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 September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ________________________ Commission File Number 1-13006 ---------------------------------------------- Park National Corporation ------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Ohio 31-1179518 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 50 North Third Street, Newark, Ohio 43055 ------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (740) 349-8451 ------------------------------------------------------------------ (Registrant's telephone number, including area code) N/A ------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- 13,959,646 common shares, no par value per share, outstanding at October 31, - ---------- 2001. Page 1 of 23
PARK NATIONAL CORPORATION CONTENTS -------- <TABLE> <CAPTION> Page <S> <C> PART I. FINANCIAL INFORMATION 3-13 Item 1. Financial Statements 3-13 Consolidated Balance Sheets as of September 30, 2001 and and December 31, 2000 (unaudited) Consolidated Condensed Statements of Income for the 3 Three Months and Nine Months ended September 30, 2001 and 2000 (unaudited) 4,5 Consolidated Condensed Statements of Changes in Stockholders' Equity for the Nine Months ended September 30, 2001 and 2000 (unaudited) 6 Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2001 and 2000 (unaudited) 7-8 Notes to Consolidated Financial Statements 9-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-21 Item 3. Quantitative and Qualitative Disclosure About Market Risk 21 PART II. OTHER INFORMATION 22 Item 1. Legal Proceedings 22 Item 2. Changes in Securities and Use of Proceeds 22 Item 3. Defaults Upon Senior Securities 22 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 23 </TABLE> -2-
PARK NATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands, except per share data) <TABLE> <CAPTION> September 30, December 31, 2001 2000 - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Assets: Cash and due from banks $136,375 $141,547 - -------------------------------------------------------------------------------------------------------------------------- Federal funds sold 0 28,030 - -------------------------------------------------------------------------------------------------------------------------- Interest bearing deposits 550 1,638 - -------------------------------------------------------------------------------------------------------------------------- Securities available-for-sale, at fair value (amortized cost of $1,251,954 and $919,288 at September 30, 2001 and December 31, 2000) 1,289,418 925,496 - -------------------------------------------------------------------------------------------------------------------------- Securities held-to-maturity, at amortized cost (fair value approximates $29,955 and $30,497 at September 30, 2001 and December 31, 2000) 29,653 30,474 - -------------------------------------------------------------------------------------------------------------------------- Loans (net of unearned interest) 2,864,491 2,956,204 - -------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses 60,379 57,473 - -------------------------------------------------------------------------------------------------------------------------- Net loans 2,804,112 2,898,731 - -------------------------------------------------------------------------------------------------------------------------- Bank premises and equipment, net 39,839 39,616 - -------------------------------------------------------------------------------------------------------------------------- Other assets 137,501 140,013 - -------------------------------------------------------------------------------------------------------------------------- Total assets $4,437,448 $4,205,545 - -------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity: Deposits: Noninterest bearing $459,433 $493,994 - -------------------------------------------------------------------------------------------------------------------------- Interest bearing 2,759,515 2,658,257 - -------------------------------------------------------------------------------------------------------------------------- Total deposits 3,218,948 3,152,251 - -------------------------------------------------------------------------------------------------------------------------- Short-term borrowings 292,131 275,699 - -------------------------------------------------------------------------------------------------------------------------- Long-term debt 397,587 290,127 - -------------------------------------------------------------------------------------------------------------------------- Other liabilities 49,550 44,819 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities 3,958,216 3,762,896 - -------------------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Common stock (No par value; 20,000,000 shares authorized; 14,540,498 shares issued in 2001 and 14,801,010 issued in 2000) 105,772 119,229 - -------------------------------------------------------------------------------------------------------------------------- Retained earnings 395,738 365,975 - -------------------------------------------------------------------------------------------------------------------------- Treasury stock (563,816 shares in 2001 and 676,293 shares in 2000) (46,727) (46,583) - -------------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income, net of taxes 24,449 4,028 - -------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 479,232 442,649 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $4,437,448 $4,205,545 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3
PARK NATIONAL CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands, except per share data) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, -------------------------------------- ---------------------------------------- 2001 2000 2001 2000 - ------------------------------------------------------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> Interest income: Interest and fees on loans $61,189 $65,812 $189,853 $189,157 - ------------------------------------------------------------------------------------- ---------------------------------------- Interest on: Obligations of U.S. Government, its agencies and other securities 16,694 13,787 44,112 41,482 - ------------------------------------------------------------------------------------- ---------------------------------------- Obligations of states and political subdivisions 1,937 2,138 5,934 6,363 - ------------------------------------------------------------------------------------- ---------------------------------------- Other interest income 82 290 698 934 - ------------------------------------------------------------------------------------- ---------------------------------------- Total interest income 79,902 82,027 240,597 237,936 - ------------------------------------------------------------------------------------- ---------------------------------------- Interest expense: Interest on deposits: Demand and savings deposits 5,739 6,807 18,323 20,285 - ------------------------------------------------------------------------------------- ---------------------------------------- Time deposits 19,943 21,615 64,215 60,744 - ------------------------------------------------------------------------------------- ---------------------------------------- Interest on borrowings: Short-term borrowings 1,788 4,153 6,969 10,618 - ------------------------------------------------------------------------------------- ---------------------------------------- Long-term debt 3,854 4,184 10,179 11,534 - ------------------------------------------------------------------------------------- ---------------------------------------- Total interest expense 31,324 36,759 99,686 103,181 - ------------------------------------------------------------------------------------- ---------------------------------------- Net interest income 48,578 45,268 140,911 134,755 - ------------------------------------------------------------------------------------- ---------------------------------------- Provision for loan losses 2,957 2,507 7,608 6,915 - ------------------------------------------------------------------------------------- ---------------------------------------- Net interest income after provision for loan losses 45,621 42,761 133,303 127,840 - ------------------------------------------------------------------------------------- ---------------------------------------- Other income 11,145 9,336 32,660 28,244 - ------------------------------------------------------------------------------------- ---------------------------------------- Gain (loss) on sale of securities (8) - 134 - - ------------------------------------------------------------------------------------- ---------------------------------------- </TABLE> Continued 4
PARK NATIONAL CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) (CONTINUED) (dollars in thousands, except per share data) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, --------------------------------- ------------------------------------- 2001 2000 2001 2000 - ---------------------------------------------------------------------------------------- ------------------------------------- <S> <C> <C> <C> <C> Other expense: Salaries and employee benefits 14,862 13,670 43,579 40,957 - ---------------------------------------------------------------------------------------- ------------------------------------- Occupancy expense 1,273 1,359 4,277 4,180 - ---------------------------------------------------------------------------------------- ------------------------------------- Furniture and equipment expense 1,557 1,486 4,440 4,535 - ---------------------------------------------------------------------------------------- ------------------------------------- Other expense 10,031 9,418 29,148 28,202 - ---------------------------------------------------------------------------------------- ------------------------------------- Total other expense 27,723 25,933 81,444 77,874 - ---------------------------------------------------------------------------------------- ------------------------------------- Income before federal income taxes 29,035 26,164 84,653 78,210 - ---------------------------------------------------------------------------------------- ------------------------------------- Federal income taxes 8,683 7,719 25,028 22,876 - ---------------------------------------------------------------------------------------- ------------------------------------- Net income $20,352 $18,445 $59,625 $55,334 ======================================================================================== ===================================== PER SHARE: Net income: Basic $1.46 $1.30 $4.25 $3.89 ======================================================================================== ===================================== Diluted $1.45 $1.30 $4.24 $3.88 ======================================================================================== ===================================== Weighted average Basic 14,001,286 14,179,805 14,041,836 14,235,937 ======================================================================================== ===================================== Diluted 14,043,030 14,207,179 14,071,639 14,276,307 ======================================================================================== ===================================== Cash dividends declared $0.71 $0.65 $2.13 $1.95 ======================================================================================== ===================================== </TABLE> 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) <TABLE> <CAPTION> Accumulated Nine Months ended September 30, 2001 and 2000 Treasury Other Compre- Common Retained Stock Comprehensive hensive Stock Earnings at Cost Income Income - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> BALANCE AT DECEMBER 31, 1999 $121,210 $333,572 ($29,295) ($16,304) - ----------------------------------------------------------------------------------------------------------------------- Net Income 55,334 $55,334 - ----------------------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income, net of income taxes of $4,231 7,857 7,857 - ----------------------------------------------------------------------------------------------------------------------------------- Total comprehensive income $63,191 - -----------------------------------------------------------------------------------------------------------------------============ Cash dividends on common stock: Park at $1.95 per share (20,406) - ----------------------------------------------------------------------------------------------------------------------- Cash dividends paid by U. B. Bancshares, SNB Corp. and Security Banc Corporation prior to merger (5,715) - ----------------------------------------------------------------------------------------------------------------------- Retire treasury stock from U. B. Bancshares and SNB Corp. mergers - 66,360 shares (2,246) 2,246 - ----------------------------------------------------------------------------------------------------------------------- Cash payment for fractional shares in U. B. Bancshares and SNB Corp. mergers - 406 shares (39) - ----------------------------------------------------------------------------------------------------------------------- Shares issued for stock options - 11,825 shares 304 - ----------------------------------------------------------------------------------------------------------------------- Treasury stock purchased - 203,089 shares (17,500) - ----------------------------------------------------------------------------------------------------------------------- Treasury stock reissued for stock options - 15,119 shares 813 - ----------------------------------------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 2000 $119,229 $362,785 ($43,736) ($8,447) ======================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 2000 $119,229 $365,975 ($46,583) $4,028 - ----------------------------------------------------------------------------------------------------------------------- Net Income $59,625 $59,625 - ----------------------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income, net of income taxes of $10,996 20,421 20,421 - ----------------------------------------------------------------------------------------------------------------------------------- Total comprehensive income $80,046 - -----------------------------------------------------------------------------------------------------------------------============ Cash dividends on common stock: Park at $2.13 per share (27,507) - ----------------------------------------------------------------------------------------------------------------------- Cash dividends paid by Security Banc Corporation prior to merger (2,355) - ----------------------------------------------------------------------------------------------------------------------- Retire treasury stock from Security Banc Corporation merger - 259,280 shares (13,361) 13,361 - ----------------------------------------------------------------------------------------------------------------------- Cash payment for fractional shares in Security Banc Corporation merger - 1,232 shares (96) - ----------------------------------------------------------------------------------------------------------------------- Treasury stock purchased - 165,576 shares (14,539) - ----------------------------------------------------------------------------------------------------------------------- Treasury stock reissued for stock options - 18,773 shares 1,034 - ----------------------------------------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 2001 $105,772 $395,738 ($46,727) $24,449 ======================================================================================================================= </TABLE> SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
PARK NATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands) <TABLE> <CAPTION> Nine Months Ended September 30, ------------------------------------- 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Operating activities: Net income $59,625 $55,334 - ----------------------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion 2,069 2,708 - ----------------------------------------------------------------------------------------------------------------------------------- Provision for loan losses 7,608 6,915 - ----------------------------------------------------------------------------------------------------------------------------------- Amortization of the excess of cost over net assets of banks purchased 2,967 2,978 - ----------------------------------------------------------------------------------------------------------------------------------- Realized investment security gain (134) 0 - ----------------------------------------------------------------------------------------------------------------------------------- Changes in assets and liabilities: (Increase) decrease in other assets (11,290) 1,499 - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in other liabilities 12,401 (13,849) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 73,246 55,585 -------------------------------------------------------------------------------------------------------------------- Investing activities: Proceeds from sales of: Available-for-sale securities 96,942 0 - ----------------------------------------------------------------------------------------------------------------------------------- Proceeds from maturity of: Available-for-sale securities 259,946 81,667 - ----------------------------------------------------------------------------------------------------------------------------------- Held-to-maturity securities 821 548 - ----------------------------------------------------------------------------------------------------------------------------------- Purchases of: Available-for-sale securities (688,385) (54,538) - ----------------------------------------------------------------------------------------------------------------------------------- Held-to-maturity securities 0 (650) - ----------------------------------------------------------------------------------------------------------------------------------- Net decrease (increase) in interest bearing deposits with other banks 1,088 (110) - ----------------------------------------------------------------------------------------------------------------------------------- Net decrease (increase) in loans 89,026 (160,944) - ----------------------------------------------------------------------------------------------------------------------------------- Purchases of premises and equipment, net (5,342) (1,375) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (245,904) (135,402) -------------------------------------------------------------------------------------------------------------------- </TABLE> Continued 7
PARK NATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued) (dollars in thousands) <TABLE> <CAPTION> Nine Months Ended September 30, ------------------------------------- 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Financing activities: Net increase (decrease) in deposits $66,697 ($12,125) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in short-term borrowings 16,432 (37,567) - ----------------------------------------------------------------------------------------------------------------------------------- Exercise of stock options 0 304 - ----------------------------------------------------------------------------------------------------------------------------------- Cash payment for fractional shares (96) (39) - ----------------------------------------------------------------------------------------------------------------------------------- Purchase of treasury stock, net (13,505) (16,687) - ----------------------------------------------------------------------------------------------------------------------------------- Long-term debt issued 280,000 185,000 - ----------------------------------------------------------------------------------------------------------------------------------- Repayment of long-term debt (172,540) (42,190) - ----------------------------------------------------------------------------------------------------------------------------------- Cash dividends paid (37,532) (33,075) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from financing activities 139,456 43,621 -------------------------------------------------------------------------------------------------------------------- Decrease in cash and cash equivalents (33,202) (36,196) -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 169,577 185,751 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $136,375 $149,555 ==================================================================================================================== Supplemental disclosures of cash flow information: Cash paid for: Interest $101,925 $102,380 ------------------------------------------------------------------------------------------------------- Income taxes $16,463 $17,750 ------------------------------------------------------------------------------------------------------- </TABLE> SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
PARK NATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Three and Nine Month Periods Ended September 30, 2001 and 2000. Note 1 - BASIS OF PRESENTATION The consolidated financial statements included in this report have been prepared by Park National Corporation (the "Registrant", "Corporation", "Company", or "Park") without audit. In the opinion of management, all adjustments (consisting solely of normal recurring accruals) necessary for a fair presentation of results of operations for the interim periods included herein have been made. The results of operations for the periods ended September 30, 2001 are not necessarily indicative of the operating results to be anticipated for the fiscal year ended December 31, 2001. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q, and therefore, do not include all information and footnotes necessary for a fair presentation of the balance sheets, condensed statements of income, condensed statements of changes in stockholders' equity and statements of cash flows in conformity with generally accepted accounting principles. These financial statements should be read in conjunction with the financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2000. Certain amounts in 2000 have been reclassified to conform to the financial statement presentation used for 2001. Park does not have any off-balance sheet derivative financial instruments such as interest-rate swap agreements. Note 2 - ACQUISITIONS On March 23, 2001, Park merged with Security Banc Corporation, a $995 million bank holding company headquartered in Springfield, Ohio, in a transaction accounted for as a pooling-of-interests. Park issued approximately 3,350,000 shares of common stock to the stockholders of Security Banc Corporation based upon an exchange ratio of .284436 shares of Park common stock for each outstanding share of Security Banc Corporation common stock. The three financial institution subsidiaries of Security Banc Corporation (The Security National Bank and Trust Co., The Citizens National Bank of Urbana, and The Third Savings and Loan Company) are being operated as separate subsidiaries by Park. On April 30, 2000, Park merged with U.B. Bancshares, Inc., a $180 million one bank holding company headquartered in Bucyrus, Ohio, in a transaction accounted for as a pooling-of-interests. Park issued approximately 325,000 shares of common stock to the stockholders of U.B. Bancshares, Inc. based upon an exchange ratio of .577209 shares of Park common stock for each outstanding share of U.B. Bancshares, Inc. common stock. United Bank, N.A., the wholly owned subsidiary of U.B. Bancshares, Inc., is being operated as a separate banking subsidiary by Park. Park also merged with SNB Corp., a $300 million one bank holding company headquartered in -9-
Greenville, Ohio, on April 30, 2000 in a transaction accounted for as a pooling-of-interests. Park issued approximately 835,000 shares of common stock to the stockholders of SNB Corp. based upon an exchange ratio of 5.367537 shares of Park common stock for each outstanding share of SNB Corp. common stock. Second National Bank, the wholly owned subsidiary of SNB Corp., is being operated as a separate banking subsidiary by Park. The historical financial statements of the Corporation have been restated to show Security Banc Corporation and Park on a combined basis. Separate results of operations for Park and Security Banc Corporation follow: - ------------------------------------- --------------------- -------------------- Three Months Ended Nine Months Ended Sept. 30, 2000 Sept. 30, 2000 - ------------------------------------- --------------------- -------------------- (Dollars in Thousands) (except per share data) ----------------------- Net Interest Income - ------------------------------------- --------------------- -------------------- Park $34,728 $103,288 - ------------------------------------- --------------------- -------------------- Security Banc Corporation 10,540 31,467 - ------------------------------------- ===================== ==================== Combined $45,268 $134,755 - ------------------------------------- --------------------- -------------------- - ------------------------------------- --------------------- -------------------- Net Income ===================================== ===================== ==================== Park $14,116 $42,418 - ------------------------------------- --------------------- -------------------- Security Banc Corporation 4,329 12,916 - ------------------------------------- ===================== ==================== Combined $18,445 $55,334 - ------------------------------------- --------------------- -------------------- - ------------------------------------- --------------------- -------------------- Basic Earnings Per Share - ------------------------------------- --------------------- -------------------- Park $1.30 $3.91 - ------------------------------------- --------------------- -------------------- Security Banc Corporation .36 1.08 - ------------------------------------- ===================== ==================== Combined $1.30 $3.89 - ------------------------------------- --------------------- -------------------- - ------------------------------------- --------------------- -------------------- Diluted Earnings Per Share - ------------------------------------- --------------------- -------------------- Park $1.30 $3.90 - ------------------------------------- --------------------- -------------------- Security Banc Corporation .36 1.08 - ------------------------------------- ===================== ==================== Combined $1.30 $3.88 - ------------------------------------- --------------------- -------------------- Note 3 - ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is that amount believed adequate to absorb estimated credit losses in the loan portfolio based on management's evaluation of various factors including overall growth in the loan portfolio, an analysis of individual loans, prior and current loss experience, and current economic conditions. A provision for loan losses is charged to operations based on management's periodic evaluation of these and other pertinent factors. -10-
<TABLE> <CAPTION> - ----------------------------------- ----------------------------------------------------------------- (In Thousands) - ----------------------------------- ----------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, - ----------------------------------- ---------------- -------------- ----------------- --------------- 2001 2000 2001 2000 - ----------------------------------- ================ ============== ================= =============== <S> <C> <C> <C> <C> Beginning of Period $59,827 $53,837 $57,473 $52,140 - ----------------------------------- ---------------- -------------- ----------------- --------------- Provision for loan losses 2,957 2,507 7,608 6,915 - ----------------------------------- ---------------- -------------- ----------------- --------------- Losses charged to the reserve (3,787) (2,847) (10,434) (7,674) - ----------------------------------- ---------------- -------------- ----------------- --------------- Recoveries 1,382 1,231 5,732 3,347 - ----------------------------------- ================ ============== ================= =============== - ----------------------------------- ---------------- -------------- ----------------- --------------- End of Period $60,379 $54,728 $60,379 $54,728 - ----------------------------------- ================ ============== ================= =============== </TABLE> Note 4 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for the three and nine month periods ended September 30, 2001 and 2000. <TABLE> <CAPTION> - ------------------------------------------------- -------------------------------------------------------------------------- (Dollars in thousands, except per share data) - ------------------------------------------------- -------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- <S> <C> <C> <C> <C> 2001 2000 2001 2000 - ------------------------------------------------- ================== ================== ================== ================= Numerator: - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Net Income $20,352 $18,445 $59,625 $55,334 - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Denominator: - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Denominator for basic earnings per share (weighted-average shares) 14,001,286 14,179,805 14,041,836 14,235,937 - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Effect of dilutive securities 41,744 27,374 29,803 40,370 - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Denominator for diluted earnings per share (adjusted weighted-average shares & assumed conversions) 14,043,030 14,207,179 14,071,639 14,276,307 - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Earnings per share: - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Basic earnings per share $1.46 $1.30 $4.25 $3.89 - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- Diluted earnings per share $1.45 $1.30 $4.24 $3.88 - ------------------------------------------------- ------------------ ------------------ ------------------ ----------------- </TABLE> Note 5 - SEGMENT INFORMATION The Corporation is a multi-bank holding company headquartered in Newark, Ohio. The operating segments for the Corporation are its financial institution subsidiaries. The -11-
Corporation's financial institution subsidiaries are The Park National Bank (PNB), The Richland Trust Company (RTC), Century National Bank (CNB), The First-Knox National Bank of Mount Vernon (FKNB), United Bank N.A. (UB), Second National Bank (SNB), The Security National Bank and Trust Co. (SEC), The Citizens National Bank of Urbana (CIT), and The Third Savings and Loan Company (TSL). <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------------------------- Operating Results for the Three Months Ended September 30, 2001 (In Thousands) - ---------------------------------------------------------------------------------------------------------------------------------- PNB RTC CNB FKNB UB SNB SEC CIT TSL All Other Total - ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- --------- ---------- ------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Net Interest $15,084 $5,192 $4,727 $7,256 $1,926 $2,983 $6,702 $1,709 $1,630 $1,369 $48,578 Income - ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- --------- ---------- ------------ Provision for 1,095 360 210 504 120 150 300 50 75 93 2,957 Loan Losses - ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- --------- ---------- ------------ Other Income 4,975 792 1,212 1,406 301 332 1,495 343 168 113 11,137 - ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- --------- ---------- ------------ Other Expense 8,894 2,679 2,646 3,840 1,423 1,711 3,436 1,022 975 1,097 27,723 - ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- --------- ---------- ------------ Net Income $6,961 $1,948 $2,054 $3,007 $516 $1,069 $3,052 $665 $446 $634 $20,352 - ---------------- ---------- --------- -------- --------- --------- --------- --------- --------- --------- ---------- ------------ - ---------------------------------------------------------------------------------------------------------------------------------- Balances at September 30, 2001 - ---------------- ---------- --------- -------- --------- --------- ---------- --------- --------- --------- ---------- ----------- Assets 1,340,445 483,744 428,468 655,873 211,611 319,182 671,891 177,243 196,685 (47,694) $4,437,448 - ---------------- ---------- --------- -------- --------- --------- ---------- --------- --------- --------- ---------- ----------- - ---------------------------------------------------------------------------------------------------------------------------------- Operating Results for the Three Months Ended September 30, 2000 (In Thousands) - ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- PNB RTC CNB FKNB UB SNB SEC CIT TSL All Other Total - ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Net Interest $14,131 $4,458 $4,292 $6,701 $1,800 $2,829 $6,706 $1,672 $1,802 $877 $45,268 Income - ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Provision for 530 483 210 615 90 150 300 -- 105 24 2,507 Loan Losses - ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Other Income 4,146 664 883 1,143 221 228 1,547 298 110 96 9,336 - ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Other Expense 7,976 2,609 2,412 3,614 1,488 1,547 3,529 1,017 1,047 694 25,933 - ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Net Income $6,782 $1,350 $1,754 $2,569 $345 $1,003 $3,026 $642 $454 $520 $18,445 - ----------------- ---------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- - ---------------------------------------------------------------------------------------------------------------------------------- Balances at September 30, 2000 - ---------------- ----------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- Assets $1,272,948 486,234 402,919 616,369 187,119 305,111 632,790 167,768 201,712 (70,233) $4,202,737 - ---------------- ----------- --------- --------- -------- --------- --------- --------- --------- --------- ---------- ----------- - ---------------------------------------------------------------------------------------------------------------------------------- Operating Results for the Nine Months Ended September 30, 2001 (In Thousands) - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- PNB RTC CNB FKNB UB SNB SEC CIT TSL All Other Total - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- Net Interest Income $43,927 $14,511 $13,588 $21,236 $5,411 $8,642 $19,639 $5,032 $5,052 $3,873 $140,911 - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- Provision for Loan Losses 2,685 960 540 1,422 300 175 900 235 225 166 7,608 - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- Other Income 14,477 2,305 3,215 4,162 898 1,076 4,816 1,057 457 331 32,794 - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- Other Expense 25,541 8,043 7,622 11,158 4,280 5,151 10,572 3,161 3,022 2,894 81,444 - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- Net Income $20,857 $5,171 $5,769 $9,137 $1,313 $3,224 $8,921 $1,828 $1,348 $2,057 $59,625 - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ------------ ----------- - ---------------------------------------------------------------------------------------------------------------------------------- Operating Results for the Nine Months Ended September 30, 2000 (In Thousands) - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- ------------ PNB RTC CNB FKNB UB SNB SEC CIT TSL All Other Total - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- ------------ Net Interest Income $41,847 $13,633 $12,720 $19,879 $5,300 $8,370 $19,940 $4,976 $5,397 $2,693 $134,755 - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- ------------ Provision for Loan Losses 2,390 1,055 470 1,477 150 240 900 -- 165 68 6,915 - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- ------------ Other Income 12,495 1,940 2,506 3,631 629 689 4,627 895 356 476 28,244 - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- ------------ Other Expense 23,865 7,826 7,156 10,839 4,207 4,704 10,614 3,202 3,071 2,390 77,874 - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- ------------ Net Income $19,614 $4,440 $5,231 $7,943 $1,186 $3,079 $8,934 $1,799 $1,513 $1,595 $55,334 - ---------------- --------- --------- --------- -------- --------- -------- --------- --------- ---------- ----------- ------------ </TABLE> -12-
The operating results of the Parent Company and Guardian Finance Company (GFC) (All Other) are used to reconcile the segment totals to the consolidated income statements for the three and nine month periods ended September 30, 2001 and 2000. The reconciling amounts for consolidated total assets at September 30, 2001 and 2000 consist of the elimination of intersegment borrowings, and the assets of the Parent Company and GFC which are not eliminated. Note 6 - NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and indefinite lived intangible assets will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The pooling-of-interests method of accounting for business combinations is no longer permitted. Park will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $375,000 per year. During 2002, Park will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of Park. -13-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis by management contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. These forward-looking statements involve significant risks and uncertainties including changes in general economic and financial market conditions and Park's ability to execute its business plans, as well as other risks detailed in our press releases and Securities and Exchange Commission filings. Although Park believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date hereof. Park does not undertake any obligation to publicly update any forward-looking statement. Comparison of Results of Operations for the Three and Nine Month Periods Ended September 30, 2001 and 2000. NET INTEREST INCOME The Corporation's principal source of earnings is net interest income, the difference between total interest income and total interest expense. Net interest income increased by $3.3 million or 7.3% to $48.6 million for the three months ended September 30, 2001 compared to $45.3 million for the third quarter of 2000. The following table compares the average balance and tax equivalent yield/cost for interest earning assets and interest bearing liabilities for the third quarter of 2001 with the same quarter in 2000. <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------- Three Months Ended September 30, (In Thousands) - -------------------------------------- --------------------------- ------------------------------ 2001 2000 - -------------------------------------- --------------------------- ------------------------------ Average Tax Average Tax Balance Equivalent Balance Equivalent % % - -------------------------------------- -------------- ------------ ---------------- ------------- <S> <C> <C> <C> <C> Loans $2,872,753 8.48% $2,907,551 9.02% - -------------------------------------- -------------- ------------ ---------------- ------------- Taxable Investments 1,017,966 6.51% 833,883 6.56% - -------------------------------------- -------------- ------------ ---------------- ------------- Tax Exempt Investments 159,486 6.92% 171,825 7.09% - -------------------------------------- -------------- ------------ ---------------- ------------- Federal Funds Sold 8,230 3.97% 19,439 5.93% - -------------------------------------- ============== ============ ================ ============= Interest Earning Assets $4,058,435 7.91% $3,932,698 8.40% - -------------------------------------- -------------- ------------ ---------------- ------------- - -------------------------------------- -------------- ------------ ---------------- ------------- Interest Bearing Deposits $2,737,380 3.72% $2,669,563 4.22% - -------------------------------------- -------------- ------------ ---------------- ------------- Short-term Borrowings 280,260 2.53% 300,938 5.49% - -------------------------------------- -------------- ------------ ---------------- ------------- Long-term Debt 343,983 4.44% 288,384 5.77% - -------------------------------------- ============== ============ ================ ============= Interest Bearing Liabilities $3,361,623 3.70% $3,258,885 4.47% - -------------------------------------- -------------- ------------ ---------------- ------------- Excess Interest Earning Assets $696,812 4.21% $673,813 3.93% - -------------------------------------- -------------- ------------ ---------------- ------------- Net Interest Margin 4.85% 4.70% - -------------------------------------- -------------- ------------ ---------------- ------------- </TABLE> Average interest earning assets increased by $126 million or 3.2% for the quarter ended September 30, 2001 compared to the same quarter in 2000. Average loan totals decreased by $35 million or 1.2% for the third quarter of 2001 compared to the third quarter of 2000. The -14-
demand for commercial, commercial real estate, and consumer loans and leases secured by automobiles decreased sharply during the first three quarters of 2001 compared to the same period in 2000. Total loans have decreased by $92 million or 3.1% to $2,864 million at September 30, 2001 compared to $2,956 million at December 31, 2000. In response to the weak loan demand, management has purchased additional investment securities during the first three quarters of 2001. Total investment securities have increased by $363 million or 38% to $1,319 million at September 30, 2001 compared to $956 million at December 31, 2000. Loan demand is expected to continue to be weak during the fourth quarter of 2001. The average yield on the loan portfolio was 8.48% for the third quarter of 2001 compared to 9.02% for the third quarter of 2000. The average prime lending rate for Park's affiliate banks was 6.57% for the third quarter of 2001 compared to 9.50% for the same period in 2000. The Federal Reserve decreased the federal funds rate by 3.50% during the first three quarters of 2001. Park's prime lending rate was decreased by the same magnitude over the same period. Approximately 25% of Park's loan portfolio reprices based on the prime lending rate. The yield on the loan portfolio is expected to continue to decrease over the remainder of the year as variable rate loans reprice lower and new loan originations have an average rate that is lower than the current loan portfolio rate. Average investment securities including federal funds sold increased by $161 million or 15.7% to $1,186 million for the third quarter of 2001 compared to the same quarter in 2000. The yield on taxable investment securities was 6.51% for the third quarter of 2001 compared to 6.56% for the same period in 2000. The yield on tax exempt securities was 6.92% in 2001 compared to 7.09% in 2000. The average maturity or repricing of the investment portfolio was approximately 3.0 years at September 30, 2001 compared to 5.1 years at September 30, 2000. Average interest bearing liabilities increased by $103 million or 3.2% to $3,361 million for the quarter ended September 30, 2001 compared to the same quarter in 2000. Average interest bearing deposits increased by $68 million or 2.5% to $2,737 million in 2001 compared to 2000. Average total borrowings increased by $35 million or 5.9% to $624 million in 2001 compared to 2000. The average cost of interest bearing liabilities decreased by .77% to 3.70% in 2001 compared to 4.47% in 2000. The average cost of interest bearing deposits decreased by .50% to 3.72% in 2001 compared to 4.22% in 2000. The cost of short-term borrowings decreased by 2.96% to 2.53% in 2001 compared to 5.49% in 2000, consistent with the decrease in the federal funds rate in 2001. The cost of long-term debt also decreased to 4.44% in 2001 compared to 5.77% in 2000. The cost of Park's interest bearing liabilities is expected to continue to decrease during the remainder of the year as the cost of new certificates of deposit is lower than the portfolio rate. The increase in net interest income of $3.3 million or 7.3% to $48.6 million for the quarter ended September 30, 2001 was primarily due to an increase in the net interest spread (the difference between the yield on interest earning assets and the cost of interest bearing liabilities) of .28% to 4.21% in 2001 compared to 3.93% in 2000. The tax equivalent net interest margin (defined as net interest income divided by average interest earning assets) increased by .15% to 4.85% for the third quarter of 2001 compared to 4.70% in 2000. -15-
Net interest income increased by $6.2 million or 4.6% to $140.9 million for the nine months ended September 30, 2001 compared to $134.7 million for the same period in 2000. The following table compares the average balance and tax equivalent yield/cost for interest earning assets and interest bearing liabilities for the first nine months of 2001 with the same period in 2000. <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------- Nine Months Ended September 30, (In Thousands) - ----------------------------------------------------------------------------------------------------- 2001 2000 - ----------------------------------------------------------------------------------------------------- Average Tax Equivalent Average Tax Equivalent Balance % Balance % - ----------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Loans $2,899,455 8.79% $2,849,835 8.91% - ----------------------------------------------------------------------------------------------------- Taxable Investments 889,162 6.63% 835,252 6.64% - ----------------------------------------------------------------------------------------------------- Tax Exempt Investments 162,005 6.93% 174,868 7.02% - ----------------------------------------------------------------------------------------------------- Federal Funds Sold 16,781 5.57% 21,947 5.69% - ----------------------------------------------------------------------------------------------------- Interest Earning Assets $3,967,403 8.22% $3,881,902 8.32% - ----------------------------------------------------------------------------------------------------- Interest Bearing Deposits $2,722,609 4.05% $2,668,857 4.06% - ----------------------------------------------------------------------------------------------------- Short-term Borrowings 281,763 3.31% 276,117 5.14% - ----------------------------------------------------------------------------------------------------- Long-term Debt 274,755 4.95% 273,300 5.64% - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- Interest Bearing Liabilities $3,279,127 4.06% 3,218,274 4.29% - ----------------------------------------------------------------------------------------------------- Excess Interest-Earning Assets $688,276 4.16% 663,628 4.03% - ----------------------------------------------------------------------------------------------------- Net Interest Margin 4.86% 4.76% - ----------------------------------------------------------------------------------------------------- </TABLE> Average interest earning assets increased by $86 million or 2.2% to $3,967 million for the nine months ended September 30, 2001 compared to the same period in 2000. Average loans increased by $50 million or 1.7% to $2,899 million for the first three quarters of 2001 compared to the same period in 2000. The yield on loans was 8.79% for the first three quarters of 2001 compared to 8.91% for the first three quarters of 2000. Average investment securities including federal funds sold increased by $36 million or 3.5% to $1,068 million for the first three quarters of 2001 compared to the same period in 2000. The yield on taxable investment securities was 6.63% for the first three quarters of 2001 compared to 6.64% for the same period in 2000. Average interest-bearing liabilities increased by $61 million or 1.9% to $3,279 million for the first three quarters of 2001 compared to the same period in 2000. Average interest bearing deposits increased by $54 million or 2.0% to $2,722 million for the first three quarters of 2001 compared to the same period in 2000. Average total borrowings were $557 million at an average cost of 4.12% for the first three quarters of 2001 compared to average total borrowings of $549 million at an average cost of 5.39% for the first three quarters of 2000. The average cost of interest bearing liabilities decreased by .23% to 4.06% in 2001 compared to 4.29% in 2000. The average cost of interest bearing deposits decreased by .01% to 4.05% in 2001 compared to 4.06% in 2000. The cost of Park's interest bearing liabilities is expected to decrease over the remainder of the year as the cost of new certificates of deposit is lower than the current portfolio rate. -16-
The increase in net interest income of $6.2 million or 4.6% to $140.9 million for the first three quarters of 2001 was primarily due to the increase in the net interest spread. The net interest spread (the difference between the yield on interest earning assets and the cost of interest bearing liabilities) increased by .13% to 4.16% in 2001 compared to 4.03% in 2000. The tax equivalent net interest margin (defined as net interest income divided by average interest earning assets) increased by .10% to 4.86% for 2001 compared to 4.76% in 2000. PROVISION FOR LOAN LOSSES The provision for loan losses was $3.0 million and $7.6 million, respectively, for the third quarter and first nine months of 2001 compared to $2.5 million and $6.9 million for the same periods in 2000. Net charge-offs were $2.4 million and $4.7 million, respectively, for the three and nine month periods ended September 30, 2001 compared to $1.6 million and $4.3 million for the same periods in 2000. Nonperforming loans defined as loans that are 90 days past due, renegotiated loans, and nonaccrual loans were $26.1 million or .91% of loans at September 30, 2001 compared to $20.7 million or .70% of loans at December 31, 2000 and $14.3 million or .49% of loans at September 30, 2000. The reserve for loan losses as a percentage of outstanding loans was 2.11% at September 30, 2001 compared to 1.94% at December 31, 2000 and 1.86% at September 30, 2000. See Note 3 of the Notes to Consolidated Financial Statements for a discussion of the factors considered by management in determining the provision for loan losses. NONINTEREST INCOME Noninterest income increased by $1.8 million or 19.4% to $11.1 million for the three months ended September 30, 2001 and increased by $4.4 million or 15.6% to $32.7 million for the nine months ended September 30, 2001 compared to the same periods in 2000. The following is a summary of the change in noninterest income. <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, - ---------------------------------------------------------------------------------------------------------- 2001 2000 Change 2001 2000 Change - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Fees from fiduciary activities $ 2,078 $2,006 $ 72 $ 6,464 $ 6,125 $ 339 - ---------------------------------------------------------------------------------------------------------- Service charges on deposit accounts 3,339 3,234 105 9,931 9,343 588 - ---------------------------------------------------------------------------------------------------------- Other service income 2,598 1,252 1,346 6,608 3,859 2,749 - ---------------------------------------------------------------------------------------------------------- Other income 3,130 2,844 286 9,657 8,917 740 - ---------------------------------------------------------------------------------------------------------- Total $11,145 $9,336 $1,809 $32,660 $28,244 $4,416 - ---------------------------------------------------------------------------------------------------------- </TABLE> The increase in fee income from fiduciary activities, for both periods, was due to an increase in assets under management for new trust department customers. The increase in service charges on deposit accounts, for both periods, was due to both an increase in the number of transaction -17-
accounts and to increases in various deposit fees. The large increase in fees earned from other service income, for both periods, was primarily due to an increase in the fee income earned from the origination and sale into the secondary market of fixed rate mortgage loans due to lower interest rates. This strong volume is expected to continue during the fourth quarter. The increase in other income, for both periods, was primarily due to increases in fee income from check card and ATM transactions. GAIN ON SALE OF SECURITIES There was a gain on sale of securities of $142,000 for the first six months of 2001 due to the sale of United States Treasury notes with the proceeds reinvested in Agency mortgage-backed securities. These Agency mortgage-backed securities yield 1.70% more than the give-up yield on the Treasury notes. During the third quarter of 2001, $72 million of thirty year mortgage-backed securities were sold at a loss of $8,000. The proceeds from the sale were reinvested in Agency collateralized mortgage-backed securities with an average life of approximately three years and a yield of 6.25%. OTHER EXPENSE Total other expense increased by $1.8 million or 6.9% to $27.7 million for the quarter ended September 30, 2001 and increased by $3.6 million or 4.6% to $81.4 million for the nine months ended September 30, 2001 compared to the same periods in 2000. Salaries and employee benefits expense increased by $1.2 million or 8.7% to $14.9 million for the quarter ended September 30, 2001 and increased by $2.6 million or 6.4% to $43.6 million for the first nine months of 2001 compared to the same periods in 2000. Full time equivalent employees were 1,553 at September 30, 2001 compared to 1,531 at September 30, 2000. FEDERAL INCOME TAXES Federal income tax expense was $8.7 million and $25.0 million, respectively, for the three and nine month periods ended September 30, 2001 compared to $7.7 million and $22.9 million for the same periods in 2000. The ratio of federal income tax expense to income before taxes was 29.9% for the three months ended September 30, 2001 and 29.6% for the nine month period ended September 30, 2001 compared to approximately 29.3% for the same periods in 2000. The statutory rate was 35% for both 2001 and 2000. The difference between the effective federal income tax rate and the statutory rate is primarily due to tax-exempt interest income and low income housing tax credits. NET INCOME Net income increased by $1.9 million or 10.3% to $20.35 million for the three months ended September 30, 2001 compared to $18.45 million for the same period in 2000. For the nine months ended September 30, 2001, net income increased by $4.3 million or 7.8% to $59.6 -18-
million compared to $55.3 million for the same period in 2000. The annualized, net income to average assets ratios (ROA) were 1.87% and 1.89%, respectively, for the three and nine month periods ended September 30, 2001 compared to 1.76% and 1.79% for the same periods in 2000. The annualized, net income to average equity ratios (ROE) were 17.56% and 17.71%, respectively, for the three and nine month periods ended September 30, 2001 compared to 17.60% and 18.12% for the same periods in 2000. Diluted earnings per share increased by 11.5% to $1.45 for the third quarter of 2001 compared to $1.30 for the same quarter in 2000 and increased by 9.3% to $4.24 for the first three quarters of 2001 compared to $3.88 for the same period in 2000. -19-
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 CHANGES IN FINANCIAL CONDITION AND LIQUIDITY Total assets increased by $232 million or 5.5% to $4,437 million at September 30, 2001 compared to $4,205 million at December 31, 2000. Total loans decreased by $92 million or 3.1% to $2,864 million as demand for commercial loans, commercial real estate loans, and consumer loans and leases secured by automobiles was weak during the first nine months of 2001. Due to the large drop in interest rates during 2001, fixed rate mortgage loan volume increased. However, the fixed rate mortgage loans are sold in the secondary market and as a result do not increase the loan portfolio, but the related fee income does increase other service income. The loan portfolio is expected to decrease during the fourth quarter as loan demand continues to be weak. Investment securities increased by $363 million or 38.0% to $1,319 million at September 30, 2001 compared to $956 million at December 31, 2000. Management increased the amount of investment securities purchased during 2001 in response to the weak loan demand. Total liabilities increased by $195 million or 5.2% to $3,958 million at September 30, 2001 compared to $3,763 million at December 31, 2000. Total borrowed money increased by $124 million or 21.9% to $690 million at September 30, 2001 compared to $566 million at December 31, 2000. Total deposits increased by $67 million or 2.1% to $3,219 million at September 30, 2001 compared to $3,152 million at year-end 2000. Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as the operating cash needs of the Corporation, are met. Funds are available from a number of sources, including the securities portfolio, the core deposit base, Federal Home Loan Bank borrowings, and the capability to securitize or package loans for sale. The Corporation's loan to asset ratio was 64.6% at September 30, 2001 compared to 70.3% at December 31, 2000 and 69.9% at September 30, 2000. Cash and cash equivalents totaled $136 million at September 30, 2001 compared to $170 million at December 31, 2000 and $150 million at September 30, 2000. The present funding sources provide more than adequate liquidity for the Corporation to meet its cash flow needs. CAPITAL RESOURCES Stockholders' equity at September 30, 2001 was $479 million or 10.80% of total assets compared to $443 million or 10.53% of total assets at December 31, 2000 and $430 million or 10.23% of total assets at September 30, 2000. -20-
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 10.09% at September 30, 2001 and 9.90% at December 31, 2000. The minimum Tier I risk-based capital ratio (defined as leverage capital divided by risk-adjusted assets) is 4% and the well capitalized ratio is greater than or equal to 6%. Park's Tier I risk-based capital ratio was 14.76% at September 30, 2001 and 15.00% at December 31, 2000. The minimum total risk-based capital ratio (defined as leverage capital plus supplemental capital divided by risk-adjusted assets) is 8% and the well capitalized ratio is greater than or equal to 10%. Park's total risk-based capital ratio was 16.03% at September 30, 2001 and 16.26% at December 31, 2000. The financial institution subsidiaries of Park each met the well capitalized capital ratio guidelines at September 30, 2001. The following table indicates the capital ratios for each subsidiary and Park at September 30, 2001: <TABLE> <CAPTION> TIER I TOTAL LEVERAGE RISK-BASED RISK-BASED -------- ---------- ---------- - ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> Park National Bank 7.00% 9.58% 12.92% - ---------------------------------------------------------------------------------------------- Richland Trust Company 7.28% 12.15% 13.41% - ---------------------------------------------------------------------------------------------- Century National Bank 6.72% 11.49% 13.96% - ---------------------------------------------------------------------------------------------- First-Knox National Bank 6.99% 10.43% 14.01% - ---------------------------------------------------------------------------------------------- Second National Bank 6.77% 9.23% 12.74% - ---------------------------------------------------------------------------------------------- United Bank, N.A. 6.44% 10.49% 11.74% - ---------------------------------------------------------------------------------------------- Security National Bank 7.50% 11.42% 16.02% - ---------------------------------------------------------------------------------------------- Citizens National Bank 7.64% 13.63% 18.42% - ---------------------------------------------------------------------------------------------- Third Savings and Loan 10.24% 12.97% 17.64% - ---------------------------------------------------------------------------------------------- Park National Corporation 10.09% 14.76% 16.03% - ---------------------------------------------------------------------------------------------- Minimum Capital Ratio 4.00% 4.00% 8.00% - ---------------------------------------------------------------------------------------------- Well Capitalized Ratio 5.00% 6.00% 10.00% - ---------------------------------------------------------------------------------------------- </TABLE> ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Note 1 of the Notes to Consolidated Financial Statements for disclosure that Park does not have any off-balance sheet derivative financial instruments. Management reviews interest rate sensitivity on a quarterly basis by modeling the financial statements under various interest rate scenarios. The primary reason for these efforts is to guard Park from adverse impacts of unforeseen changes in interest rates. Management continues to believe that further changes in interest rates will have a samll impact on net income, consistent with the disclosure on page 28 of our 2000 Annual Report. -21-
PARK NATIONAL CORPORATION PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Park National Corporation is not engaged in any legal proceedings of a material nature at the present time. Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable Item 3. DEFAULTS UPON SENIOR SECURITIES Not applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable Item 5. OTHER INFORMATION Not applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. EXHIBITS None b. REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended September 30, 2001. -22-
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: November 7, 2001 BY: /s/C. Daniel DeLawder ------------------------ ---------------------- C. Daniel DeLawder President and Chief Executive Officer DATE: November 7, 2001 BY: /s/John W. Kozak ----------------------- ---------------- John W. Kozak Chief Financial Officer -23-