<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ------------------------
Commission File Number 1-13006
---------------------------------------------------------
Park National Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1179518
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 North Third Street, Newark, Ohio 43055
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(740) 349-8451
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
9,289,359 common shares, no par value per share, outstanding at July 30, 1999.
- ------------
Page 1 of 25
<PAGE> 2
Exhibit Index at Page 23
PARK NATIONAL CORPORATION
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION 3-12
Item 1. Financial Statements 3-12
Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998 (unaudited) 3
Consolidated Condensed Statements of Income for the
Three Months and Six Months ended June 30, 1999 and 1998 (unaudited) 4,5
Consolidated Condensed Statements of Changes in Stockholders'
Equity for the Six Months ended June 30, 1999 and 1998 (unaudited) 6
Consolidated Statements of Cash Flows for the Six Months ended
June 30, 1999 and 1998 (unaudited) 7,8
Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 13-22
Item 3. Quantitative and Qualitative Disclosure About Market Risk 22
PART II. OTHER INFORMATION 23
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
EXHIBIT 25
</TABLE>
-2-
<PAGE> 3
PARK NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 103,465 $ 100,291
- -------------------------------------------------------------------------------------------------------
Securities available-for-sale, at fair value
(amortized cost of $661,073 and $634,809
at June 30, 1999 and December 31, 1998) 654,799 646,403
- -------------------------------------------------------------------------------------------------------
Securities held-to-maturity, at amortized cost
(fair value approximates $5,698 and $6,347
at June 30, 1999 and December 31, 1998) 5,502 6,064
- -------------------------------------------------------------------------------------------------------
Loans (net of unearned interest) 1,703,920 1,641,512
- -------------------------------------------------------------------------------------------------------
Allowance for possible loan losses 40,763 37,989
- -------------------------------------------------------------------------------------------------------
Net loans 1,663,157 1,603,523
- -------------------------------------------------------------------------------------------------------
Bank premises and equipment, net 26,404 26,755
- -------------------------------------------------------------------------------------------------------
Other assets 85,719 77,743
- -------------------------------------------------------------------------------------------------------
Total assets $2,539,046 $2,460,779
- -------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Deposits:
Noninterest bearing $ 276,925 $ 285,574
- -------------------------------------------------------------------------------------------------------
Interest bearing 1,669,280 1,654,204
- -------------------------------------------------------------------------------------------------------
Total deposits 1,946,205 1,939,778
- -------------------------------------------------------------------------------------------------------
Short-term borrowings 339,207 246,659
- -------------------------------------------------------------------------------------------------------
Long-term debt 77 8,430
- -------------------------------------------------------------------------------------------------------
Other liabilities 18,988 30,222
- -------------------------------------------------------------------------------------------------------
Total liabilities 2,304,477 2,225,089
- -------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock (No par value; 20,000,000 shares
authorized; 9,554,028 shares issued in 1999
and 9,553,407 issued in 1998) 68,433 68,398
- -------------------------------------------------------------------------------------------------------
Retained earnings 189,487 177,050
- -------------------------------------------------------------------------------------------------------
Treasury stock (262,169 shares in 1999
and 245,491 shares in 1998) (19,273) (17,294)
- -------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income,
net of taxes (4,078) 7,536
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 234,569 235,690
- -------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $2,539,046 $2,460,779
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-3-
<PAGE> 4
PARK NATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $36,579 $36,863 $72,684 $73,309
- ------------------------------------------------------------------------------------------------------
Interest on:
Obligations of U.S. Government,
its agencies and other securities 8,982 8,367 17,762 16,332
- ------------------------------------------------------------------------------------------------------
Obligations of states and
political subdivisions 1,323 1,147 2,666 2,240
- ------------------------------------------------------------------------------------------------------
Other interest income 0 73 13 129
- ------------------------------------------------------------------------------------------------------
Total interest income 46,884 46,450 93,125 92,010
- ------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits:
Demand and savings deposits 3,163 4,124 6,464 8,204
- ------------------------------------------------------------------------------------------------------
Time deposits 12,007 13,158 24,191 26,068
- ------------------------------------------------------------------------------------------------------
Interest on borrowings:
Short-term borrowings 2,975 2,097 5,713 4,060
- ------------------------------------------------------------------------------------------------------
Long-term debt 0 225 120 507
- ------------------------------------------------------------------------------------------------------
Total interest expense 18,145 19,604 36,488 38,839
- ------------------------------------------------------------------------------------------------------
Net interest income 28,739 26,846 56,637 53,171
- ------------------------------------------------------------------------------------------------------
Provision for loan losses 2,009 1,674 3,554 3,348
- ------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 26,730 25,172 53,083 49,823
- ------------------------------------------------------------------------------------------------------
Other income 6,573 5,848 12,952 11,829
- ------------------------------------------------------------------------------------------------------
Gain on sale of securities (255) 0 (255) 97
- ------------------------------------------------------------------------------------------------------
</TABLE>
Continued
-4-
<PAGE> 5
PARK NATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
(CONTINUED)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Other expense:
Salaries and employee benefits $ 8,251 $ 7,726 $16,835 $15,620
- ----------------------------------------------------------------------------------------------------------
Occupancy expense 890 875 1,831 1,713
- ----------------------------------------------------------------------------------------------------------
Furniture and equipment expense 988 968 1,974 1,934
- ----------------------------------------------------------------------------------------------------------
Other expense 6,047 5,636 11,744 11,362
- ----------------------------------------------------------------------------------------------------------
Total other expense 16,176 15,205 32,384 30,629
- ----------------------------------------------------------------------------------------------------------
Income before federal income taxes 16,872 15,815 33,396 31,120
- ----------------------------------------------------------------------------------------------------------
Federal income taxes 4,869 4,866 9,795 9,588
- ----------------------------------------------------------------------------------------------------------
Net income $12,003 $10,949 $23,601 $21,532
==========================================================================================================
PER SHARE:
Net income:
Basic $1.29 $1.17 $2.54 $2.30
==========================================================================================================
Diluted $1.29 $1.17 $2.53 $2.29
==========================================================================================================
Weighted average
Basic 9,298,055 9,352,684 9,302,325 9,369,799
==========================================================================================================
Diluted 9,329,619 9,397,929 9,336,524 9,414,913
==========================================================================================================
Cash dividends declared $0.60 $0.48 $1.20 $0.96
==========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-5-
<PAGE> 6
PARK NATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED) (dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 Treasury Other
Common Retained Stock Comprehensive Comprehensive
Stock Earnings at Cost Income Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $68,275 $154,535 $(7,712) $ 7,019
- --------------------------------------------------------------------------------------------------------------------
Net Income 21,532 $ 21,532
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized losses on securities available-for-sale
net of income taxes of ($355) (660) (660)
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 20,872
====================================================================================================================================
Cash dividends on common stock:
Park at $.96 per share (9,000)
- --------------------------------------------------------------------------------------------------------------------
Shares issued for stock options - 1,613 shares 89
- --------------------------------------------------------------------------------------------------------------------
Treasury stock purchased - 86,158 shares (8,007)
- --------------------------------------------------------------------------------------------------------------------
Treasury stock reissued for stock options - 19,492 shares 1,060
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 $68,364 $167,067 $(14,659) $ 6,359
====================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $68,398 $177,050 $(17,294) $ 7,536
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 23,601 $ 23,601
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized losses on securities available-for-sale
net of income taxes of ($6,254) (11,614) (11,614)
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 11,987
====================================================================================================================
Cash dividends on common stock:
Park at $1.20 per share (11,164)
- --------------------------------------------------------------------------------------------------------------------
Shares issued for stock options - 621 shares 35
- --------------------------------------------------------------------------------------------------------------------
Treasury stock purchased - 26,475 shares (2,524)
- --------------------------------------------------------------------------------------------------------------------
Treasury stock reissued for stock options - 9,797 shares 545
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 $68,433 $189,487 $(19,273) $ (4,078)
====================================================================================================================
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $12,003 $10,949
- ---------------------------------------------------------------------------------------------------
Accumulated other comprehensive income, net of income
taxes of ($5,184) in 1999 and ($2) in 1998 (9,627) (3)
- ---------------------------------------------------------------------------------------------------
Total comprehensive income $ 2,376 $10,946
===================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-6-
<PAGE> 7
PARK NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 23,601 $ 21,532
- ---------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion 782 622
- ---------------------------------------------------------------------------------------------------------
Provision for loan losses 3,554 3,348
- ---------------------------------------------------------------------------------------------------------
Amortization of the excess of cost over
net assets of banks purchased 1,150 1,393
- ---------------------------------------------------------------------------------------------------------
Realized investment security loss (gain) 255 (97)
- ---------------------------------------------------------------------------------------------------------
Changes in assets and liabilities:
Increase in other assets (2,879) (13,150)
- ---------------------------------------------------------------------------------------------------------
Decrease in other liabilities (5,648) (4,213)
- ---------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 20,815 9,435
------------------------------------------------------------------------------------------
Investing activities:
Proceeds from sales of:
Available-for-sale securities 23,245 51,839
- ---------------------------------------------------------------------------------------------------------
Proceeds from maturity of:
Available-for-sale securities 90,704 58,015
- ---------------------------------------------------------------------------------------------------------
Held-to-maturity securities 563 989
- ---------------------------------------------------------------------------------------------------------
Purchases of:
Available-for-sale securities (140,126) (180,405)
- ---------------------------------------------------------------------------------------------------------
Net increase in loans (62,572) (16,717)
- ---------------------------------------------------------------------------------------------------------
Purchases of premises and equipment, net (1,389) (1,391)
- ---------------------------------------------------------------------------------------------------------
Net cash used by investing activities (89,575) (87,670)
------------------------------------------------------------------------------------------
</TABLE>
Continued
-7-
<PAGE> 8
PARK NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financing activities:
Net increase in deposits $ 6,427 $ 22,627
- ----------------------------------------------------------------------------------------------------------
Net increase in short-term borrowings 92,548 90,727
- ----------------------------------------------------------------------------------------------------------
Exercise of stock options 35 89
- ----------------------------------------------------------------------------------------------------------
Purchase of treasury stock, net (1,979) (6,947)
- ----------------------------------------------------------------------------------------------------------
Repayment of long-term debt (8,353) (16,307)
- ----------------------------------------------------------------------------------------------------------
Cash dividends paid (16,744) (13,513)
- ----------------------------------------------------------------------------------------------------------
Net cash provided from financing activities 71,934 76,676
-------------------------------------------------------------------------------------------
Increase/(decrease) in cash and cash equivalents 3,174 (1,559)
-------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 100,291 93,585
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 103,465 $ 92,026
===========================================================================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 36,657 $ 38,606
------------------------------------------------------------------------------
Income taxes $ 10,850 $ 11,550
------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-8-
<PAGE> 9
PARK NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Month Periods Ended June 30, 1999 and 1998.
Note 1 - Basis of Presentation
The consolidated financial statements included in this report have been prepared
by Park National Corporation (the "Registrant", "Corporation", "Company", or
"Park") without audit. In the opinion of management, all adjustments (consisting
solely of normal recurring accruals) necessary for a fair presentation of
results of operations for the interim periods included herein have been made.
The results of operations for the periods ended June 30, 1999 are not
necessarily indicative of the operating results to be anticipated for the fiscal
year ended December 31, 1999.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q, and therefore, do not include
all information and footnotes necessary for a fair presentation of the balance
sheets, condensed statements of income, condensed statements of changes in
stockholders' equity and statements of cash flows in conformity with generally
accepted accounting principles. These financial statements should be read in
conjunction with the financial statements included in the Annual Report on Form
10-K for the year ended December 31, 1998. Certain amounts in 1998 have been
reclassified to conform to the financial statement presentation used for 1999.
Park does not have any off-balance sheet derivative financial instruments such
as interest-rate swap agreements.
Note 2 - Allowance for Possible Loan Losses
The allowance for possible loan losses is that amount believed adequate to
absorb estimated credit losses in the loan portfolio based on management's
evaluation of various factors including overall growth in the loan portfolio, an
analysis of individual loans, prior and current loss experience, and current
economic conditions. A provision for loan losses is charged to operations based
on management's periodic evaluation of these and other pertinent factors.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning of Period $39,457 $37,251 $37,989 $35,595
- ------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 2,009 1,674 3,554 3,348
- ------------------------------------------------------------------------------------------------------------------------------
Losses charged to the reserve (1,396) (1,449) (2,932) (2,661)
- ------------------------------------------------------------------------------------------------------------------------------
Recoveries 693 803 2,152 1,997
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
End of Period $40,763 $38,279 $40,763 $38,279
==============================================================================================================================
</TABLE>
-9-
<PAGE> 10
Note 3 - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share for the three and six month periods ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
- ----------------------------------------------------------------------------------------------------------------------------
Net Income $12,003 $10,949 $23,601 $21,532
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Denominator:
- ----------------------------------------------------------------------------------------------------------------------------
Denominator for basic earnings per share 9,298,055 9,352,684 9,302,325 9,369,799
weighted-average shares
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Effect of dilutive securities 31,564 45,245 34,199 45,114
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted-average shares &
assumed conversions 9,329,619 9,397,929 9,336,524 9,414,913
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Earnings per share:
- ----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $1.29 $1.17 $2.54 $2.30
- ----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $1.29 $1.17 $2.53 $2.29
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 4 - Segment Information
The Corporation is a multi-bank holding company headquartered in Newark, Ohio.
The operating segments for the Corporation are its banking subsidiaries and
their respective divisions. The Corporation's banking subsidiaries are The Park
National Bank (PNB), The Richland Trust Company (RTC), Century National Bank
(CNB), and The First-Knox National Bank of Mount Vernon (FKNB). PNB operates
through two banking divisions with the Park National Division (PND)
headquartered in Newark, Ohio and the Fairfield National Division (FND)
headquartered in Lancaster, Ohio. FKNB also operates through two banking
divisions with the First-Knox National Division (FKND) headquartered in Mount
Vernon, Ohio and the Farmers and Savings Division (FSD) headquartered in
Loudonville, Ohio. Information about reportable segments follows:
-10-
<PAGE> 11
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PND FND RTC CNB FKND FSD All Other Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $10,204 $3,192 $4,427 $4,107 $5,760 $789 $260 $28,739
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for
Loan Losses 735 150 124 220 529 211 40 2,009
- -----------------------------------------------------------------------------------------------------------------------------------
Other Income 3,281 439 545 740 1,140 115 58 6,318
- -----------------------------------------------------------------------------------------------------------------------------------
Other Expense 5,655 1,875 2,587 2,199 2,939 401 520 16,176
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 4,923 $1,090 $1,497 $1,672 $2,427 $216 $178 $12,003
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PND FND RTC CNB FKND FSD All Other Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $9,948 $2,933 $3,986 $3,839 $5,186 $723 $231 $26,846
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for
Loan Losses 720 150 375 120 279 30 -- 1,674
- -----------------------------------------------------------------------------------------------------------------------------------
Other Income 2,833 596 658 779 904 78 -- 5,848
- -----------------------------------------------------------------------------------------------------------------------------------
Other Expense 5,264 1,714 2,430 2,066 2,998 402 331 15,205
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $4,657 $1,132 $1,222 $1,645 $2,018 $264 $ 11 $10,949
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PND FND RTC CNB FKND FSD All Other Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 20,253 $ 6,197 $ 8,721 $ 8,097 $ 11,334 $ 1,546 $ 489 $ 56,637
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for
Loan Losses 1,470 300 349 340 808 247 40 3,554
- -----------------------------------------------------------------------------------------------------------------------------------
Other Income 6,306 1,083 1,242 1,494 2,263 190 119 12,697
- -----------------------------------------------------------------------------------------------------------------------------------
Other Expense 11,489 3,780 5,185 4,401 5,931 830 768 32,384
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 9,450 $ 2,170 $ 2,934 $ 3,338 $ 4,846 $ 481 $ 382 $ 23,601
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1999:
- -----------------------------------------------------------------------------------------------------------------------------------
Assets $900,636 $272,230 $418,928 $391,810 $511,016 $61,900 $(17,474) $2,539,046
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE> 12
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PND FND RTC CNB FKND FSD All Other Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 19,634 $ 5,683 $ 8,029 $ 7,619 $ 10,341 $ 1,405 $ 460 $ 53,171
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for
Loan Losses 1,440 300 750 240 558 60 -- 3,348
- -----------------------------------------------------------------------------------------------------------------------------------
Other Income 5,787 1,147 1,421 1,575 1,862 134 -- 11,926
- -----------------------------------------------------------------------------------------------------------------------------------
Other Expense 10,428 3,451 4,923 4,253 6,178 772 624 30,629
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 9,281 $ 2,082 $ 2,500 $ 3,180 $ 3,938 $ 506 $ 45 $ 21,532
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1998:
- -----------------------------------------------------------------------------------------------------------------------------------
Assets $847,393 $261,252 $406,497 $362,564 $480,137 $60,017 $(36,142) $2,381,718
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The operating results for the Parent Company and Guardian Finance Company, which
began operating in May, 1999, are included in the category "all other" to
reconcile the segment totals to the consolidated income statements for all
periods. The reconciling amounts for consolidated total assets as of June 30,
1999 and 1998 consist of the elimination of intersegment borrowings and the
Parent Company and Guardian Finance Company assets which are not eliminated.
-12-
<PAGE> 13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of Results of Operations for the Three and Six Month Periods Ended
June 30, 1999 and 1998.
Net Interest Income
The Corporation's principal source of earnings is net interest income, the
difference between total interest income and total interest expense. Net
interest income increased by $1.9 million or 7.0% to $28.74 million for the
three months ended June 30, 1999 compared to $26.85 million for the second
quarter of 1998. The following table compares the average balance and tax
equivalent yield/cost for interest earning assets and interest bearing
liabilities for the second quarter of 1999 with the same quarter in 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30,
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------
Average Tax Average Tax
Balance Equivalent Balance Equivalent
% %
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOANS $1,668,814 8.83% $1,586,058 9.35%
- -------------------------------------------------------------------------------------------------
TAXABLE INVESTMENTS $ 544,606 6.61% $ 481,899 6.96%
- -------------------------------------------------------------------------------------------------
TAX EXEMPT INVESTMENTS $ 103,366 7.34% $ 87,921 7.35%
- -------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD -0- -0- $ 5,414 5.36%
- -------------------------------------------------------------------------------------------------
INTEREST EARNING ASSETS $2,316,786 8.24% $2,161,292 8.73%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
INTEREST BEARING DEPOSITS $1,667,465 3.65% $1,620,669 4.28%
- -------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS $ 272,453 4.38% $ 174,250 4.83%
- -------------------------------------------------------------------------------------------------
LONG-TERM DEBT $ 77 2.00% $ 15,722 5.75%
- -------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES $1,939,995 3.75% $1,810,641 4.35%
- -------------------------------------------------------------------------------------------------
EXCESS INTEREST EARNING ASSETS $ 376,791 4.49% $ 350,651 4.38%
- -------------------------------------------------------------------------------------------------
NET INTEREST MARGIN 5.10% 5.09%
- -------------------------------------------------------------------------------------------------
</TABLE>
Average interest earning assets increased by $156 million or 7.2% to $2,317
million for the quarter ended June 30, 1999 compared to the same quarter in
1998. Average loan totals increased by $83 million or 5.2% to $1,669 million for
the second quarter of 1999 compared to the second quarter in 1998. The demand
for fixed rate residential real estate loans has been quite strong during the
past year due to relatively low longer term interest rates. A large percentage
of the fixed rate loan originations are refinances of existing mortgages, some
of which are adjustable rate mortgage loans. Park sells in the secondary market
all fixed rate mortgage loans that are originated and as a result has
experienced a decrease of $26 million in residential real estate loans during
the past year. The demand for commercial, commercial real estate, and consumer
loans secured by automobiles has continued to be relatively strong and accounts
for the growth in average loan balances for the second quarter of 1999 compared
to the same period in 1998.
-13-
<PAGE> 14
The average yield on the loan portfolio was 8.83% for the second quarter of 1999
compared to 9.35% for the same period in 1998. The average prime lending rate
for Park's affiliate banks was 7.75% for the second quarter of 1999 compared to
8.50% for the same period in 1998. The Federal Reserve lowered the federal funds
rate by .75% during the second half of 1998 and Park's prime lending rate was
lowered by the same magnitude at the same time. Approximately 25% of Park's loan
portfolio reprices based on the prime lending rate which primarily accounts for
the .52% decrease in the average yield on the loan portfolio during the past
year. The Federal Reserve increased the federal funds rate by .25% at June 30,
1999 to 5.00% and Park increased its prime lending rate by .25% to 8.00%. This
recent increase in interest rates will improve the yield on the loan portfolio
for the third quarter of 1999.
Average investment securities including federal funds sold increased by $73
million or 12.6% to $648 million for the second quarter of 1999 compared to the
same quarter in 1998. The increase in average investment securities resulted
primarily from the purchase of mortgage-backed securities and premium callable
agency securities with an average life of approximately four years. This
increase in investment securities was needed to maintain about the same leverage
in the balance sheet. Average equity to average assets was 9.56% for the second
quarter of 1999 compared to 9.62% for the same quarter in 1998. The yield on
taxable investment securities decreased to 6.61% in 1999 compared to 6.96% in
1998. Long-term interest rates decreased over the last six months of 1998 and as
a result, purchases of investment securities generally yield less than the
average yield of the portfolio. The remaining average life of the investment
portfolio was approximately 4.5 years at June 30, 1999 and 3.4 years at June 30,
1998.
Average interest bearing liabilities increased by $129 million or 7.1% to $1,940
million for the quarter ended June 30, 1999 compared to the same quarter in
1998. Average interest bearing deposits increased by $47 million or 2.9% to
$1,667 million for the second quarter of 1999 compared to the same period in
1998. Average short-term borrowings increased by $98 million or 56.4% to $272
million and average long-term debt decreased by $16 million to $77,000 for the
second quarter of 1999 compared to the same period in 1998. The increase in
short-term borrowings was used to fund the increase in the investment portfolio
and for the repayment of long-term debt. Higher rate long-term debt was repaid
from lower rate short-term borrowings.
The average cost of interest bearing liabilities decreased by .60% to 3.75% in
1999 compared to 4.35% in 1998. The average cost of interest bearing deposits
decreased by .63% to 3.65% in 1999 compared to 4.28% in 1998 and the average
cost of short-term borrowings decreased by .45% to 4.38% in 1999 compared to
4.83% in 1998. The decrease in the cost of interest bearing liabilities in 1999
compared to 1998 is due to the decrease in short-term market interest rates
during the second half of 1998. The recent increase in short-term market
interest rates will stabilize Park's cost of funds.
The increase in net interest income of $1.9 million or 7.0% to $28.74 million
for the quarter ended June 30, 1999 was due to both increases in the net
interest spread and interest earning assets. The net interest spread (the
difference between the yield on interest earning assets and the cost of interest
bearing liabilities) improved by .11% to 4.49% in 1999 compared to 4.38% in
1998. Average interest earning assets increased by $156 million or 7.2% in 1999
compared to 1998 and excess interest earning assets increased by $26 million or
7.5% to $377 million in 1999 compared to 1998. The tax equivalent net interest
margin (defined as net interest income divided by average interest earning
assets) increased by .01% to 5.10% for the second quarter of 1999 compared to
5.09% for the same period in 1998.
-14-
<PAGE> 15
Net interest income increased by $3.5 million or 6.5% to $56.64 million for the
six months ended June 30, 1999 compared to $53.17 million for the same period in
1998. The following table compares the average balance and tax equivalent
yield/cost for interest earning assets and interest bearing liabilities for the
first six months of 1999 with the same period in 1998.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
- ----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE TAX EQUIVALENT AVERAGE TAX EQUIVALENT
BALANCE % BALANCE %
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOANS $1,654,970 8.89% $1,584,759 9.35%
- ----------------------------------------------------------------------------------------------------------------------
TAXABLE INVESTMENTS $ 537,803 6.66% $ 467,116 7.05%
- ----------------------------------------------------------------------------------------------------------------------
TAX EXEMPT INVESTMENTS $ 104,319 7.31% $ 84,933 7.47%
- ----------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD $ 456 5.65% $ 4,575 5.57%
- ----------------------------------------------------------------------------------------------------------------------
INTEREST EARNING ASSETS $2,297,548 8.30% $2,141,383 8.77%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
INTEREST BEARING DEPOSITS $1,656,010 3.73% $1,609,730 4.29%
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS $ 267,301 4.34% $ 168,506 4.86%
- ----------------------------------------------------------------------------------------------------------------------
LONG-TERM BORROWINGS $ 2,452 6.34% $ 17,551 5.83%
- ----------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES $1,925,763 3.82% $1,795,787 4.36%
- ----------------------------------------------------------------------------------------------------------------------
EXCESS INTEREST-EARNING ASSETS $ 371,785 4.48% $ 345,596 4.41%
- ----------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN 5.10% 5.11%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Average interest earning assets increased by $156 million or 7.3% to $2,298
million for the six months ended June 30, 1999 compared to the same period in
1998. Average loans increased by $70 million or 4.4% to $1,655 million for the
first half of 1999 compared to the same period in 1998. Loan demand continues to
be relatively strong for commercial, commercial real estate, and consumer loans
secured by automobiles. The yield on loans was 8.89% for the first half of 1999
compared to 9.35% for the first half of 1998.
Average investment securities including federal funds sold increased by $86
million or 15.4% to $643 million for the first half of 1999 compared to the same
period in 1998. The yield on taxable investment securities decreased to 6.66%
for the first half of 1999 compared to 7.05% for the same period in 1998.
Average interest-bearing liabilities increased by $130 million or 7.2% to $1,926
million for the first six months of 1999 compared to the same period in 1998.
Average interest bearing deposits increased by $46 million or 2.9% to $1,656
million for the first half of 1999 compared to the same period in 1998. Average
short-term borrowings increased by $99 million or 58.6% to $267 million and
average long-term debt decreased by $15 million to $2.5 million for the first
six months of 1999 compared to the same period in 1998. The increase in
short-term borrowings was used to fund the increase in the investment portfolio
and for the repayment of long-term debt.
Short-term market interest rates decreased by .75% during the second half of
1998 and Park was able to decrease the average cost of interest bearing
liabilities by .54% to 3.82% for the first half of 1999 compared to 4.36% for
the same period in 1998. The average cost of interest bearing deposits decreased
by .56% to 3.73% and the average cost of short-term borrowings decreased by .52%
to 4.34% for the first half of 1999 compared to the same period in 1998.
The increase in net interest income of $3.5 million or 6.5% to $56.64 million
for the first six months of 1999 was due to both increases in the net interest
spread and interest earning assets.
-15-
<PAGE> 16
The net interest spread improved by .07% to 4.48% in 1999 compared to 4.41% in
1998. Average interest earning assets increased by $156 million or 7.3% in 1999
compared to 1998 and excess interest earning assets increased by $26 million or
7.6% to $372 million in 1999 compared to 1998. The tax equivalent net interest
margin was 5.10% for the first half of 1999 compared to 5.11% for the same
period in 1998.
Provision for Loan Losses
The provision for loan losses increased by $335,000 to $2.0 million for the
three months ended June 30, 1999 and increased by $206,000 to $3.6 million for
the six months ended June 30, 1999 compared to the same periods in 1998. Net
charge-offs were $703,000 and $780,000, respectively, for the three and six
month periods ended June 30, 1999 compared to $646,000 and $664,000 for the same
periods in 1998. Nonperforming loans, defined as loans that are 90 days past
due, renegotiated loans and nonaccrual loans were $5.1 million or .30% of loans
at June 30, 1999 compared to $5.0 million or .30% of loans at December 31, 1998
and $5.4 million or .33% of loans at June 30, 1998. The reserve for loan losses
as a percentage of outstanding loans was 2.39% at June 30, 1999 compared to
2.31% at December 31, 1998 and 2.38% at June 30, 1998. See Note 2 for a
discussion of the factors considered by management in determining the provision
for loan losses.
Noninterest Income
Noninterest income increased by $725,000 or 12.4% to $6.57 million for the three
months ended June 30, 1999 and increased by $1.1 million or 9.5% to $12.95
million for the six months ended June 30, 1999 compared to the same periods in
1998. The following is a summary of the change in noninterest income.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
June 30,
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
- -------------------------------------------------------------------------------------------------------------------------
1999 1998 Change 1999 1998 Change
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fees from fiduciary activities $1,307 $1,185 $ 122 $ 2,634 $ 2,470 $ 164
- -------------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts 1,858 1,683 175 3,550 3,277 273
- -------------------------------------------------------------------------------------------------------------------------
Other service income 1,190 1,304 (114) 2,484 2,662 (178)
- -------------------------------------------------------------------------------------------------------------------------
Other income 2,218 1,676 542 4,284 3,420 864
- -------------------------------------------------------------------------------------------------------------------------
Total $6,573 $5,848 $ 725 $12,952 $11,829 $1,123
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in other income for both periods was primarily due to increases in
fee income from automatic teller machines and debit cards and from an increase
in rental fees from operating leases. The decrease in other service income for
both periods was primarily due to a reduction in fee income earned from the
origination and sale in the secondary market of fixed-rate residential mortgage
loans. With the recent increase in market interest rates, this trend is expected
to continue for the second half of 1999.
-16-
<PAGE> 17
Gain (loss) on Sale of Securities
Losses from the sale of securities were $255,000 for both the three and six
month periods ended June 30, 1999 compared to a gain of $97,000 for the first
six months of 1998. Longer term interest rates increased during the second
quarter of 1999 and as a result the market value of the investment portfolio
decreased. The net unrealized holding loss on available-for-sale securities
(accumulated other comprehensive income) was $4.1 million at June 30, 1999
compared to a net unrealized gain of $5.5 million at March 31, 1999 and a net
unrealized gain of $7.5 million at December 31, 1998.
Mortgage-backed securities with an average book yield of 6.00% and an average
life of about 4 years were sold at losses, and the proceeds were reinvested in
callable U.S. Agency securities with a yield of 7.00% and an average life of
about 4 years. Management expects that increased losses will be realized from
the sale of investment securities during the second half of 1999 and the
proceeds from the sales will be reinvested at higher book yields with a similar
average life.
Other Expense
Total other expense increased by $1.0 million or 6.4% to $16.2 million for the
quarter ended June 30, 1999 and increased by $1.8 million or 5.7% to $32.4
million for the six months ended June 30, 1999 compared to the same periods in
1998.
Salaries and employee benefits expense increased by $525,000 or 6.8% to $8.3
million for the quarter ended June 30, 1999 and increased by $1.2 million or
7.8% to $16.8 million for the first six months of 1999 compared to the same
periods in 1998. Salaries increased by $382,000 or 5.9% for the quarter ended
June 30, 1999 and increased by $839,000 or 6.5% for the six months ended June
30, 1999 compared to the same periods in 1998. Full time equivalent employees
were 1,025 at June 30, 1999 compared to 1,020 at June 30, 1998. Benefits expense
increased by $143,000 or 11.8% for the three months ended June 30, 1999 and
increased by $379,000 or 13.8% for the six months ended June 30, 1999 compared
to the same periods in 1998. The increase in benefits expense was primarily due
to a 20% increase in medical insurance for employees.
The subcategory other expense which includes data processing expense, fees and
service charges, supplies, marketing, telephone, postage, deposit insurance
premiums, state franchise taxes, and amortization of intangibles increased by
$411,000 or 7.3% to $6.0 million for the quarter ended June 30, 1999 and
increased by $382,000 or 3.4% to $11.7 million for the first six months of 1999
compared to the same periods in 1998. The increase for both periods was due to
increases in data processing expense, supplies expense and state franchise
taxes.
Federal Income Taxes
Federal income tax expense was $4.9 million and $9.8 million respectively, for
the three and six month periods ended June 30, 1999 compared to $4.9 million and
$9.6 million for the same periods in 1998. The ratio of federal income tax
expense to income before taxes was approximately 29% for both the three and six
month periods ended June 30, 1999 compared to approximately 31% for the same
periods in 1998. The statutory rate was 35% for both 1999 and 1998. The primary
difference between the effective federal income tax rate and the statutory rate
is due to tax-exempt interest income and low income housing tax credits, which
have both increased in 1999.
-17-
<PAGE> 18
Net Income
Net income increased by $1.1 million or 9.6% to $12.0 million for the three
months ended June 30, 1999 compared to $10.9 million for the same period in
1998. For the six months ended June 30, 1999, net income increased by $2.1
million or 9.6% to $23.6 million compared to $21.5 million for the same period
in 1998. The annualized, net income to average assets ratio (ROA) was 1.94% for
both the three and six month periods ended June 30, 1999 compared to 1.90% for
the second quarter of 1998 and 1.89% for the first six months of 1998. The
annualized, net income to average equity ratios (ROE) was 20.33% and 20.18%,
respectively, for the three and six month periods ended June 30, 1999 compared
to 19.72% and 19.54% for the same periods in 1998.
Diluted earnings per share increased by 10.3% to $1.29 for the second quarter of
1999 compared to $1.17 for the same quarter in 1998 and increased by 10.5% to
$2.53 for the first half of 1999 compared to $2.29 for the same period in 1998.
-18-
<PAGE> 19
COMPARISON OF FINANCIAL CONDITION
FOR JUNE 30, 1999 AND DECEMBER 31, 1998
Changes in Financial Condition and Liquidity
Total assets increased by $78 million or 3.2% to $2,539 million at June 30, 1999
compared to $2,461 million at December 31, 1998. Loans increased by $62 million
or 3.8% to $1,704 million and investment securities increased by $8 million or
1.2% to $660 million. The demand for commercial, commercial real estate, and
consumer loans secured by automobiles continues to be relatively strong.
Total liabilities increased by $79 million or 3.6% to $2,304 million at June 30,
1999 compared to $2,225 million at December 31, 1998. Short-term borrowings
increased by $93 million or 37.5% to $339 million and total deposits increased
by $6 million or .3% to $1,946 million. The increase in short-term borrowings
was needed to fund the increase in assets and to repay $8 million of higher rate
long-term debt.
Effective liquidity management ensures that the cash flow requirements of
depositors and borrowers, as well as the operating cash needs of the
Corporation, are met.
Funds are available from a number of sources, including the securities
portfolio, the core deposit base, Federal Home Loan Bank borrowings, and the
capability to securitize or package loans for sale. The Corporation's loan to
asset ratio was 67.1% at June 30, 1999 compared to 66.7% at December 31, 1998
and 67.5% at June 30, 1998. Cash and cash equivalents totaled $103 million at
June 30, 1999 compared to $100 million at December 31, 1998 and $92 million at
June 30, 1998. The present funding sources provide more than adequate liquidity
for the Corporation to meet its cash flow needs.
Capital Resources
Stockholders' equity at June 30, 1999 was $235 million or 9.24% of total assets
compared to $236 million or 9.58% of total assets at December 31, 1998 and $227
million or 9.54% of total assets at June 30, 1998.
Financial institution regulators have established guidelines for minimum capital
ratios for banks, thrifts, and bank holding companies. The net unrealized gain
or loss on available-for-sale securities is generally not included in computing
regulatory capital. The minimum leverage capital ratio (defined as stockholders'
equity less intangible assets divided by tangible assets) is 4% and the well
capitalized ratio is greater than or equal to 5%. Park's leverage ratio was
9.24% at June 30, 1999 and 9.06% at December 31, 1998. The minimum Tier I
risk-based capital ratio (defined as leverage capital divided by risk-adjusted
assets) is 4% and the well capitalized ratio is greater than or equal to 6%.
Park's Tier I risk-based capital ratio was 13.67% at June 30, 1999 and 13.64% at
December 31, 1998. The minimum total risk-based capital ratio (defined as
leverage
-19-
<PAGE> 20
capital plus supplemental capital divided by risk-adjusted assets) is 8% and the
well capitalized ratio is greater than or equal to 10%. Park's total risk-based
capital ratio was 14.94% at June 30, 1999 and 14.92% at December 31, 1998.
The financial institution subsidiaries of Park each met the well capitalized
capital ratio guidelines at June 30, 1999. The following table indicates the
capital ratios for each subsidiary and Park at June 30, 1999:
<TABLE>
<CAPTION>
TIER I TOTAL
LEVERAGE RISK-BASED RISK-BASED
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Park National Bank 6.99% 9.50% 11.97%
- ------------------------------------------------------------------------------------------
Richland Trust Company 7.52% 14.06% 15.32%
- ------------------------------------------------------------------------------------------
Century National Bank 6.69% 11.39% 12.65%
- ------------------------------------------------------------------------------------------
First-Knox National Bank 6.92% 9.94% 11.71%
- ------------------------------------------------------------------------------------------
Park National Corporation 9.24% 13.67% 14.94%
- ------------------------------------------------------------------------------------------
Minimum Capital Ratio 4.00% 4.00% 8.00%
- ------------------------------------------------------------------------------------------
Well Capitalized Ratio 5.00% 6.00% 10.00%
- ------------------------------------------------------------------------------------------
</TABLE>
At the July 19, 1999 Park National Corporation Board of Director's Meeting, a
cash dividend of $.60 per share was declared payable on September 10, 1999 to
stockholders of record on August 27, 1999.
Year 2000 Compliance Issues
Park National Corporation ("Park" or the "Corporation") intends this information
to constitute notice under the Year 2000 Information and Readiness Disclosure
Act as a "Y2K Readiness Disclosure". In early 1997, Park formed a Year 2000
project team made up of key Corporation and affiliate officers to identify and
remediate software systems and computer-related devices that require
modification for the Year 2000. A project plan has been developed with goals and
target dates. It has been approved by Park's Board of Directors and is monitored
by the Board on a quarterly basis. The Corporation's project team and business
units are in the final stages of completing this plan. The plan follows a five
phase approach recommended by regulators and others: awareness, assessment,
renovation, validation, and implementation.
Park's State of Readiness
With regard to information technology ("IT") systems, Park uses standard
hardware and off-the-shelf, widely-used banking software packages to satisfy
most internal and customer needs. The software is purchased without source
programming code. As a result, Park runs the software "as is" without program
modifications, thereby eliminating the need for a line by line review of custom
programming.
Testing is required for all mission critical software - identified as 79
software packages by the Year 2000 project team - to confirm their state of
readiness. All software and hardware vendors have been surveyed and have
indicated their products' Y2K readiness status. Most vendors have indicated
their software or hardware is Y2K compliant. In a few cases, vendors have
indicated their hardware or software is not Y2K compliant and a software upgrade
or replacement has been purchased, installed and tested for Y2K compliance.
-20-
<PAGE> 21
Testing of all internally used software packages has been completed.
Installation of replacement software is complete except for the replacement of a
loan documentation software package to be installed in September, 1999.
Mission critical outsourced software -- identified as 10 software packages by
the Year 2000 project team - is used to assist Park in serving customers. Park's
outsourced systems are offered by service providers that are national in scope.
Testing of all outsourced software packages is complete.
For non-IT systems, primarily buildings and banking equipment, vendor inquiries
and tests have been completed. Microcontrollers or embedded chips are generally
not present in Park's buildings due to their age and complexity. Upgrades of a
small number of Automated Teller Machines (ATMs) and building security systems
are complete. Non-IT systems are Y2K compliant.
Y2K readiness inquiries of Park's major borrowers and major funds providers have
been performed. In management's judgment, the result of these inquiries
indicates that the risk to the Corporation from Y2K failures related to these
entities is low. There can be no guarantee, but management's judgment is that
loan losses or liquidity problems attributed to the Y2K issue will not
materially impact the Corporation's financial condition or results of
operations.
Costs to Address Park's Year 2000 Issues
Due to the importance of IT systems to Park's business, management has not
deferred critical systems enhancements to become Y2K ready. Park does not expect
its redeployments to have a material impact on the Corporation's financial
condition or results of operations.
The Corporation has incurred expenses throughout 1998 and the first half of 1999
related to its Y2K project and will continue to incur expenses through 1999.
Depreciation expenses related to Y2K will continue thru 2001. These expenses are
not expected to materially impact operating results in any one quarter or year,
with a significant portion of these expenses represented by existing staff that
have been assigned to this project. Estimates are that incremental expenses for
1998 and 1999 will be $1,000,000 and for redeployed staff $2,000,000. From
January 1, 1998 through June 30, 1999, incremental expenses are approximately
$322,000 and redeployment expenses are approximately $1,500,000.
Risks of the Corporation's Year 2000 Issues
Park cannot determine the consequences of Y2K problems, if any, on its results
of operations, liquidity and financial condition due to its reliance on third
parties to facilitate service delivery to the Corporation's customers. These
third parties would include utility companies, the federal government, outsource
service providers and various critical vendors. Park is engaged in discussions
with its third parties and is attempting to obtain information as to their Y2K
readiness state. Park does not, however, have sufficient information at the
current time to predict whether they will be Y2K ready. While management is
executing steps to assure compliance with systems over which it has control, it
cannot be assured that third parties upon which Park relies for service delivery
will not have business interruptions due to Y2K problems.
-21-
<PAGE> 22
The Corporation and its banking affiliates are regulated by both state and
federal bank regulatory agencies. These agencies have issued numerous directives
with respect to the Year 2000 issue, with which Park is acting to comply.
Additionally, these regulatory agencies have made and will continue to make
on-site examinations to determine Y2K readiness.
Park's Contingency Plans
As the testing and remediation work is completed for each of the mission
critical software packages, a contingency plan is written in case of an
unforeseen Y2K failure. Park has prepared a comprehensive Y2K contingency plan
which includes detailed operating plans for year-end 1999 and early year 2000.
Board of Director approval and testing of the plan will be complete by September
30, 1999.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This Management's Discussion and Analysis of Financial Condition and Results of
Operations, including the discussion under "Year 2000 Readiness Disclosure,"
contains forward-looking statements within the meaning of federal securities
laws. Actual results are subject to risks and uncertainties, including those
specific to the Corporation and those specific to the industry which could cause
results to differ materially from those contemplated. The risks and
uncertainties include, but are not limited to third-party or Corporation
failures to achieve timely, effective remediation of Year 2000 issues, general
economic conditions, actions of competitors, regulatory actions, changes in
legislation and technology changes. Undue reliance should not be placed on the
forward-looking statements, which speak only as of the date hereof. The
Corporation does not undertake any obligation to publicly update any
forward-looking statement.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See Footnote 1 for disclosure that Park does not have any off-balance sheet
derivative financial instruments.
-22-
<PAGE> 23
PARK NATIONAL CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Park National Corporation is not engaged in any legal proceedings of a
material nature at the present time.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
As discussed in the Company's Proxy Statement for the 1999 Annual
Meeting of Shareholders, any qualified shareholder of the Company who
intends to submit a proposal to the Company at the 2000 Annual Meeting
of Shareholders (the "2000 Annual Meeting") must submit such proposal
to the Company not later than November 11, 1999 to be considered for
inclusion in the Company's Proxy Statement and form of Proxy (the
"Proxy Materials") relating to that meeting. If a shareholder intends
to present a proposal at the 2000 Annual Meeting of Shareholders, but
has not sought the inclusion of such proposal in the Company's Proxy
Materials, such proposal must be received by the Company prior to
January 25, 2000 or the Company's management proxies for the 2000
annual Meeting will be entitled to use their discretionary voting
authority should such proposal then be raised, without any discussion
of the matter in the Company's Proxy Materials.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
See Exhibit 27, Financial Data Schedule on Page 25
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1999.
-23-
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARK NATIONAL CORPORATION
DATE: August 10, 1999 BY: /s/ C. Daniel DeLawder
---------------- ----------------------
C. Daniel DeLawder
President and Chief Executive Officer
DATE: August 10, 1999 BY: /s/ John W. Kozak
---------------- -----------------------
John W. Kozak
Chief Financial Officer
-24-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 103,465
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 654,799
<INVESTMENTS-CARRYING> 5,502
<INVESTMENTS-MARKET> 5,698
<LOANS> 1,703,920
<ALLOWANCE> 40,763
<TOTAL-ASSETS> 2,539,046
<DEPOSITS> 1,946,205
<SHORT-TERM> 339,207
<LIABILITIES-OTHER> 18,988
<LONG-TERM> 77
0
0
<COMMON> 68,433
<OTHER-SE> 166,136
<TOTAL-LIABILITIES-AND-EQUITY> 2,539,046
<INTEREST-LOAN> 72,684
<INTEREST-INVEST> 20,428
<INTEREST-OTHER> 13
<INTEREST-TOTAL> 93,125
<INTEREST-DEPOSIT> 30,655
<INTEREST-EXPENSE> 36,488
<INTEREST-INCOME-NET> 56,637
<LOAN-LOSSES> 3,554
<SECURITIES-GAINS> (255)
<EXPENSE-OTHER> 32,384
<INCOME-PRETAX> 33,396
<INCOME-PRE-EXTRAORDINARY> 23,601
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,601
<EPS-BASIC> 2.54
<EPS-DILUTED> 2.53
<YIELD-ACTUAL> 5.10
<LOANS-NON> 2,578
<LOANS-PAST> 2,194
<LOANS-TROUBLED> 325
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 37,989
<CHARGE-OFFS> 2,932
<RECOVERIES> 2,152
<ALLOWANCE-CLOSE> 40,763
<ALLOWANCE-DOMESTIC> 40,763
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
