UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
o 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
| Ohio (State or other jurisdiction of incorporation or organization) |
31-1179518 (I.R.S. Employer Identification No.) |
50 North Third Street, Newark, Ohio 43055
(740) 349-8451
N/A
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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No o
14,309,881 Common shares, no par value per share, outstanding at April 26, 2005.
Page 1 of 33
PARK NATIONAL CORPORATION
CONTENTS
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PARK NATIONAL CORPORATION
| March 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
Assets: |
||||||||
Cash and due from banks |
$ | 134,917 | $ | 155,529 | ||||
Federal funds sold |
23,329 | 6,300 | ||||||
Interest bearing deposits |
1,598 | 2,096 | ||||||
Securities available-for-sale, at fair value
(amortized cost of $1,775,090 and $1,835,194
at March 31, 2005 and December 31, 2004) |
1,765,631 | 1,854,335 | ||||||
Securities held-to-maturity, at amortized cost
(fair value approximates $248,450 and $73,613
at March 31, 2005 and December 31, 2004) |
251,228 | 72,447 | ||||||
Loans (net of unearned interest) |
3,249,914 | 3,120,608 | ||||||
Allowance for loan losses |
70,322 | 68,328 | ||||||
Net loans |
3,179,592 | 3,052,280 | ||||||
Bank premises and equipment, net |
44,581 | 43,179 | ||||||
Bank owned life insurance |
95,837 | 94,909 | ||||||
Other assets |
180,129 | 131,509 | ||||||
Total assets |
$ | 5,676,842 | $ | 5,412,584 | ||||
Liabilities and Stockholders’ Equity: |
||||||||
Deposits: |
||||||||
Noninterest bearing |
$ | 609,064 | $ | 630,882 | ||||
Interest bearing |
3,229,499 | 3,058,979 | ||||||
Total deposits |
3,838,563 | 3,689,861 | ||||||
Short-term borrowings |
302,070 | 278,231 | ||||||
Long-term debt |
910,407 | 795,793 | ||||||
Other liabilities |
69,499 | 86,138 | ||||||
Total liabilities |
5,120,539 | 4,850,023 | ||||||
COMMITMENTS
AND CONTINGENCIES |
||||||||
Stockholders’ Equity: |
||||||||
Common stock (No par value; 20,000,000 shares
authorized; 15,271,213 shares issued in 2005 and 15,269,707 shares issued in 2004) |
208,346 | 208,251 | ||||||
Retained earnings |
443,700 | 433,260 | ||||||
Treasury stock (928,421 shares in 2005
and 949,480 shares in 2004) |
(89,592 | ) | (91,392 | ) | ||||
Accumulated other comprehensive income,
net of taxes |
(6,151 | ) | 12,442 | |||||
Total stockholders’ equity |
556,303 | 562,561 | ||||||
Total liabilities and
stockholders’ equity |
$ | 5,676,842 | $ | 5,412,584 | ||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
PARK NATIONAL CORPORATION
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
Interest income: |
||||||||
Interest and fees on loans |
$ | 52,240 | $ | 43,613 | ||||
Interest on: |
||||||||
Obligations of U.S. Government,
its agencies and other securities |
21,444 | 21,810 | ||||||
Obligations of states
and political subdivisions |
1,174 | 1,347 | ||||||
Other interest income |
101 | 17 | ||||||
Total interest income |
74,959 | 66,787 | ||||||
Interest expense: |
||||||||
Interest on deposits: |
||||||||
Demand and savings deposits |
2,968 | 1,523 | ||||||
Time deposits |
9,337 | 8,510 | ||||||
Interest on borrowings: |
||||||||
Short-term borrowings |
1,391 | 1,092 | ||||||
Long-term debt |
6,818 | 3,046 | ||||||
Total interest expense |
20,514 | 14,171 | ||||||
Net interest income |
54,445 | 52,616 | ||||||
Provision for loan losses |
1,082 | 1,465 | ||||||
Net interest income after
provision for loan losses |
53,363 | 51,151 | ||||||
Other income |
14,112 | 12,872 | ||||||
Gain (loss) on sale of securities |
— | 106 | ||||||
Continued
4
PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Income (Unaudited)
(Continued)
(dollars in thousands, except per share data)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
Other expense: |
||||||||
Salaries and employee benefits |
$ | 20,001 | $ | 18,148 | ||||
Occupancy expense |
2,280 | 1,729 | ||||||
Furniture and equipment expense |
1,368 | 1,581 | ||||||
Other expense |
10,755 | 10,067 | ||||||
Total other expense |
34,404 | 31,525 | ||||||
Income before federal income taxes |
33,071 | 32,604 | ||||||
Federal income taxes |
9,729 | 9,626 | ||||||
Net income |
$ | 23,342 | $ | 22,978 | ||||
Per Share: |
||||||||
Net income: |
||||||||
Basic |
$ | 1.63 | $ | 1.59 | ||||
Diluted |
$ | 1.61 | $ | 1.58 | ||||
Weighted average |
||||||||
Basic |
14,331,261 | 14,443,898 | ||||||
Diluted |
14,475,634 | 14,553,019 | ||||||
Cash dividends declared |
$ | 0.90 | $ | 0.838 | ||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
PARK NATIONAL CORPORATION
Three Months ended March 31, 2005 and 2004
| Accumulated | ||||||||||||||||||||
| Treasury | Other | |||||||||||||||||||
| Common | Retained | Stock | Comprehensive | Comprehensive | ||||||||||||||||
| Stock | Earnings | at Cost | Income | Income | ||||||||||||||||
BALANCE AT DECEMBER 31, 2003 |
$ | 105,895 | $ | 486,769 | ($ | 68,577 | ) | $ | 18,954 | |||||||||||
Net Income |
22,978 | $ | 22,978 | |||||||||||||||||
Accumulated
other
comprehensive
income, net of tax: |
||||||||||||||||||||
Unrealized net holding gain on
securities available-for-sale,
net of taxes $5,717 |
10,618 | 10,618 | ||||||||||||||||||
Total
comprehensive
income |
$ | 33,596 | ||||||||||||||||||
Cash dividends on
common stock: |
||||||||||||||||||||
Park at
$.838 per
share |
(12,114 | ) | ||||||||||||||||||
Treasury stock
purchased -
70,180 shares |
(7,586 | ) | ||||||||||||||||||
Treasury stock reissued for stock options -
16,458 shares |
1,440 | |||||||||||||||||||
BALANCE AT MARCH 31,
2004 |
$ | 105,895 | $ | 497,633 | ($ | 74,723 | ) | $ | 29,572 | |||||||||||
BALANCE AT DECEMBER
31, 2004 |
$ | 208,251 | $ | 433,260 | ($ | 91,392 | ) | $ | 12,442 | |||||||||||
Net Income |
23,342 | $ | 23,342 | |||||||||||||||||
Accumulated
other
comprehensive
income, net of tax: |
||||||||||||||||||||
Unrealized net holding loss on
securities available-for-sale,
net of taxes ($10,007) |
(18,593 | ) | (18,593 | ) | ||||||||||||||||
Total
comprehensive
income |
$ | 4,749 | ||||||||||||||||||
Cash dividends on
common stock: |
||||||||||||||||||||
Park at
$.90 per
share |
(12,902 | ) | ||||||||||||||||||
Shares issued for
stock options -
1,506 |
49 | |||||||||||||||||||
Tax benefit from
exercise of stock
options |
46 | |||||||||||||||||||
Treasury stock
purchased - 1,587
shares |
(176 | ) | ||||||||||||||||||
Treasury stock reissued for stock options -
22,646 shares |
1,976 | |||||||||||||||||||
BALANCE AT MARCH 31,
2005 |
$ | 208,346 | $ | 443,700 | ($ | 89,592 | ) | ($ | 6,151 | ) | ||||||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
PARK NATIONAL CORPORATION
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
Operating activities: |
||||||||
Net income |
$ | 23,342 | $ | 22,978 | ||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||
Depreciation, accretion and amortization |
104 | 665 | ||||||
Provision for loan losses |
1,082 | 1,465 | ||||||
Amortization of core deposit intangibles |
637 | 370 | ||||||
Realized investment security (gains) losses |
— | (106 | ) | |||||
Changes in assets and liabilities: |
||||||||
(Increase) decrease in other assets |
(5,807 | ) | (5,555 | ) | ||||
(Decrease) increase in other liabilities |
(7,546 | ) | 3,891 | |||||
Net cash provided from operating activities |
11,812 | 23,708 | ||||||
Investing activities: |
||||||||
Proceeds from sales of: |
||||||||
Available-for-sale securities |
— | 429 | ||||||
Proceeds from maturity of: |
||||||||
Available-for-sale securities |
92,068 | 74,031 | ||||||
Held-to-maturity securities |
8,639 | 13,464 | ||||||
Purchases of: |
||||||||
Available-for-sale securities |
(26,230 | ) | (1,423 | ) | ||||
Held-to-maturity securities |
(187,420 | ) | — | |||||
Net decrease in interest bearing deposits with other banks |
498 | — | ||||||
Net decrease (increase) in loans |
26,573 | (44,572 | ) | |||||
Loans sold with branch office |
5,273 | — | ||||||
Cash paid for acquistion, net |
(39,227 | ) | — | |||||
Purchases of premises and equipment, net |
(1,383 | ) | (735 | ) | ||||
Net cash (used by) provided from
investing activities |
(121,209 | ) | 41,194 | |||||
Continued
7
PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Cash Flows (Unaudited)
(Continued)
(dollars in thousands)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
Financing activities: |
||||||||
Net increase in deposits |
$ | 25,315 | $ | 91,614 | ||||
Deposits sold with branch office |
($ | 12,419 | ) | — | ||||
Net increase (decrease) in short-term borrowings |
23,839 | (158,982 | ) | |||||
Exercise of stock options |
95 | — | ||||||
Exercise of stock options and purchase of treasury stock, net |
1,800 | (6,146 | ) | |||||
Long-term debt issued |
100,939 | 160,000 | ||||||
Repayment of long-term debt |
(7,965 | ) | (138,727 | ) | ||||
Cash dividends paid |
(25,790 | ) | (24,245 | ) | ||||
Net cash provided from (used by) financing activities |
105,814 | (76,486 | ) | |||||
Decrease in cash and cash equivalents |
(3,583 | ) | (11,584 | ) | ||||
Cash and cash equivalents at beginning of year |
161,829 | 169,782 | ||||||
Cash and cash equivalents at end of period |
$ | 158,246 | $ | 158,198 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid for: |
||||||||
Interest |
$ | 20,090 | $ | 14,487 | ||||
Income taxes |
$ | 0 | $ | 0 | ||||
Summary of
business acquisition: |
||||||||
Fair value of assets acquired |
$ | 185,372 | ||||||
Cash paid for purchase of First Clermont Bank |
(52,500 | ) | ||||||
Fair value of liabilities assumed |
161,241 | |||||||
Goodwill recognized |
$ | 28,369 | ||||||
| Exhibit 31.1 | ||||||||
| Exhibit 31.2 | ||||||||
| Exhibit 32.1 | ||||||||
| Exhibit 32.2 | ||||||||
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
PARK NATIONAL CORPORATION
For the Three Months Ended March 31, 2005 and 2004.
Note 1 — Basis of Presentation
The consolidated financial statements included in this report have been prepared by Park National Corporation (the “Registrant”, “Corporation”, “Company”, or “Park”) without audit. In the opinion of management, all adjustments (consisting solely of normal recurring accruals) necessary for a fair presentation of results of operations for the interim periods included herein have been made. The results of operations for the period ended March 31, 2005 are not necessarily indicative of the operating results to be anticipated for the fiscal year ended December 31, 2005.
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 U.S. generally accepted accounting principles. These financial statements should be read in conjunction with the financial statements incorporated by reference in the Annual Report on Form 10-K of Park for the fiscal year ended December 31, 2004 from Park’s 2004 Annual Report to Shareholders.
Park does not have any off-balance sheet derivative financial instruments such as interest-rate swap agreements.
Note 2 — Acquisition, Branch Sale and Intangible Assets
On January 3, 2005, Park acquired all of the stock of First Clermont Bank (First Clermont) of Milford, Ohio for $52,500,000 in an all cash transaction accounted for as a purchase. Immediately following Park’s stock acquisition, First Clermont merged with Park’s subsidiary, The Park National Bank. First Clermont is being operated as a separate division of The Park National Bank. The goodwill recognized as a result of this acquisition was $28,369,000. The fair value of the acquired assets of First Clermont were $185,372,000 and the fair value of the liabilities assumed were $161,241,000 at January 3, 2005.
On February 11, 2005, Park’s subsidiary, Century National Bank, sold its Roseville, Ohio branch office. The Roseville branch office was acquired in connection with the acquisition of First Federal Bancorp, Inc. (First Federal) on December 31, 2004. The Federal Reserve Board required that the Roseville branch office be sold as a condition of their approval of the merger transactions involving Park and First Federal. The deposits sold with the Roseville branch office totaled $12,419,000 and the loans sold with the branch office totaled $5,273,000. Century National Bank received a premium of $1,184,000 from the sale of the deposits.
-9-
The following table shows the activity in goodwill and the core deposit intangibles during the first quarter of 2005.
| Core Deposit | |||||||||||||||||
| (In thousands) | Goodwill | Intangibles | Total | ||||||||||||||
December 31, 2004 |
$ | 34,187 | $ | 6,700 | $ | 40,887 | |||||||||||
First Clermont Acquisition |
28,369 | 3,664 | 32,033 | ||||||||||||||
Roseville Branch Sale |
<860 | > | <324 | > | <1,184 | > | |||||||||||
Quarterly Amortization |
— | <637 | > | <637 | > | ||||||||||||
March 31, 2005 |
$ | 61,696 | $ | 9,403 | $ | 71,099 | |||||||||||
Goodwill and core deposit intangibles are included in other assets on the Consolidated Condensed Balance Sheets. Goodwill is evaluated on an annual basis for impairment. Goodwill was evaluated for impairment during the first quarter of 2005, and no impairment charge was necessary.
Core deposit intangibles are being amortized to expense, principally on the straight-line method, over periods ranging from six to eight years. Core deposit intangibles amortiza