park National Corporation 10.10% 15.44% 16.70%
- ------------------------------------------ -------------- ---------------- --------------
Minimum Capital Ratio 4.00% 4.00% 8.00%
- ------------------------------------------ -------------- ---------------- --------------
Well Capitalized Ratio 5.00% 6.00% 10.00%
- -----------------------------------------------------------------------------------------
At the April 15, 2002 Park National Corporation Board of Directors' meeting, a
cash dividend of $.76 per share was declared payable on June 10, 2002 to
stockholders of record on May 24, 2002.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Footnote 1 for disclosure that Park does not have any off-balance sheet
derivative financial instruments.
Management reviews interest rate sensitivity on a quarterly basis by modeling
the financial statements under various interest rate scenarios. The primary
reason for these efforts is to guard Park from adverse impacts of unforeseen
changes in interest rates. Management continues to believe that further changes
in interest rates will have a small impact on net income, consistent with the
disclosure on pages 31 and 32 of our 2001 Annual Report, which is incorporated
by reference into our 2001 Form 10-K.
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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
I. Annual Meeting of Shareholders - April 15, 2002:
a. On April 15, 2002 Park National Corporation held its Annual Meeting
of Shareholders. At the close of business on the February 22, 2002
record date, 13,940,083 Park National Corporation common shares were
outstanding and entitled to vote. At the meeting, 11,999,796 or 86.08%
of the outstanding common shares entitled to vote were represented by
proxy or in person.
b. Directors elected at the Annual Meeting for a three year term:
C. Daniel DeLawder
11,067,639 For 23,057 Withheld 909,100 Abstain and Broker Non-Votes
---------- ------ -------
Harry O. Egger
11,031,622 For 22,458 Withheld 945,716 Abstain and Broker Non-Votes
---------- ------ -------
Howard E. LeFevre
11,903,349 For 42,062 Withheld 54,385 Abstain and Broker Non-Votes
---------- ------ ------
John J. O'Neill
11,948,846 For 30,479 Withheld 20,471 Abstain and Broker Non-Votes
---------- ------ ------
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Directors whose term of office continued after the Annual Meeting:
Maureen Buchwald
James J. Cullers
D. C. Fanello
R. William Geyer
William T. McConnell
James A. McElroy
William A. Phillips
J. Gilbert Reese
Rick R. Taylor
John L. Warner
c. See Item I (b) for the voting results for directors.
d. 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 March 31, 2002.
- 20-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARK NATIONAL CORPORATION
DATE: May 3, 2002 By: /s/c. Daniel Delawder
----------- ----------------------
C. Daniel DeLawder
President and Chief Executive Officer
DATE: May 3, 2002 By: /s/john W. Kozak
----------- ----------------
John W. Kozak
Chief Financial Officer
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