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, 2003 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] 13,770,899 Common shares, no par value, outstanding at October 31, 2003. Page 1 of 26
PARK NATIONAL CORPORATION CONTENTS <TABLE> <CAPTION> Page ------ <S> <C> PART I. FINANCIAL INFORMATION 3 Item 1. Financial Statements 3-12 Consolidated Condensed Balance Sheets as of September 30, 2003 and December 31, 2002 (unaudited) 3 Consolidated Condensed Statements of Income for the Three Months and Nine Months ended September 30, 2003 and 2002 (unaudited) 4, 5 Consolidated Condensed Statements of Changes in Stockholders' Equity for the Nine Months ended September 30, 2003 and 2002 (unaudited) 6 Consolidated Condensed Statements of Cash Flows for the Nine Months ended September 30, 2003 and 2002 (unaudited) 7, 8 Notes to Consolidated Financial Statements 9-13 Item 2. Management's Discussion and analysis of Financial Condition and Results of Operations 13-23 Item 3. Quantitative and Qualitative Disclosures About Market Risk 24 Item 4. Controls and Procedures 24 PART II. OTHER INFORMATION 25 Item 1. Legal Proceedings 25 Item 2. Changes in Securities and Use of Proceeds 25 Item 3. Defaults Upon Senior Securities 25 Item 4. Submission of Matters to a Vote of Security Holders 25 Item 5. Other Information 25 Item 6. Exhibits and Reports on Form 8-K 25 SIGNATURES 26 </TABLE> -2-
PARK NATIONAL CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (dollars in thousands, except share data) <TABLE> <CAPTION> September 30, December 31, 2003 2002 ------------ ------------ <S> <C> <C> Assets: Cash and due from banks $ 142,477 $ 157,088 Federal funds sold 18,000 81,700 Interest bearing deposits 50 50 Securities available-for-sale, at fair value (amortized cost of $1,562,365 and $993,317 at September 30, 2003 and December 31, 2002) 1,589,234 1,030,264 Securities held-to-maturity, at amortized cost (fair value approximates $87,821 and $360,688 at September 30, 2003 and December 31, 2002) 86,704 352,878 Loans (net of unearned interest) 2,711,362 2,692,187 Allowance for possible loan losses 64,476 62,028 Net loans 2,646,886 2,630,159 Bank premises and equipment, net 37,450 38,734 Bank owned life insurance 81,718 74,355 Other assets 83,263 81,397 ----------- ----------- Total assets $ 4,685,782 $ 4,446,625 ----------- ----------- Liabilities and Stockholders' Equity: Deposits: Noninterest bearing $ 522,865 $ 594,157 Interest bearing 2,881,188 2,900,978 Total deposits 3,404,053 3,495,135 ----------- ----------- Short-term borrowings 505,187 188,878 Long-term debt 185,954 187,226 Other liabilities 54,822 66,094 ----------- ----------- Total liabilities 4,150,016 3,937,333 ----------- ----------- Stockholders' Equity: Common stock (No par value; 20,000,000 shares authorized; 14,542,373 shares issued in 2003 and 14,540,449 issued in 2002) 105,898 105,768 Retained earnings 480,507 446,300 Treasury stock (772,841 shares in 2003 and 748,483 shares in 2002) (68,218) (65,194) Accumulated other comprehensive income, net of taxes 17,579 22,418 ----------- ----------- Total stockholders' equity 535,766 509,292 ----------- ----------- Total liabilities and stockholders' equity $ 4,685,782 $ 4,446,625 ----------- ----------- </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, -------------------------- ------------------------- 2003 2002 2003 2002 --------- --------- --------- --------- <S> <C> <C> <C> <C> Interest income: Interest and fees on loans $ 45,696 $ 51,596 $ 139,205 $ 156,294 Interest on: Obligations of U.S. Government, its agencies and other securities 16,615 18,976 56,325 58,530 Obligations of states and political subdivisions 1,533 1,719 4,706 5,277 Other interest income 207 111 649 274 --------- --------- --------- --------- Total interest income 64,051 72,402 200,885 220,375 --------- --------- --------- --------- Interest expense: Interest on deposits: Demand and savings deposits 1,763 3,275 6,403 9,728 Time deposits 9,743 13,829 31,484 43,363 Interest on borrowings: Short-term borrowings 685 760 1,873 2,761 Long-term debt 2,510 2,608 7,974 8,447 --------- --------- --------- --------- Total interest expense 14,701 20,472 47,734 64,299 --------- --------- --------- --------- Net interest income 49,350 51,930 153,151 156,076 Provision for loan losses 3,156 3,194 9,425 11,357 Net interest income after provision for loan losses 46,194 48,736 143,726 144,719 Other income 16,140 12,229 48,995 35,198 --------- --------- --------- --------- Gain (loss) on sale of securities (4,474) - (5,387) (210) --------- --------- --------- --------- </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, ----------------------------- ---------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Other expense: Salaries and employee benefits $ 16,566 $ 16,039 $ 50,619 $ 47,982 Occupancy expense 1,775 1,503 5,178 4,531 Furniture and equipment expense 1,610 1,493 4,837 4,499 Other expense 9,407 10,272 29,283 29,851 ----------- ----------- ----------- ----------- Total other expense 29,358 29,307 89,917 86,863 Income before federal income taxes 28,502 31,658 97,417 92,844 Federal income taxes 8,302 9,585 28,928 27,351 ----------- ----------- ----------- ----------- Net income $ 20,200 $ 22,073 $ 68,489 $ 65,493 =========== =========== =========== =========== PER SHARE: Net income: Basic $ 1.47 $ 1.59 $ 4.97 $ 4.71 =========== =========== =========== =========== Diluted $ 1.46 $ 1.59 $ 4.95 $ 4.70 =========== =========== =========== =========== Weighted average Basic 13,764,381 13,847,583 13,768,775 13,901,345 =========== =========== =========== =========== Diluted 13,880,422 13,871,544 13,849,082 13,934,287 =========== =========== =========== =========== Cash dividends declared $ 0.83 $ 0.76 $ 2.49 $ 2.28 =========== =========== =========== =========== </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 share data) <TABLE> <CAPTION> Accumulated Treasury Other Common Retained Stock Comprehensive Comprehensive NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 Stock Earnings at Cost Income Income --------- --------- ---------- ------------- ------------- <S> <C> <C> <C> <C> <C> BALANCE AT DECEMBER 31, 2001 $ 105,771 $ 403,870 ($ 50,000) $ 8,705 Net Income 65,493 $ 65,493 Accumulated other comprehensive income, net of income taxes of $ 8,007 14,871 14,871 ---------- Total comprehensive income $ 80,364 ========== Cash dividends on common stock: Park at $2.28 per share (31,688) Cash paid for fractional shares - 18 shares (1) Treasury stock purchased - 153,404 shares (14,200) Treasury stock reissued for stock options - 44,556 shares 2,738 --------- --------- --------- --------- BALANCE AT SEPTEMBER 30, 2002 $ 105,770 $ 437,675 ($ 61,462) $ 23,576 ========= ========= ========= ========= BALANCE AT DECEMBER 31, 2002 $ 105,768 $ 446,300 ($ 65,194) $ 22,418 Net Income $ 68,489 $ 68,489 Accumulated other comprehensive income, net of tax: Reverse additional minimum liability for pension plan, net of taxes $860 1,598 Unrealized net holding loss on securities available-for-sale, net of tax benefit of $3,466 (6,437) (4,839) ---------- Total comprehensive income $ 63,650 ========== Cash dividends on common stock: Park at $2.49 per share (34,282) Shares issued for stock options - 1,924 68 Tax benefit from exercise of stock options 62 Treasury stock purchased - 73,189 shares (7,275) Treasury stock reissued for stock options - 48,831 shares 4,251 --------- --------- --------- --------- BALANCE AT SEPTEMBER 30, 2003 $ 105,898 $ 480,507 ($ 68,218) $ 17,579 ========= ========= ========== ========= </TABLE> SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
PARK NATIONAL CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands) <TABLE> <CAPTION> Nine Months Ended September 30, -------------------------- 2003 2002 ----------- ----------- <S> <C> <C> Operating activities: Net income $ 68,489 $ 65,493 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Accretion, depreciation and amortization (4,677) (2,525) Provision for loan losses 9,425 11,357 Amortization of the excess of cost over net assets of banks purchased 1,748 3,444 Realized investment security losses 5,387 210 Changes in assets and liabilities: (Increase) decrease in other assets (7,336) 892 Increase (decrease) in other liabilities 1,789 (8,244) ----------- ----------- Net cash provided from operating activities 74,825 70,627 ----------- ----------- Investing activities: Proceeds from sales of: Available-for-sale securities 487,944 99,673 Proceeds from maturity of: Available-for-sale securities 2,153,513 775,311 Held-to-maturity securities 607,830 1,436 Purchases of: Available-for-sale securities (3,210,590) (764,794) Held-to-maturity securities (341,656) - Net (increase) decrease in loans (22,504) 61,641 Purchases of premises and equipment, net (2,989) (3,065) ----------- ----------- Net cash (used by) provided from investing activities (328,452) 170,202 ----------- ----------- </TABLE> Continued 7
PARK NATIONAL CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) (dollars in thousands) <TABLE> <CAPTION> Nine Months Ended September 30, ---------------------- 2003 2002 --------- --------- <S> <C> <C> Financing activities: Net (decrease) increase in deposits ($ 91,082) $ 178,108 Net increase (decrease) in short-term borrowings 316,309 (139,034) Cash paid for fractional shares - (1) Exercise of stock options 130 - Purchase of treasury stock, net (3,024) (11,462) Long-term debt issued 175,000 - Repayment of long-term debt (176,272) (190,281) Cash dividends paid (45,745) (42,286) Net cash provided from (used by) financing activities 175,316 (204,956) (Decrease) increase in cash and cash equivalents (78,311) 35,873 Cash and cash equivalents at beginning of year 238,788 169,143 --------- --------- Cash and cash equivalents at end of period $ 160,477 $ 205,016 ========= ========= Supplemental disclosures of cash flow information: Cash paid for: Interest $ 49,432 $ 66,762 --------- --------- Income taxes $ 28,800 $ 27,850 --------- --------- </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, 2003 and 2002. 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, 2003 are not necessarily indicative of the operating results to be anticipated for the fiscal year ended December 31, 2003. 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 condensed balance sheets, condensed statements of income, condensed statements of changes in stockholders' equity and condensed statements of cash flows in conformity with accounting principles generally accepted in the United States. 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, 2002. Certain amounts in 2002 have been reclassified to conform to the financial statement presentation used for 2003. The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by accounting principles generally accepted in the United States. Park does not have any off-balance sheet derivative financial instruments such as interest-rate swap agreements. Note 2 - Intangible Assets In September 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 standards, goodwill and indefinite lived intangible assets are no longer amortized and are subject to annual impairment tests. Other intangible assets, such as core deposit intangibles, continue to be amortized over their useful lives. Park had approximately $7.5 million of goodwill included in other assets at September 30, 2003 and December 31, 2002. This goodwill was evaluated for impairment during the first quarter of each of 2002 and 2003 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 2003 and none was recorded in 2002. -9-
Park also had core deposit intangibles included in other assets of $6.8 million at September 30, 2003 and $8.5 million at December 31, 2002. The core deposit intangibles are being amortized to expense, principally on the straight-line method, over periods ranging from six to eight years. Core deposit amortization expense was $582,500 for the third quarter of 2003 compared to $1,493,500 for the third quarter of 2002 and was $1,747,500 for the first nine months of 2003 compared to $3,443,500 for the first nine months of 2002. 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. <TABLE> <CAPTION> (In Thousands) ----------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ------------------- ----------------- 2003 2002 2003 2002 ---- ---- ---- ---- <S> <C> <C> <C> <C> Beginning of Period $65,525 $ 63,030 $62,028 $ 59,959 Provision for Loan Losses 3,156 3,194 9,425 11,357 Losses Charged to the Reserve <5,921> <3,998> <12,103> <12,704> Recoveries 1,716 1,427 5,126 5,041 ------- -------- ------- -------- End of Period $64,476 $ 63,653 $64,476 $ 63,653 ======= ======== ======= ======== </TABLE> -10-
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, 2003 and 2002. <TABLE> <CAPTION> (Dollars in thousands, except per share data) ----------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- <S> <C> <C> <C> <C> Numerator: Net Income $ 20,200 $ 22,073 $ 68,489 $ 65,493 Denominator: Denominator for basic earnings per share (weighted-average shares) 13,764,381 13,847,583 13,768,775 13,901,345 Effect of dilutive securities 116,041 23,961 80,307 32,942 Denominator for diluted earnings per share (adjusted weighted-average shares & assumed conversions) 13,880,422 13,871,544 13,849,082 13,934,287 Earnings per share: Basic earnings per share $ 1.47 $ 1.59 $ 4.97 $ 4.71 Diluted earnings per share $ 1.46 $ 1.59 $ 4.95 $ 4.70 </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 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). <TABLE> <CAPTION> Operating Results for the Three Months Ended September 30, 2003 (In Thousands) ------------------------------------------------------------------------------ PNB RTC CNB FKNB UB SNB SEC CIT All Other Total --- --- --- ---- -- --- --- --- --------- ----- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Net Interest Income $ 15,029 $ 5,003 $ 4,688 $ 7,838 $ 1,907 $ 3,370 $ 7,708 $ 1,534 $ 2,273 $ 49,350 Provision for Loan Losses 1,080 330 225 666 90 150 405 90 120 3,156 Other Income 3,870 1,095 1,250 1,950 848 607 1,795 84 167 11,666 Other Expense 8,799 2,508 2,876 3,966 1,454 1,825 5,030 1,138 1,762 29,358 Net Income $ 6,256 $ 2,153 $ 1,902 $ 3,495 $ 828 $ 1,413 $ 2,780 $ 278 $ 1,095 $ 20,200 Balances at September 30, 2003 Assets $1,612,904 $483,801 $446,193 $742,036 $222,206 $360,969 $849,885 $194,247 ($226,459) $4,685,782 </TABLE> -11-
<TABLE> <CAPTION> Operating Results for the Three Months Ended September 30, 2002 (In Thousands) ------------------------------------------------------------------------------ PNB RTC CNB FKNB UB SNB SEC CIT All Other Total --- --- --- ---- -- --- --- --- --------- ----- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Net Interest Income $ 15,479 $ 5,553 $ 4,851 $ 7,832 $ 2,257 $ 3,489 $ 8,647 $ 1,717 $ 2,105 $ 51,930 Provision for Loan Losses 1,095 360 240 624 90 150 420 90 125 3,194 Other Income 5,260 932 1,309 1,450 442 509 1,860 359 108 12,229 Other Expense 8,751 3,232 2,659 3,687 1,433 1,845 4,903 1,228 1,569 29,307 Net Income $ 7,299 $ 1,912 $ 2,168 $ 3,411 $ 798 $ 1,423 $ 3,497 $ 516 $ 1,049 $ 22,073 Balances at September 30, 2002 Assets $1,411,458 $468,923 $436,623 $666,570 $196,863 $330,849 $849,815 $170,194 ($ 90,573) $4,440,722 </TABLE> <TABLE> <CAPTION> Operating Results for the Nine Months Ended September 30, 2003 (In Thousands) ----------------------------------------------------------------------------- PNB RTC CNB FKNB UB SNB SEC CIT All Other Total --- --- --- ---- -- --- --- --- --------- ----- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Net Interest Income $ 46,159 $ 16,030 $ 14,553 $ 23,589 $ 6,486 $ 10,394 $ 24,417 $ 4,895 $ 6,628 $153,151 Provision for Loan Losses 3,540 690 675 1,998 270 450 1,215 270 317 9,425 Other Income 17,773 3,785 4,424 5,256 2,143 2,093 6,711 935 488 43,608 Other Expense 27,362 7,588 8,476 12,040 4,396 5,487 14,769 3,376 6,423 89,917 Net Income $ 22,709 $ 7,603 $ 6,560 $ 10,100 $ 2,723 $ 4,596 $ 10,257 $ 1,497 $ 2,444 $ 68,489 </TABLE> <TABLE> <CAPTION> Operating Results for the Nine Months Ended September 30, 2002 (In Thousands) ----------------------------------------------------------------------------- PNB RTC CNB FKNB UB SNB SEC CIT All Other Total --- --- --- ---- -- --- --- --- --------- ----- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Net Interest Income $ 46,819 $ 17,032 $ 14,936 $ 22,805 $ 6,633 $ 10,370 $ 26,258 $ 5,185 $ 6,038 $156,076 Provision for Loan Losses 4,010 1,355 720 2,297 270 575 1,260 595 275 11,357 Other Income 15,136 2,495 3,539 4,375 1,059 1,137 5,813 1,113 321 34,988 Other Expense 26,092 8,735 8,013 11,169 4,376 5,397 14,529 3,423 5,129 86,863 Net Income $ 21,968 $ 6,232 $ 6,489 $ 9,465 $ 2,169 $ 3,967 $ 11,088 $ 1,567 $ 2,548 $ 65,493 </TABLE> 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 three and nine month periods ended September 30, 2003 and 2002. The reconciling amounts for consolidated total assets at September 30, 2003 and 2002 consist of the elimination of intersegment borrowings, and the assets of the Parent Company and GFC which are not eliminated. Note 6 - Stock Option Plan Park accounts for its incentive stock option plan under the recognition and measurement principles provided in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations. Under APB 25, because the exercise price of Park's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. -12-
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", as amended by SFAS 148, requires pro forma disclosures of net income and earnings per share for companies not adopting its fair value accounting method for stock-based employee compensation. The pro-forma disclosures below use the fair value method of SFAS 123 to measure compensation expense for stock based employee compensation plans. <TABLE> <CAPTION> (Dollars in thousands, except per share data) --------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ---------------------- -------------------- 2003 2002 2003 2002 ---------- --------- -------- --------- <S> <C> <C> <C> <C> Net income as reported $ 20,200 $ 22,073 $ 68,489 $ 65,493 Deduct: Total stock-based employee compensation expense determined under fair value method, net of related tax effects (40) (24) (1,852) (1,714) Pro forma net income $ 20,160 $ 22,049 $ 66,637 $ 63,779 Basic earnings per share as reported $ 1.47 $ 1.59 $ 4.97 $ 4.71 Pro forma basic earnings per share $ 1.46 $ 1.59 $ 4.84 $ 4.59 Diluted earnings per share as reported $ 1.46 $ 1.59 $ 4.95 $ 4.70 Pro forma diluted earnings per share $ 1.45 $ 1.59 $ 4.81 $ 4.58 </TABLE> 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. The forward-looking statements involve significant risks and uncertainties including changes in general economic and financial market conditions, Park's ability to execute its business plans, as well as other risks such as changes in government regulations and policies affecting bank holding companies. 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. Critical Accounting Policies Note 1 of the Notes to Consolidated Financial Statements included in Park's 2002 Annual Report lists significant accounting policies used in the development and presentation of Park's financial statements. The accounting and reporting policies of Park conform with accounting principles generally accepted in the United States and general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. -13-
Park considers that the determination of the allowance for loan losses involves a higher degree of judgement and complexity than its other significant accounting policies. The allowance for loan losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses in the loan portfolio. Management's determination of the adequacy of the allowance for loan losses is based on periodic evaluations of the loan portfolio and of current economic conditions. However, this evaluation is inherently subjective as it requires material estimates, including expected default probabilities, loss given default, expected commitment usage, the amounts and timing of expected future cash flows on impaired loans, and estimated losses on consumer loans and residential mortgage loans based on historical loss experience and the current economic conditions. All of those factors may be susceptible to significant change. To the extent that actual results differ from management estimates, additional loan loss provisions may be required that would adversely impact earnings for future periods. Comparison of Results of Operations for the Three and Nine Month Periods Ended September 30, 2003 and 2002. Summary Discussion of Results Net income decreased by $1.9 million or 8.5% to $20.2 million for the three months ended September 30, 2003 compared to $22.1 million for the same period in 2002. For the first nine months of 2003, net income increased by $3.0 million or 4.6% to $68.5 million compared to $65.5 million for the same period in 2002. The annualized, net income to average asset ratio (ROA) was 1.72% for the third quarter of 2003 and 1.90% for the first nine months of 2003, compared to 1.96% for the third quarter of 2002 and 1.97% for the first nine months of 2002. The annualized, net income to average equity ratio (ROE) was 15.37% for the third quarter of 2003 and 17.75% for the first nine months of 2003, compared to 17.74% for the third quarter of 2002 and 18.17% for the first nine months of 2002. Diluted earnings per share decreased by 8.2% to $1.46 for the third quarter of 2003 and increased by 5.3% to $4.95 for the first nine months of 2003. Net losses from the sale of investment securities totaled $4.5 million for the quarter ended September 30, 2003, and $5.4 million for the first nine months of 2003. There were no net losses from the sale of investment securities during the third quarter of 2002 and $210,000 in net losses for the first nine months of 2002. Long-term interest rates increased during the quarter and the proceeds from the sale of investment securities were reinvested in higher yielding U.S. Government Agency fifteen year mortgage-backed securities. Management expects that the net losses from the sale of investment securities will be earned back in three years from the higher reinvestment rate on the mortgage-backed securities. -14-
Total Other Income increased by $3.9 million or 32.0% to $16.1 million for the three months ended September 30, 2003 and increased by $13.8 million or 39.2% for the nine months ended September 30, 2003. The large increase for both periods was primarily due to the increase in fee income earned from the origination and sale of fixed rate mortgage loans. Long-term interest rates continued to be low throughout the first seven months of 2003, and management was able to reallocate resources so that mortgage loan customers were able to generally close on their mortgage loan within thirty days from application to closing. Fixed rate mortgage loans totaling approximately $768 million were originated and sold during the first nine months of 2003, compared to approximately $276 million for the first nine months of 2002. With the increase in long-term interest rates in August, fixed rate mortgage loan originations have decreased sharply. Total Other Income during the fourth quarter of 2003 is expected to be much less than in each of the first three quarters of 2003. Net Interest Income Comparison for the Third Quarter of 2003 and 2002 Park's principal source of earnings is net interest income, the difference between total interest income and total interest expense. Net interest income decreased by $2.6 million or 5.0% to $49.35 million for the three months ended September 30, 2003 compared to $51.93 million for the third quarter of 2002. 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 2003 with the same quarter in 2002. <TABLE> <CAPTION> Three Months Ended September 30, (In Thousands) ------------------------------------------------- 2003 2002 ----------------------- ----------------------- Tax Tax Average Equivalent Average Equivalent Balance % Balance % ---------- --------- ---------- ---------- <S> <C> <C> <C> <C> Loans $2,700,373 6.74% $2,717,057 7.57% Taxable Investments 1,495,549 4.43% 1,279,559 5.88% Tax Exempt Investments 127,011 7.15% 142,895 7.03% Federal Funds Sold and Securities Purchased under Resale Agreements 31,736 1.36% 22,959 1.92% Interest Earning Assets $4,354,669 5.92% $4,162,470 7.00% Interest Bearing Deposits $2,911,736 1.57% $2,951,314 2.30% Short-term Borrowings 400,626 .68% 210,780 1.43% Long-term Debt 236,245 4.21% 233,965 4.42% Interest Bearing Liabilities $3,548,607 1.64% $3,396,059 2.39% Excess Interest Earning Assets $806,062 4.28% $766,411 4.61% Net Interest Margin 4.58% 5.05% </TABLE> Average interest earning assets increased by $192 million or 4.6% for the quarter ended September 30, 2003 compared to the same quarter in 2002. The average yield on interest earning assets decreased to 5.92% for the third quarter of 2003 compared to 7.00% for the third quarter of 2002. -15-
Average loan totals decreased by $17 million or .6% to $2,700 million for the quarter ended September 30, 2003 compared to the same quarter in 2002. At September 30, 2003, total loans outstanding were $2,711 million compared to $2,692 million at December 31, 2002, an increase of $19 million. During the full year 2002, total loans decreased by $104 million or 3.7%. Total loans also decreased by $160 million or 5.4% for the full year 2001. The outstanding balances for commercial and commercial real estate loans increased during the first nine months of 2003, and the outstanding balances for consumer loans and leases secured by automobiles increased during the second and third quarters of 2003. Management expects that the demand for commercial and consumer loans will continue to be moderately strong during the fourth quarter of 2003, as the economy continues to recover from the recession of 2001. The demand for fixed rate long-term residential mortgage loans has been strong for the past several quarters and was especially strong during the first eight months of 2003. This activity, the origination and sale of fixed rate mortgage loans, produced a significant increase in fee income during the past few quarters, but did not increase loan totals since the loans are sold. Many borrowers have taken advantage of low long-term interest rates to refinance their adjustable rate mortgage loan into a fixed rate mortgage loan which reduces the loan balances reported on Park's balance sheet. Residential real estate loans decreased by $37 million or 3.7% during the first nine months of 2003, compared to a decrease of $76 million or 7.0% for the year 2002 and a decrease of $88 million or 7.6% for the year 2001. During the month of August 2003, long-term interest rates increased sharply and reduced the demand for fixed rate residential mortgage loans. Mortgage loan origination volume was still quite strong during the months of July and August as borrowers locked in their mortgage rate during June and July. The demand for adjustable rate mortgage loans has increased as a result of the higher long-term interest rates. Management expects that real estate loan balances will start growing during the fourth quarter, if long-term interest rates remain at the higher levels of recent months. The average yield on the loan portfolio was 6.74% for the third quarter of 2003 compared to 7.57% for the same period in 2002. The average prime lending rate was 4.00% for the third quarter of 2003 compared to 4.75% for the same period in 2002. The yield on the 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 $209 million or 14.5% to $1,654 million for the third quarter of 2003 compared to $1,445 million for the same period in 2002. The increase in the investment portfolio was primarily funded by an increase in short-term borrowings. The average yield on taxable investment securities decreased to 4.43% for the third quarter of 2003 compared to 5.88% for the same quarter in 2002. The average yield on tax exempt investments increased to 7.15% for the third quarter of 2003 compared to 7.03% for the same period in 2002. No tax exempt securities were purchased in the past year and the tax exempt securities that matured yielded less than the average portfolio rate. The average yield on federal funds sold and securities purchased under resale agreements was 1.36% for the three months ended September 30, 2003 compared to 1.92% for the same quarter in 2002. -16-
During the third quarter of 2003, Park borrowed on average $183 million of short-term borrowings (dollar-roll repos) at an average interest rate of .25% and reinvested the funds in short-term taxable securities and securities purchased under resale agreements at an average yield of 1.04%. This large investment in short-term securities reduced the yield on investments and earning assets for the quarter but contributed approximately $364,000 to net interest income for the quarter. At September 30, 2003, Park's investment portfolio had an average tax equivalent yield of 4.28% and a weighted average life of 2.8 years. Excluding the short-term securities that were being used to arbitrage the dollar-roll repos, the average tax equivalent yield on the investment portfolio was 5.05% and the average life was 3.4 years. As mentioned previously, long-term interest rates increased sharply during the month of August 2003. Park took advantage of the higher interest rates and sold some investments at a loss during the third quarter and reinvested the proceeds at a higher interest rate. This transaction decreased third quarter earnings but will increase future earnings. Management expects that security losses of approximately $.75 million could be realized during the fourth quarter of 2003. Average interest bearing liabilities increased by $153 million or 4.5% to $3,549 million for the quarter ended September 30, 2003 compared to the same quarter in 2002. Average interest bearing deposits decreased by $40 million or 1.3% to $2,912 million for the third quarter of 2003 compared to the third quarter of 2002. Average short-term borrowings increased by $190 million to $401 million for the third quarter of 2003 compared to $211 million for the third quarter of 2002. The large increase was due to the dollar-roll repo borrowings at a weighted average rate of .25% for the quarter. The borrowings were secured by U.S. Government Agency fifteen year mortgage-backed securities. Average long-term debt was $236 million for the quarter ended September 30, 2003, and $234 million for the same period in 2002. The average cost of interest bearing liabilities decreased by .75% to 1.64% in 2003 compared to 2.39% in 2002. The average cost of interest bearing deposits decreased by .73% to 1.57% in 2003 compared to 2.30% in 2002. The average cost of short-term borrowings decreased by .75% to .68% in 2003 compared to 1.43% in 2002 as the average cost of the dollar-roll repos was .25% for the quarter. The average cost of long-term debt was 4.21% in 2003 and 4.42% in 2002. Net interest income decreased by $2.6 million to $49.35 million in the third quarter of 2003 compared to $51.93 million for the same period in 2002. The net interest spread (the difference between the yield on interest earning assets and the cost of interest bearing liabilities) decreased by .33% to 4.28% for the third quarter of 2003 compared to 4.61% in 2002. The tax equivalent net interest margin (defined as net interest income divided by average interest earning assets) decreased by .47% to 4.58% in 2003 compared to 5.05% in 2002. Net Interest Income Comparison for the First Nine Months of 2003 and 2002 Net interest income decreased by $2.9 million or 1.9% to $153.2 million for the nine months ended September 30, 2003 compared to $156.1 million for the same period in 2002. 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 2003 with the same period in 2002. -17-
Nine Months Ended September 30, (In Thousands) <TABLE> <CAPTION> 2003 2002 ----------------------- ----------------------- Tax Tax Average Equivalent Average Equivalent Balance % Balance % ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Loans $2,687,076 6.96% $2,722,131 7.71% Taxable Investments 1,656,431 4.57% 1,272,988 6.15% Tax Exempt Investments 129,510 7.24% 145,786 7.10% Federal Funds Sold and Securities Purchased under Resale Agreements 31,628 1.28% 19,101 1.92% Interest Earning Assets $4,504,645 6.05% $4,160,006 7.19% Interest Bearing Deposits $2,907,782 1.74% 2,896,377 2.45% Short-term Borrowings 540,821 .46% 242,897 1.52% Long-term Debt 280,774 3.80% 273,453 4.13% Interest Bearing Liabilities $3,729,377 1.71% $3,412,727 2.52% Excess Interest Earning Assets $ 775,268 4.34% $ 747,279 4.67% Net Interest Margin 4.63% 5.12% </TABLE> Average interest earning assets increased by $345 million or 8.3% to $4,505 million for the nine months ended September 30, 2003 compared to the same period in 2002. Average loans decreased by $35 million or 1.3% to $2,687 million for the first nine months of 2003 compared to the same period in 2002. The yield on loans declined to 6.96% for the first nine months of 2003 compared to 7.71% for the same period in 2002. The average prime lending rate was 4.17% for the first nine months of 2003 compared to 4.75% for the first nine months of 2002. Average investment securities including federal funds sold and securities purchased under resale agreements increased by $380 million or 26.4% to $1,818 million for the first nine months of 2003 compared to the same period in 2002. The large increase was primarily due to the purchase of short-term investment securities to arbitrage the dollar-roll repo borrowings, which averaged $304 million for the first nine months of 2003. The yield on taxable investment securities was 4.57% for the first nine months of 2003 compared to 6.15% for the same period in 2002. Average interest bearing liabilities increased by $317 million or 9.3% to $3,729 million for the first nine months compared to the same period in 2002. Average interest bearing deposits increased by $11 million to $2,908 million for the first nine months of 2003 compared to the same period in 2002. The average cost of interest bearing deposits decreased to 1.74% for the first nine months of 2003 compared to 2.45% for the same period in 2002. -18-
Average short-term borrowings increased by $298 million to $541 million for the first nine months of 2003 compared to $243 million for the same period in 2002. The average cost of short-term borrowings decreased to .46% for the first nine months of 2003 compared to 1.52% for the same period in 2002. The increase in average short-term borrowings in 2003 was due to the dollar-roll repos, which had an average balance of $304 million for the first nine months of the year at an average cost of .04%. Park did not have any dollar-roll repo borrowings in 2002. The average cost of interest bearing liabilities decreased by .81% to 1.71% for the first nine months of 2003 compared to 2.52% for the same period in 2002. However, the yield on average earning assets decreased by 1.14% to 6.05% for the first nine months of 2003 compared to 7.19% for the same period in 2002. The net interest spread (the difference between the yield on interest earning assets and the cost of interest bearing liabilities) decreased by .33% to 4.34% in 2003 compared to 4.67% in 2002. The tax equivalent net interest margin (defined as net interest income divided by average interest earning assets) decreased by ..49% to 4.63% in 2003 from 5.12% in 2002. Management expects that the net interest margin will stabilize at approximately 4.63% for the next few quarters. Provision for Loan Losses The provision for loan losses was $3.2 million and $9.4 million, respectively, for the third quarter and first nine months of 2003 compared to $3.2 million and $11.4 million for the same periods in 2002. Net charge-offs were $4.2 million and $7.0 million, respectively, for the three and nine month periods ended September 30, 2003 compared to $2.6 million and $7.7 million for the same periods in 2002. Nonperforming loans defined as loans that are 90 days or more past due, renegotiated loans, and nonaccrual loans were $25.0 million or .92% of loans at September 30, 2003 compared to $26.5 million or .98% of loans at December 31, 2002 and $26.4 million or .97% of loans at September 30, 2002. The reserve for loan losses as a percentage of outstanding loans was 2.38% at September 30, 2003 compared to 2.30% at December 31, 2002 and 2.33% at September 30, 2002. 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 $3.9 million or 32.0% to $16.1 million for the three months ended September 30, 2003 and increased by $13.8 million or 39.2% to $49.0 million for the nine months ended September 30, 2003 compared to the same periods in 2002. The following is a summary of the change in noninterest income. <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- (In Thousands) 2003 2002 Change 2003 2002 Change - ----------------------------------- ---- ---- ------ ---- ---- ------ <S> <C> <C> <C> <C> <C> <C> Fees from Fiduciary Activities $ 2,691 $ 1,963 $ 728 $ 7,551 $ 6,481 $ 1,070 Service Charges on Deposit Accounts 3,665 3,636 29 10,674 10,226 448 Other Service Income 5,818 3,017 2,801 18,683 7,786 10,897 Other Income 3,966 3,613 353 12,087 10,705 1,382 Total $16,140 $12,229 $3,911 $48,995 $35,198 $13,797 </TABLE> -19-
The large increase in Other Service Income for both the three and nine month periods ended September 30, 2003, was primarily due to the large increase in fee income earned from the origination and sale into the secondary market of fixed rate mortgage loans. During the first nine months of 2003, approximately $768 million of fixed rate mortgage loans were originated and sold, compared to $276 million for the first nine months of 2002. Management expects that fixed rate mortgage loan volume will decrease sharply during the fourth quarter due to the increase in long-term interest rates, and as a result Other Service Income is expected to significantly decrease from the third quarter level of $5.8 million. Fees from Fiduciary Activities and Service Charges on Deposits are expected to continue to increase during the fourth quarter of 2003 due to both an increase in the expected number of customers and an increase in the fees charged for those services. The increase in Other Income was primarily due to increases in check card and ATM transactions for both the three and nine month periods ended September 30, 2003. The fees earned from check card transactions decreased in August as a result of a settlement that Visa reached with a number of retailers. Other Income increased by 9.8% for the quarter ended September 30, 2003 and increased by 12.9% for the first nine months of 2003 compared to the same periods in 2002. The reduction in check card fee income is expected to be about $90,000 per month as a result of the Visa settlement, and as a result, Other Income is expected to produce a smaller increase in fee income for the fourth quarter of 2003. Gain (Loss) on Sale of Securities The net loss from the sale of investment securities was $4.5 million for the three months ended September 30, 2003. The proceeds from the sale of $339 million of U.S. Government Agency collateralized mortgage obligations and mortgage-backed securities were reinvested in higher yielding fifteen year U.S. Government Agency mortgage-backed securities. Management expects that the loss from the sale of securities will be earned back from the higher reinvestment rate over the next three years. For the nine months ended September 30, 2003, the net loss from the sale of investment securities was $5.4 million and $210,000 for the same period in 2002. Management expects that additional investment securities may be sold at a loss of approximately $.75 million during the fourth quarter of 2003. Other Expense Total other expense was $29.4 million for the three months ended September 30, 2003, compared to $29.3 million for the same period in 2002. Salaries and employee benefits expense increased by $527,000 or 3.3% to $16.57 million for the third quarter of 2003 compared to $16.04 million for the same period in 2002. The subcategory of other expense decreased by $865,000 to $9.4 million for the third quarter of 2003. This decrease was primarily due to a decrease of $911,000 in the amortization of intangible assets. See Note 2 of the Notes to Consolidated Financial Statements for a discussion of the accounting for intangible assets. -20-
Total other expense increased by $3.1 million or 3.5% to $89.92 million for the first nine months of 2003, compared to $86.86 million for the same period in 2002. Salaries and employee benefits expense increased by $2.6 million or 5.5% to $50.6 million for the first nine months of 2003 compared to the same period in 2002. Full time equivalent employees were 1,650 at September 30, 2003 compared to 1,590 at September 30, 2002. Federal Income Taxes Federal income tax expense was $8.3 million and $28.9 million, respectively, for the three and nine month periods ended September 30, 2003 compared to $9.6 million and $27.4 million for the same periods in 2002. The ratio of federal income tax expense to income before taxes was 29.1% for the three months ended September 30, 2003 and 29.7% for the nine months ended September 30, 2003 compared to 30.3% and 29.5% for the same periods in 2002. The statutory rate was 35% for both 2003 and 2002. 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. -21-
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2003 AND DECEMBER 31, 2002 Changes in Financial Condition and Liquidity Total assets increased by $239 million or 5.4% to $4,686 million at September 30, 2003 compared to $4,447 million at December 31, 2002. Total loans increased by $19 million to $2,711 million at September 30, 2003. The demand for commercial and commercial real estate loans improved during the first nine months of 2003 and the demand for consumer loans improved during the second and third quarters. Investment securities including federal funds sold increased by $311 million to $1,694 million at September 30, 2003. Part of this increase ($305 million) was due to the purchase of short-term investments to arbitrage the increase in short-term borrowings from dollar-roll repos. Total liabilities increased by $213 million or 5.4% to $4,150 million at September 30, 2003 compared to $3,937 million at December 31, 2002. Total borrowed money increased by $315 million to $691 million at September 30, 2003 compared to $376 million at December 31, 2002. The increase in borrowed money was due primarily to $305 million in short-term dollar-roll repos. Total deposits decreased by $91 million to $3,404 million at September 30, 2003 compared to $3,495 million at December 31, 2002. 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. Park's loan to asset ratio was 57.86% at September 30, 2003 compared to 60.54% at December 31, 2002 and 61.46% at September 30, 2002. Cash and cash equivalents totaled $160 million at September 30, 2003 compared to $239 million at December 31, 2002 and $205 million at September 30, 2002. The present funding sources provide more than adequate liquidity for the Corporation to meet its cash flow needs. -22-
Capital Resources Stockholders' equity at September 30, 2003 was $536 million or 11.43% of total assets compared to $509 million or 11.45% of total assets at December 31, 2002 and $506 million or 11.38% of total assets at September 30, 2002. 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 10.83% at September 30, 2003 and 10.72% at December 31, 2002. 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 16.64% at September 30, 2003 and 16.51% at December 31, 2002. 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 17.90% at September 30, 2003 and 17.78% at December 31, 2002. The financial institution subsidiaries of Park each met the well capitalized capital ratio guidelines at September 30, 2003. The following table indicates the capital ratios for each subsidiary and Park at September 30, 2003: <TABLE> <CAPTION> TIER I TOTAL LEVERAGE RISK-BASED RISK-BASED -------- ---------- --------- <S> <C> <C> <C> Park National Bank 6.55% 9.77% 13.00% Richland Trust Company 7.38% 12.39% 13.65% Century National Bank 6.96% 11.71% 14.11% First-Knox National Bank 6.58% 10.36% 13.99% Second National Bank 6.58% 10.93% 14.52% United Bank, N.A. 7.28% 13.28% 14.54% Security National Bank 7.11% 10.59% 14.47% Citizens National Bank 6.44% 12.48% 17.45% Park National Corporation 10.83% 16.64% 17.90% Minimum Capital Ratio 4.00% 4.00% 8.00% Well Capitalized Ratio 5.00% 6.00% 10.00% </TABLE> -23-
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 small impact on net income, consistent with the disclosure on pages 31 and 32 of our 2002 Annual Report, which is incorporated by reference into our 2002 Form 10-K. However, as mentioned earlier in management's analysis of net interest income, the net interest margin for the first nine months of 2003 was 4.63% and it is expected to be relatively stable at that level for the remainder of 2003. ITEM 4 - CONTROLS AND PROCEDURES With the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our principal executive officer and our principal financial officer have concluded that such disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that material information relating to Park National Corporation and its consolidated subsidiaries is made known to them, particularly during the period for which our periodic reports, including this Quarterly Report on Form 10-Q, are being prepared. In addition, there were no changes during the period covered by this Quarterly Report on Form 10-Q in our internal control over financial reporting (as defined in Rule 13a-15 of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. -24-
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 31.1 Rule 13a - 14(a) / 15d - 14(a) Certification (Principal Executive Officer) 31.2 Rule 13a - 14(a) / 15d - 14(a) Certification (Principal Financial Officer) 32.1 Section 1350 Certification (Principal Executive Officer) 32.2 Section 1350 Certification (Principal Financial Officer) b. Reports on Form 8-K On July 14, 2003, Park National Corporation furnished information regarding the press release announcing second quarter earnings for Park National Corporation, under Item 9 (which was also deemed provided under Item 12) in a Form 8-K. The press release was included as Exhibit 99. On October 14, 2003, Park National Corporation furnished information regarding the press release announcing third quarter earnings for Park National Corporation under Item 12 in a Form 8-K. The press release was included as Exhibit 99. -25-
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, 2003 BY: /s/C. Daniel DeLawder -------------------------- C. Daniel DeLawder President and Chief Executive Officer DATE: November 7, 2003 BY: /s/John W. Kozak -------------------------- John W. Kozak Chief Financial Officer -26-