UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number: 1-13006
Park National Corporation
(Exact name of registrant as specified in its charter)
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Ohio
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31-1179518
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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50 North Third Street, Newark, Ohio 43055
(Address of principal executive offices) (Zip Code)
(740) 349-8451
(Registrants 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
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller Reporting Company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
13,964,560 Common shares, no par value per share, outstanding at April 30, 2008.
Page 1 of 46
PARK NATIONAL CORPORATION
PARK NATIONAL CORPORATION
Consolidated Condensed Balance Sheets (Unaudited)
(dollars in thousands)
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March 31,
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December 31,
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2008
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2007
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Assets:
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Cash and due from banks
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$
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176,350
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$
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183,165
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Money market instruments
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8,546
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10,232
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Cash and cash
equivalents
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184,896
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193,397
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Interest bearing deposits
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1
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1
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Securities available-for-sale, at fair value
(amortized cost of $1,661,576 and $1,473,052
at March 31, 2008 and December 31, 2007)
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1,684,276
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1,474,517
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Securities held-to-maturity, at amortized cost
(fair value approximates $205,805 and $161,414
at March 31, 2008 and December 31, 2007)
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207,139
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165,421
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Other investment securities
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64,620
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63,165
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Loans
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4,253,363
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4,224,134
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Allowance for loan losses
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85,848
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87,102
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Net loans
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4,167,515
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4,137,032
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Bank premises and equipment, net
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68,816
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66,634
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Bank owned life insurance
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128,726
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119,472
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Goodwill and other intangible assets
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143,550
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144,556
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Other assets
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131,826
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136,907
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Total assets
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$
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6,781,365
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$
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6,501,102
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Liabilities and Stockholders Equity:
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Deposits:
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Noninterest bearing
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$
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711,151
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$
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695,466
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Interest bearing
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3,808,605
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3,743,773
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Total deposits
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4,519,756
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4,439,239
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Short-term borrowings
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753,953
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759,318
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Long-term debt
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787,512
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590,409
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Subordinated Debentures
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40,000
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40,000
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Other liabilities
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88,965
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92,124
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Total liabilities
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6,190,186
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5,921,090
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COMMITMENTS AND CONTINGENCIES
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Stockholders Equity:
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Common stock (No par value; 20,000,000 shares
authorized; 16,151,188 shares issued
at 2008 and
16,151,200 shares issued at 2007)
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301,213
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301,213
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Retained earnings
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487,443
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489,511
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Treasury stock (2,186,624 shares at 2008
and 2,186,624 shares at 2007)
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(208,104
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)
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(208,104
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)
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Accumulated other comprehensive income (loss),
net of taxes
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10,627
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(2,608
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)
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Total stockholders equity
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591,179
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580,012
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Total liabilities and
stockholders equity
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$
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6,781,365
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$
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6,501,102
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Income (Unaudited)
(dollars in thousands, except per share data)
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Three Months Ended
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March 31,
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2008
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2007
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Interest and dividends income:
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Interest and fees on loans
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$
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79,010
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$
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71,182
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Interest and dividends on:
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Obligations of U.S. Government,
its agencies and other securities
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20,705
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18,547
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Obligations of states
and political subdivisions
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654
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813
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Other interest income
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99
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294
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Total interest and dividends income
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100,468
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90,836
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Interest expense:
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Interest on deposits:
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Demand and savings deposits
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7,358
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8,097
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Time deposits
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19,199
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17,581
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Interest on borrowings:
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Short-term borrowings
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4,751
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3,918
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Long-term debt
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7,676
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6,342
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Total interest expense
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38,984
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35,938
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Net interest income
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61,484
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54,898
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Provision for loan losses
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7,394
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2,205
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Net interest income
after
provision for loan
losses
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54,090
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52,693
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Other income:
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Income from fiduciary activities
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3,573
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3,504
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Service charges on deposit accounts
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5,784
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4,847
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Other service income
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3,077
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2,505
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Other
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8,605
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5,318
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Total other income
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21,039
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16,174
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Gain on sale of securities
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309
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Continued
4
PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Income (Unaudited)
(Continued)
(dollars in thousands, except per share data)
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Three Months Ended
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March 31,
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2008
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2007
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Other expense:
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Salaries and employee benefits
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$
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24,671
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$
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23,061
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Occupancy expense
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3,025
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2,560
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Furniture and equipment expense
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2,317
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2,176
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Other expense
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13,264
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11,512
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Total other expense
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43,277
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39,309
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|
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Income before income taxes
|
|
|
32,161
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|
|
|
29,558
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Income taxes
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|
|
9,183
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|
|
|
8,495
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Net income
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|
$
|
22,978
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|
$
|
21,063
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Per Share:
|
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|
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|
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Net income:
|
|
|
|
|
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Basic
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$
|
1.65
|
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|
$
|
1.49
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Diluted
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$
|
1.65
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|
$
|
1.49
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Weighted average
|
|
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Basic
|
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13,964,572
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|
|
|
14,121,331
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|
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Diluted
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13,964,572
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|
14,138,517
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Cash dividends declared
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$
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0.94
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|
|
$
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0.93
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|
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)
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|
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Accumulated
|
|
|
|
|
|
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|
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|
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Treasury
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|
Other
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Common
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|
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Retained
|
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|
Stock
|
|
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Comprehensive
|
|
|
Comprehensive
|
|
Three Months ended March 31, 2008 and 2007
|
|
Stock
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|
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Earnings
|
|
|
at Cost
|
|
|
Income (loss)
|
|
|
Income
|
|
|
BALANCE AT DECEMBER 31, 2006
|
|
$
|
217,067
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|
|
$
|
519,563
|
|
|
|
($143,371
|
)
|
|
|
($22,820
|
)
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
21,063
|
|
|
|
|
|
|
|
|
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|
$
|
21,063
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|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net holding gain on securities available-for-sale, net of taxes $1,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,709
|
|
|
|
3,709
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,772
|
|
|
|
|
|
Cash dividends on common stock at $.93 per share
|
|
|
|
|
|
|
(12,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payment for fractional shares in dividend reinvestment plan
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased - 52,434 shares
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|
|
|
|
|
|
|
|
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(4,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock reissued for stock options - 2,846 shares
|
|
|
|
|
|
|
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for Vision Bancshares purchase - 792,937 shares
|
|
|
83,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2007
|
|
$
|
300,324
|
|
|
$
|
527,677
|
|
|
|
($148,000
|
)
|
|
|
($19,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2007
|
|
$
|
301,213
|
|
|
$
|
489,511
|
|
|
|
($208,104
|
)
|
|
|
($2,608
|
)
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
22,978
|
|
|
|
|
|
|
|
|
|
|
$
|
22,978
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net holding (loss) on cash flow hedge, net of taxes ($306)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(568
|
)
|
|
|
(568
|
)
|
|
Unrealized net holding gain on securities available-for-sale, net of taxes $7,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,803
|
|
|
|
13,803
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,213
|
|
|
|
|
|
Cash dividends on common stock at $.94 per share
|
|
|
|
|
|
|
(13,081
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefit pertaining
to endorsement split-dollar life insurance
|
|
|
|
|
|
|
(11,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAS 158 measurement date adjustment, net of taxes ($178)
|
|
|
|
|
|
|
(331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2008
|
|
$
|
301,213
|
|
|
$
|
487,443
|
|
|
|
($208,104
|
)
|
|
$
|
10,627
|
|
|
|
|
|
|
|
|
|
|
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Cash Flows (Unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,978
|
|
|
$
|
21,063
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, accretion and amortization
|
|
|
(128
|
)
|
|
|
(569
|
)
|
|
Provision for loan losses
|
|
|
7,394
|
|
|
|
2,205
|
|
|
Stock dividends on Federal Home Loan Bank stock
|
|
|
(725
|
)
|
|
|
|
|
|
Realized net investment security (gains)
|
|
|
(309
|
)
|
|
|
|
|
|
Amortization of core deposit intangibles
|
|
|
1,006
|
|
|
|
684
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in other assets
|
|
|
(7,908
|
)
|
|
|
(6,172
|
)
|
|
Increase (decrease) in other liabilities
|
|
|
1,884
|
|
|
|
(671
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided from operating activities
|
|
|
24,192
|
|
|
|
16,540
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of available-for-sale securities
|
|
|
25,309
|
|
|
|
|
|
|
Proceeds from maturity of:
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
106,059
|
|
|
|
195,424
|
|
|
Held-to-maturity securities
|
|
|
164
|
|
|
|
2,853
|
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
(319,139
|
)
|
|
|
(239,330
|
)
|
|
Held-to-maturity securities
|
|
|
(41,882
|
)
|
|
|
|
|
|
Net (increase) in other investments
|
|
|
(730
|
)
|
|
|
|
|
|
Net (increase) in loans
|
|
|
(36,299
|
)
|
|
|
(13,530
|
)
|
|
Cash paid for acquisition, net
|
|
|
|
|
|
|
(44,993
|
)
|
|
Purchases of bank owned life insurance, net
|
|
|
(8,100
|
)
|
|
|
|
|
|
Purchases of premises and equipment, net
|
|
|
(4,076
|
)
|
|
|
(10,508
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(278,694
|
)
|
|
|
(110,084
|
)
|
|
Continued
7
PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Cash Flows (Unaudited)
(Continued)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
$
|
80,517
|
|
|
$
|
149,848
|
|
|
Net (decrease) in short-term borrowings
|
|
|
(5,365
|
)
|
|
|
(11,324
|
)
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
233
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(4,862
|
)
|
|
Cash payment for fractional shares in
dividend reinvestment plan
|
|
|
|
|
|
|
(1
|
)
|
|
Long-term debt issued
|
|
|
200,000
|
|
|
|
75,100
|
|
|
Repayment of long-term debt
|
|
|
(2,897
|
)
|
|
|
(77,680
|
)
|
|
Cash dividends paid
|
|
|
(26,254
|
)
|
|
|
(25,896
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided from financing activities
|
|
|
246,001
|
|
|
|
105,418
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash
equivalents
|
|
|
(8,501
|
)
|
|
|
11,874
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
193,397
|
|
|
|
186,256
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
184,896
|
|
|
$
|
198,130
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
38,396
|
|
|
$
|
35,829
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
1,000
|
|
|
$
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
Summary of business acquisition:
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
|
|
|
|
$
|
686,512
|
|
|
Cash paid for purchase of Vision Bancshares
|
|
|
|
|
|
|
(87,843
|
)
|
|
Stock issued for purchase of Vision Bancshares
|
|
|
|
|
|
|
(83,258
|
)
|
|
Fair value of liabilities assumed
|
|
|
|
|
|
|
(624,432
|
)
|
|
Goodwill recognized
|
|
|
|
|
|
|
($109,021
|
)
|
|
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
PARK NATIONAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2008 and 2007.
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 quarter ended March 31, 2008 are not necessarily indicative of
the operating results to be anticipated for the fiscal year ending December 31, 2008.
The accompanying unaudited consolidated condensed 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 consolidated financial statements incorporated by reference
in the Annual Report on Form 10-K of Park for the fiscal year ended December 31, 2007 from Parks
2007 Annual Report to Shareholders.
Parks significant accounting policies are described in Note 1 of the Notes to Consolidated
Financial Statements included in Parks 2007 Annual Report to Shareholders. For interim reporting
purposes, Park follows the same basic accounting policies and considers each interim period as an
integral part of an annual period.
Note 2
Acquisitions and Intangible Assets
On March 9, 2007, Park acquired all of the stock and outstanding stock options of Vision
Bancshares, Inc. for $87.8 million in cash and 792,937 shares of Park common stock valued at $83.3
million or $105.00 per share. The goodwill recognized as a result of this acquisition was $109.0
million. Substantially, none of the goodwill is tax deductible. Management continues to expect
that the acquisition of Vision will improve the future growth rate for Parks loans and deposits.
The fair value of the acquired assets of Vision was $686.5 million and the fair value of the
liabilities assumed was $624.4 million at March 9, 2007.
During the first quarter of 2008, loans at Vision Bank have grown by $26 million to $666 million at
March 31, 2008. For the twelve months ended March 31, 2008, Vision Bank had loan growth of $67
million or 11.3%, while the Ohio-based banks had loan growth of $97 million or 2.8% for the same
period.
Additional information pertaining to Parks acquisitions made during 2007 is discussed in Note 2
of the Notes to Consolidated Financial Statements included in Parks 2007 Annual Report to
Shareholders.
The following table shows the activity in goodwill and core deposit intangibles during the first
three months of 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Deposit
|
|
|
(In Thousands)
|
|
Goodwill
|
|
Intangibles
|
|
Total
|
December 31, 2007
|
|
$
|
127,320
|
|
|
$
|
17,236
|
|
|
$
|
144,556
|
|
Amortization
|
|
|
|
|
|
|
<1,006>
|
|
|
|
<1,006>
|
|
March 31, 2008
|
|
$
|
127,320
|
|
|
$
|
16,230
|
|
|
$
|
143,550
|
|
-9-
The core deposit intangibles are being amortized to expense principally on the straight-line
method, over periods ranging from six to ten years. The amortization period for the Vision Bank
and the Millersburg branch purchase core deposit intangibles is six years. Management expects that
the core deposit amortization expense will be $1.0 million for the second, third and fourth
quarters of 2008.
Core deposit amortization expense is projected to be as follows for each of the following years:
|
|
|
|
|
|
|
Annual
|
(In Thousands)
|
|
Amortization
|
2008
|
|
$
|
4,025
|
|
2009
|
|
$
|
3,746
|
|
2010
|
|
$
|
3,422
|
|
2011
|
|
$
|
2,677
|
|
2012
|
|
$
|
2,677
|
|
Total
|
|
$
|
16,547
|
|
Goodwill is evaluated on an annual basis for impairment and otherwise when circumstances warrant.
During the fourth quarter of 2007, Parks management determined that the goodwill from the Vision
Bank acquisition on March 9, 2007 could possibly be impaired due to the significant deterioration
in the credit condition of Vision Bank. Nonperforming loans at Vision Bank increased from $26.3
million at September 30, 2007 to $63.5 million at December 31, 2007 or 9.9% of year-end loan
balances. Net loan charge-offs were $6.4 million for the fourth quarter or an annualized 3.99% of
average loan balances. Management determined that due to these severe credit conditions, a
valuation of the fair value of Vision Bank be computed to determine if the goodwill of $109.0
million was impaired. Management determined that an impairment charge of $54.0 million was
appropriate; therefore, the current carrying value of goodwill resulting from the Vision
acquisition is $55.0 million at March 31, 2008.
Goodwill for the Ohio-based banks was evaluated during the first quarter of 2008, and no impairment
charge was necessary.
Note 3
Allowance for Loan Losses
The allowance for loan losses is that amount believed adequate to absorb probable incurred credit
losses in the loan portfolio based on managements 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
managements periodic evaluation of these and other pertinent factors.
Commercial loans are individually risk graded. Where appropriate, reserves are allocated to
individual loans based on managements estimate of the borrowers ability to repay the loan given
the availability of collateral and other sources of cash flow. Homogenous loans, such as consumer
installment loans and residential mortgage loans are not individually risk graded. Reserves are
established for each pool of loans based on historical loan loss experience, current economic
conditions, loan delinquency and other environmental factors.
-10-
The following table shows the activity in the allowance for loan losses for the three months ended
March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In Thousands)
|
|
2008
|
|
2007
|
Average Loans
|
|
$
|
4,229,423
|
|
|
$
|
3,631,168
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses:
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
87,102
|
|
|
$
|
70,500
|
|
|
|
|
|
|
|
|
|
|
Charge-Offs:
|
|
|
|
|
|
|
|
|
Commercial, Financial and Agricultural
|
|
|
421
|
|
|
|
1,117
|
|
Real Estate Construction
|
|
|
2,611
|
|
|
|
56
|
|
Real Estate Residential
|
|
|
3,599
|
|
|
|
961
|
|
Real Estate Commercial
|
|
|
1,100
|
|
|
|
53
|
|
Consumer
|
|
|
2,270
|
|
|
|
1,777
|
|
Lease Financing
|
|
|
|
|
|
|
|
|
|
|
|
Total Charge-Offs
|
|
|
10,001
|
|
|
|
3,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
Commercial, Financial and Agricultural
|
|
|
216
|
|
|
|
314
|
|
Real Estate Construction
|
|
|
|
|
|
|
|
|
Real Estate Residential
|
|
|
64
|
|
|
|
145
|
|
Real Estate Commercial
|
|
|
17
|
|
|
|
250
|
|
Consumer
|
|
|
1,050
|
|
|
|
1,034
|
|
Lease Financing
|
|
|
6
|
|
|
|
21
|
|
|
|
|
Total Recoveries
|
|
|
1,353
|
|
|
|
1,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charge-Offs
|
|
|
8,648
|
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
|
|
|
7,394
|
|
|
|
2,205
|
|
Allowance for Loan Losses of Acquired
Banks
|
|
|
|
|
|
|
9,334
|
|
|
|
|
Ending Balance
|
|
$
|
85,848
|
|
|
$
|
79,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Ratio of Net Charge-Offs to
Average Loans
|
|
|
.82
|
%
|
|
|
.25
|
%
|
Ratio of Allowance for Loan Losses to End of
Period Loans
|
|
|
2.02
|
%
|
|
|
1.95
|
%
|
-11-
Note 4
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the
three months ended March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
(Dollars in Thousands, Except Per Share Data)
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
Numerator:
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
22,978
|
|
|
$
|
21,063
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for Basic Earnings Per Share
(Weighted Average Shares Outstanding)
|
|
|
13,964,572
|
|
|
|
14,121,331
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
17,186
|
|
Denominator for Diluted Earnings Per Share
(Weighted Average Shares Outstanding
Adjusted for the Dilutive Securities)
|
|
|
13,964,572
|
|
|
|
14,138,517
|
|
Earnings per Share:
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
$
|
1.65
|
|
|
$
|
1.49
|
|
Diluted Earnings Per Share
|
|
$
|
1.65
|
|
|
$
|
1.49
|
|
For the three months ended March 31, 2008, options to purchase 601,919 shares of common stock were
outstanding but not included in the computation of diluted earnings per share because the
respective option exercise prices exceeded the market value of the underlying common shares such
that their inclusion would have had an anti-dilutive effect. The amount of 601,919 represented all
outstanding options at March 31, 2008. For the three months ended March 31, 2007, options to
purchase 652,224 shares of common stock were outstanding but not included in the computation of
diluted net income per share due to their having the same anti-dilutive effect as those disclosed
for the three months ended March 31, 2008.
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 Corporations
financial institution subsidiaries are The Park National Bank (PNB), The Richland Trust Company
(RTC), Century National Bank (CNB), The First-Knox National Bank of Mount Vernon (FKNB), United
Bank, N.A. (UB), Second National Bank (SNB), The Security National Bank and Trust Co. (SEC), The
Citizens National Bank of Urbana (CIT) and Vision Bank (VIS).
-12-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results for the Three Months Ended March 31, 2008
|
|
Balances at
|
(In Thousands)
|
|
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
Net Interest
|
|
Provision for
|
|
Gain on Sale
|
|
Other
|
|
Net Income
|
|
|
|
|
Income
|
|
Loan Losses
|
|
of Securities
|
|
Expense
|
|
(Loss)
|
|
Assets
|
PNB
|
|
$
|
19,451
|
|
|
$
|
764
|
|
|
$
|
9,159
|
|
|
$
|
12,708
|
|
|
$
|
9,906
|
|
|
$
|
2,491,954
|
|
RTC
|
|
|
4,628
|
|
|
|
75
|
|
|
|
1,640
|
|
|
|
2,612
|
|
|
|
2,354
|
|
|
|
537,398
|
|
CNB
|
|
|
6,689
|
|
|
|
50
|
|
|
|
2,184
|
|
|
|
4,044
|
|
|
|
3,159
|
|
|
|
725,039
|
|
FKNB
|
|
|
8,127
|
|
|
|
575
|
|
|
|
2,729
|
|
|
|
4,635
|
|
|
|
3,719
|
|
|
|
792,063
|
|
UB
|
|
|
1,915
|
|
|
|
|
|
|
|
689
|
|
|
|
1,433
|
|
|
|
789
|
|
|
|
204,195
|
|
SNB
|
|
|
3,441
|
|
|
|
290
|
|
|
|
721
|
|
|
|
1,953
|
|
|
|
1,318
|
|
|
|
447,380
|
|
SEC
|
|
|
6,991
|
|
|
|
340
|
|
|
|
2,897
|
|
|
|
5,413
|
|
|
|
2,851
|
|
|
|
826,673
|
|
CIT
|
|
|
1,211
|
|
|
|
|
|
|
|
405
|
|
|
|
1,032
|
|
|
|
399
|
|
|
|
143,508
|
|
VIS
|
|
|
6,846
|
|
|
|
4,800
|
|
|
|
1,082
|
|
|
|
6,128
|
|
|
|
<1,832>
|
|
|
|
917,869
|
|
All Other
|
|
|
2,185
|
|
|
|
500
|
|
|
|
<158>
|
|
|
|
3,319
|
|
|
|
315
|
|
|
|
<304,714>
|
|
|
|
|
|
|
TOTAL
|
|
$
|
61,484
|
|
|
$
|
7,394
|
|
|
$
|
21,348
|
|
|
$
|
43,277
|
|
|
$
|
22,978
|
|
|
$
|
6,781,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results for the Three Months Ended March 31, 2007
|
|
Balances at
|
(In Thousands)
|
|
March 31, 2007
|
|
|
Net Interest
|
|
Provision for
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Income
|
|
Loan Losses
|
|
Other Income
|
|
Expense
|
|
Net Income
|
|
Assets
|
PNB
|
|
$
|
18,136
|
|
|
$
|
620
|
|
|
$
|
6,871
|
|
|
$
|
12,869
|
|
|
$
|
7,795
|
|
|
$
|
2,037,618
|
|
RTC
|
|
|
4,276
|
|
|
|
420
|
|
|
|
1,223
|
|
|
|
2,867
|
|
|
|
1,467
|
|
|
|
548,437
|
|
CNB
|
|
|
6,213
|
|
|
|
440
|
|
|
|
1,951
|
|
|
|
4,205
|
|
|
|
2,341
|
|
|
|
719,702
|
|
FKNB
|
|
|
7,713
|
|
|
|
255
|
|
|
|
1,904
|
|
|
|
4,635
|
|
|
|
3,121
|
|
|
|
761,678
|
|
UB
|
|
|
1,871
|
|
|
|
20
|
|
|
|
588
|
|
|
|
1,678
|
|
|
|
522
|
|
|
|
209,681
|
|
SNB
|
|
|
3,071
|
|
|
|
40
|
|
|
|
599
|
|
|
|
2,051
|
|
|
|
1,105
|
|
|
|
392,537
|
|
SEC
|
|
|
7,596
|
|
|
|
140
|
|
|
|
2,243
|
|
|
|
5,200
|
|
|
|
3,057
|
|
|
|
850,713
|
|
CIT
|
|
|
1,309
|
|
|
|
40
|
|
|
|
394
|
|
|
|
1,058
|
|
|
|
412
|
|
|
|
154,444
|
|
VIS
|
|
|
2,075
|
|
|
|
|
|
|
|
266
|
|
|
|
1,405
|
|
|
|
581
|
|
|
|
813,074
|
|
All Other
|
|
|
2,638
|
|
|
|
230
|
|
|
|
135
|
|
|
|
3,341
|
|
|
|
662
|
|
|
|
<179,829>
|
|
|
|
|
|
|
TOTAL
|
|
$
|
54,898
|
|
|
$
|
2,205
|
|
|
$
|
16,174
|
|
|
$
|
39,309
|
|
|
$
|
21,063
|
|
|
$
|
6,308,055
|
|
|
|
|
|
|
-13-
The operating results of the Parent Company and Guardian Financial Services Company (GFC) in the
all other row are used to reconcile the segment totals to the consolidated condensed statements
of income for the periods ended March 31, 2008 and 2007. The reconciling amounts for consolidated
total assets for both of the periods ended March 31, 2008 and 2007 consist of the elimination of
intersegment borrowings, and the assets of the Parent Company and GFC which are not eliminated.
The results for Vision Bank for March 31, 2007 are from the acquisition date of March 9, 2007
through March 31, 2007.
Note 7
Stock Option Plans
Park did not grant any stock options during the first quarter of 2008 or the first quarter of 2007.
Additionally, no stock options became vested during the first quarter of 2008 or 2007.
The following table summarizes stock option activity during the first three months of 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average Exercise
|
|
|
Stock Options
|
|
Price Per Share
|
Outstanding at December 31, 2007
|
|
|
615,191
|
|
|
$
|
100.63
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited/Expired
|
|
|
<13,272>
|
|
|
|
100.60
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
601,919
|
|
|
$
|
100.63
|
|
|
|
|
All of the stock options outstanding at March 31, 2008 were exercisable. The aggregate intrinsic
value of the outstanding stock options at March 31, 2008 was $0.
No options were exercised during the first quarter of 2008. The intrinsic value of the stock
options exercised during the first quarter of 2007 was $47,000. The weighted average contractual
remaining term was 1.8 years for the stock options outstanding at March 31, 2008.
All of the common shares delivered upon exercise of incentive stock options granted under the Park
National Corporation 2005 Incentive Stock Option Plan (the 2005 Plan) and the Park National
Corporation 1995 Incentive Stock Option Plan (the 1995 Plan) are to be treasury shares. At March
31, 2008, incentive stock options (granted under both the 2005 Plan and 1995 Plan) covering 590,254
common shares were outstanding. The remaining outstanding stock options at March 31, 2008 covering
11,665 common shares were granted under a stock option plan (the Security Plan) assumed by Park
in the acquisition of Security Banc Corporation in 2001. At March 31, 2008, Park held 1,008,681
treasury shares that are allocated for the stock option plans (including the Security Plan).
-14-
Note 8
Loans
The composition of the loan portfolio was as follows at the dates shown:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(In Thousands)
|
|
2008
|
|
2007
|
Commercial, Financial and Agricultural
|
|
$
|
616,844
|
|
|
$
|
613,282
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
531,657
|
|
|
|
536,389
|
|
Residential
|
|
|
1,504,305
|
|
|
|
1,481,174
|
|
Commercial
|
|
|
997,026
|
|
|
|
993,101
|
|
Consumer
|
|
|
596,847
|
|
|
|
593,388
|
|
Leases
|
|
|
6,684
|
|
|
|
6,800
|
|
|
|
|
Total Loans
|
|
$
|
4,253,363
|
|
|
$
|
4,224,134
|
|
|
|
|
Note 9
Investment Securities
The amortized cost and fair values of investment securities are shown in the following table.
Management evaluates investment securities on a quarterly basis for other-than-temporary
impairment. No impairment charges have been deemed necessary in 2008 or 2007. The unrealized
losses on debt securities are primarily the result of changes in interest rates and will not
prohibit Park from receiving its contractual principal and interest payments.
-15-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
March 31, 2008
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
Estimated Fair
|
Securities Available-for-Sale
|
|
Amortized Cost
|
|
Holding Gains
|
|
Holding Losses
|
|
Value
|
Obligations of U.S. Treasury
and Other U.S. Government Sponsored Entities
|
|
$
|
157,847
|
|
|
$
|
3,698
|
|
|
$
|
|
|
|
$
|
161,545
|
|
Obligation of States and Political Subdivisions
|
|
|
40,519
|
|
|
|
749
|
|
|
|
20
|
|
|
|
41,248
|
|
U.S. Government Sponsored Entities
Asset-Backed Securities and Other Asset-Backed
Securities
|
|
|
1,460,769
|
|
|
|
18,837
|
|
|
|
423
|
|
|
|
1,479,183
|
|
Equity Securities
|
|
|
2,441
|
|
|
|
393
|
|
|
|
534
|
|
|
|
2,300
|
|
Total
|
|
$
|
1,661,576
|
|
|
$
|
23,677
|
|
|
$
|
977
|
|
|
$
|
1,684,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
March 31, 2008
|
|
|
|
|
|
Unrecognized
|
|
Unrecognized
|
|
Estimated
|
Securities Held-to-Maturity
|
|
Amortized Cost
|
|
Holding Gains
|
|
Holding Losses
|
|
Fair Value
|
Obligations of States and Political Subdivisions
|
|
$
|
13,546
|
|
|
$
|
152
|
|
|
$
|
|
|
|
$
|
13,698
|
|
U.S. Government Sponsored Entities
Asset-Backed Securities and Other Asset-Backed
Securities
|
|
|
193,593
|
|
|
|
96
|
|
|
|
1,582
|
|
|
|
192,107
|
|
Total
|
|
$
|
207,139
|
|
|
$
|
248
|
|
|
$
|
1,582
|
|
|
$
|
205,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
December 31, 2007
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
Estimated
|
Securities Available-for-Sale
|
|
Amortized Cost
|
|
Holding Gains
|
|
Holding Losses
|
|
Fair Value
|
Obligations of U.S. Treasury
and Other U.S. Government Sponsored Entities
|
|
$
|
200,996
|
|
|
$
|
2,562
|
|
|
$
|
|
|
|
$
|
203,558
|
|
Obligation of States and Political Subdivisions
|
|
|
44,805
|
|
|
|
716
|
|
|
|
20
|
|
|
|
45,501
|
|
U.S. Government Sponsored Entities
Asset-Backed Securities and Other Asset-Backed
Securities
|
|
|
1,224,958
|
|
|
|
6,292
|
|
|
|
8,115
|
|
|
|
1,223,135
|
|
Equity Securities
|
|
|
2,293
|
|
|
|
420
|
|
|
|
390
|
|
|
|
2,323
|
|
Total
|
|
$
|
1,473,052
|
|
|
$
|
9,990
|
|
|
$
|
8,525
|
|
|
$
|
1,474,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
December 31, 2007
|
|
|
|
|
|
Unrecognized
|
|
Unrecognized
|
|
Estimated
|
Securities Held-to-Maturity
|
|
Amortized Cost
|
|
Holding Gains
|
|
Holding Losses
|
|
Fair Value
|
Obligations of States and Political Subdivisions
|
|
$
|
13,551
|
|
|
$
|
127
|
|
|
$
|
|
|
|
$
|
13,678
|
|
U.S. Government Sponsored Entities
Asset-Backed Securities and Other Asset-Backed
Securities
|
|
|
151,870
|
|
|
|
2
|
|
|
|
4,136
|
|
|
|
147,736
|
|
Total
|
|
$
|
165,421
|
|
|
$
|
129
|
|
|
$
|
4,136
|
|
|
$
|
161,414
|
|
-16-
For the first quarter ended March 31, 2008, the tax equivalent yield on the total investment
portfolio was 5.07% and the average maturity was 3.4 years. U.S. Government Sponsored Entities
asset-backed securities comprised approximately 86% of the total investment portfolio at the end of
the first quarter of 2008. This segment of the investment portfolio consists of fifteen-year
mortgage-backed securities and fifteen-year collateralized mortgage obligations.
The average maturity of the investment portfolio would lengthen if long-term interest rates would
increase as the principal repayments from mortgage-backed securities and collateralized mortgage
obligations would be reduced. Management estimates that the average maturity of the investment
portfolio would lengthen to 4.5 years with a 100 basis point increase in long-term interest rates
and to 5.0 years with a 200 basis point increase in long-term interest rates. Conversely,
management estimates that repayments would increase and that the average maturity of the investment
portfolio would decrease to 2.2 years and 1.4 years respectively, with a 100 basis point and 200
basis point decrease in long-term rates.
Note 10
Other Investment Securities
Other investment securities consist of stock investments in the Federal Home Loan Bank and the
Federal Reserve Bank. These restricted stock investments are carried at their amortized costs.
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(In Thousands)
|
|
2008
|
|
2007
|
Federal Home Loan Bank Stock
|
|
$
|
58,209
|
|
|
$
|
56,754
|
|
Federal Reserve Bank Stock
|
|
|
6,411
|
|
|
|
6,411
|
|
|
|
|
Total
|
|
$
|
64,620
|
|
|
$
|
63,165
|
|
|
|
|
Note 11
Benefit Plans
Park has a noncontributory defined benefit pension plan covering substantially all of its
employees. The plan provides benefits based on an employees years of service and compensation.
Parks funding policy is to contribute annually an amount that can be deducted for federal income
tax purposes using a different actuarial cost method and different assumptions from those used for
financial reporting purposes. Management does not expect to make a pension plan contribution in
2008.
The following table shows the components of net periodic benefit expense.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In Thousands)
|
|
2008
|
|
2007
|
Service Cost
|
|
$
|
863
|
|
|
$
|
810
|
|
Interest Cost
|
|
|
789
|
|
|
|
776
|
|
Expected Return on Plan Assets
|
|
|
<1,152>
|
|
|
|
<1,066>
|
|
Amortization of Prior Service Cost
|
|
|
8
|
|
|
|
8
|
|
Recognized Net Actuarial Loss
|
|
|
|
|
|
|
138
|
|
|
|
|
Benefit Expense
|
|
$
|
508
|
|
|
$
|
666
|
|
|
|
|
-17-
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106 and 132R. This
statement requires an employer to recognize the overfunded or underfunded status of a defined
benefit postretirement plan (other than a multi-employer plan) as an asset or liability in its
balance sheet, beginning with fiscal year-end December 31, 2006, and to recognize changes in the
funded status in the year in which the changes occur through comprehensive income beginning in
2007. Additionally, defined benefit plan assets and obligations are to be measured as of the date
of the employers fiscal year-end, starting in 2008. Park had a pension asset and liability
valuation performed as of September 30, 2007, and as a result of the SFAS No. 158 measurement date
provisions, Park was required to adjust retained earnings for three-fifteenths (20%) of the
estimated expense for 2008. Therefore, Park has charged approximately $0.3 million to retained
earnings on January 1, 2008 (net of taxes) to reflect the expense pertaining to three months of
pension plan expense.
Note 12
Recent Accounting Pronouncements
In July 2006, the Emerging Issues Task Force (EITF) of FASB issued a draft abstract for EITF
Issue No. 06-04, Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements (EITF Issue No. 06-04). This draft abstract
from EITF reached a consensus that for an endorsement split-dollar life insurance arrangement
within the scope of this Issue, an employer should recognize a liability for future benefits in
accordance with SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than
Pensions. The EITF concluded that a liability for the benefit obligation under SFAS No. 106 has
not been settled through the purchase of an endorsement type life insurance policy. In September
2006, FASB agreed to ratify the consensus reached in EITF Issue No. 06-04. This new accounting
standard was effective for Park beginning January 1, 2008.
At March 31, 2008, Park and its subsidiary banks owned $128.7 million of bank owned life insurance
policies. These life insurance policies are generally subject to endorsement split-dollar life
insurance arrangements. These arrangements were designed to provide a pre-and postretirement
benefit for senior officers and directors of Park and its subsidiary banks. Parks management has
completed its evaluation of the impact of the adoption of EITF Issue No. 06-4 on Parks
consolidated financial statements. On January 1, 2008, Park charged
approximately $11.6 million to retained earnings and recorded a corresponding liability
for the same amount.
In Note 1 to Parks 2007 Annual Report, Park reported
that the EITF 06-04 charge to retained earnings would be approximately $7.5 million, net of deferred
tax and that a corresponding liability of $11.6 million would be recorded. During the first
quarter of 2008, management came to the conclusion that the book liability of $11.6 million would be a permanent
tax item and the company would not receive a tax deduction. As such, no deferred tax asset was recognized.
-18-
Fair Value Measurements
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 gives entities the option to measure eligible financial assets
and financial liabilities at fair value on an instrument by instrument basis, that are otherwise
not permitted to be accounted for at fair value under other accounting standards. The fair value
option permits companies to choose to measure eligible items at fair value at specified election
dates. Subsequent changes in fair value must be reported in earnings. SFAS No. 159 is effective for
financial statements issued for fiscal years beginning after November 15, 2007. The Company did not
elect the fair value option for any financial assets or financial liabilities as of January 1,
2008.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting
principles and expands disclosures about fair value measurements. This Statement establishes a fair
value hierarchy about the assumptions used to measure fair value and clarifies assumptions about
risk and the effect of a restriction on the sale or use of an asset. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007. Management believes
that the impact of adoption resulted in enhanced footnote disclosures; however, the adoption did
not materially impact the Consolidated Balance Sheets, the Consolidated Statements of Income, the
Consolidated Statements of Changes in Stockholders Equity, or the Consolidated Statements of Cash
Flows. (See Note 15 to these unaudited consolidated financial statements).
At the February 12, 2008 FASB meeting, the Board decided to defer the effective date of Statement
157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS
No. 157 is effective for certain non-financial assets and liabilities for fiscal years beginning
after November 15, 2008. Non-financial assets and liabilities may include (but are not limited
to); (i) non-financial assets and liabilities initially measured at fair value in a business
combination, but not measured at fair value in subsequent periods, (ii) reporting units measured at
fair value in the first step of a goodwill impairment test described in SFAS No. 142, and (iii)
non-financial assets and liabilities measured at fair value in the second step of a goodwill
impairment test described in SFAS No. 142.
Accounting for Written Loan Commitments Recorded at Fair Value
On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments
Recorded at Fair Value through Earnings (SAB 109). Previously, SAB 105, Application of
Accounting Principles to Loan Commitments, stated that in measuring the fair value of a derivative
loan commitment, a company should not incorporate the expected net future cash flows related to the
associated servicing of the loan. SAB 109 supercedes SAB 105 and indicates that the expected net
future cash flows related to the associated servicing of the loan should be included in measuring
fair value for all written loan commitments that are accounted for at fair value through earnings.
SAB 105 also indicated that internally-developed intangible assets should not be recorded as part
of the fair value of a derivative loan commitment, and SAB 109 retains that view. SAB 109 is
effective for derivative loan commitments issued or modified in fiscal quarters beginning after
December 15, 2007. The impact of adoption of this standard was not material.
-19-
Accounting for Business Combinations
On December 4, 2007, the FASB issued Statement No. 141(R), Business Combinations (SFAS No.
141(R)), with the objective to improve the comparability of information that a company provides in
its financial statements related to a business combination and its effects. SFAS No. 141(R)
establishes principles and requirements for how the acquirer (i) recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase, and (iii) determines what information to
disclose to enable users of the financial statements to evaluate the nature and financial effects
of the business combination. The Statement does not apply to combinations between entities under
common control. This Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008.
Note 13
Derivative Instruments
Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS No. 133), as amended and interpreted, establishes accounting and
reporting standards for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. As required by SFAS No. 133, the Company records
all derivatives on the balance sheet at fair value. The accounting for changes in the fair value
of derivatives depends on the intended use of the derivative and the resulting designation.
Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm
commitment attributable to a particular risk, such as interest rate risk, are considered fair value
hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or
other types of forecasted transactions, are considered cash flow hedges.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value
of the derivative is initially reported in other comprehensive income (outside of earnings) and
subsequently reclassified into earnings when the hedged transaction affects earnings, and the
ineffective portion of changes in the fair value of the derivative is recognized directly in
earnings. The Company assesses the effectiveness of each hedging relationship by comparing the
changes in cash flows of the derivative hedging instrument with the changes in cash flows of the
designated hedged item or transaction.
During the first quarter of 2008, the Company executed a interest rate swap to hedge a $25 million
floating-rate subordinated note that was entered into by Park during the fourth quarter of 2007.
The Companys objective in using this derivative is to add stability to interest expense and to
manage its exposure to interest rate risk. Our interest rate swap involves the receipt of
variable-rate amounts in exchange for fixed-rate payments over the life of the agreement without
exchange of the underlying principal amount.
As of March 31, 2008, no derivatives were designated as fair value hedges or hedges of net
investments in foreign operations. Additionally, the Company does not use derivatives for trading
or speculative purposes and currently does not have any derivatives that are not designated as
hedges.
At March 31, 2008, the derivatives fair value of ($874,000) was included in other liabilities. No
hedge ineffectiveness on the cash flow hedge was recognized during the quarter. At March 31, 2008,
the variable rate on the $25 million subordinated note was 4.67% (LIBOR plus 200 basis points) and
Park was paying 6.01% (4.01% fixed rate on the interest rate swap plus 200 basis points).
-20-
For the quarter ended March 31, 2008, the change in the fair value of the derivative designated as
a cash flow hedge reported other comprehensive income was $568,000 (net of taxes of $306,000).
Amounts reported in accumulated other comprehensive income related to derivatives will be
reclassified to interest expense as interest payments are made on the Companys variable-rate debt.
Note 14
Guarantees
Pursuant to the requirements of Financial Accounting Standards Board (FASB) Interpretation 45
(FIN 45), Park recorded a contingent legal liability of $.9 million during the fourth quarter of
2007. This was a result of an announcement Visa made in the fourth quarter of 2007 that it was
establishing litigation reserves for the settlement of a lawsuit and for additional potential
settlements with other parties. Park recorded the contingent legal liability based on Visas
announcements and Parks membership interest in Visa. Visa had a successful initial public
offering (IPO) during the first quarter of 2008. Visa used a portion of the IPO proceeds to fund
an escrow account that will be used to pay litigation settlements. As a result of the IPO, Park
was able to reverse the entire litigation liability and recognize as income $.9 million during the
first quarter of 2008. This is reflected in other income within the unaudited consolidated
condensed statement of income.
At the time of the IPO, Park held 132,876 Class B Common Shares of Visa. During the first quarter
of 2008, Visa redeemed 51,373 of these shares and paid Park $2.2 million, which was recognized as
income in other income within the unaudited consolidated condensed statement of income. The
unredeemed shares are recorded at their original cost basis of zero.
Note 15
Fair Value
SFAS No. 157 establishes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS No.
157 describes three levels of inputs that Park uses to measure fair value:
|
|
|
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement date.
|
|
|
|
|
Level 2: Level 1 inputs for assets or liabilities that are not actively traded. Also
consists of an observable market price for a similar asset or liability. This includes the
use of matrix pricing used to value debt securities absent the exclusive use of quoted
prices.
|
|
|
|
|
Level 3: Consists of unobservable inputs that are used to measure fair value when
observable market inputs are not available. This could include the use of internally
developed models, financial forecasting, etc.
|
Fair value is defined as the price that would be received to sell an asset or transfer a liability
between market participants at the balance sheet date. When possible, the Company looks to active
and observable markets to price identical assets or liabilities. When identical assets and
liabilities are not traded in active markets, the Company looks to observable market data for
similar assets and liabilities. However, certain assets and liabilities are not traded in
observable markets and Park must use other valuation methods to
develop a fair value. The fair value of impaired loans is based on
the fair value of the underlying collateral, which is estimated
through third party appraisals or internal estimates of collateral
values.
-21-
Assets and Liabilities Measured on a Recurring Basis
:
The following table presents financial assets and liabilities measured on a recurring basis:
Fair Value Measurements at Reporting Date Using
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
Active Markets For
|
|
Significant Other
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
Observable Inputs
|
|
Unobservable Inputs
|
Description
|
|
03/31/08
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Available for Sale
Securities
|
|
$
|
1,684,276
|
|
|
$
|
987
|
|
|
$
|
1,680,427
|
|
|
$
|
2,862
|
|
Interest Rate Swap
|
|
|
<874>
|
|
|
|
|
|
|
|
<874>
|
|
|
|
|
|
Total
|
|
$
|
1,683,402
|
|
|
$
|
987
|
|
|
$
|
1,679,553
|
|
|
$
|
2,862
|
|
The table below is a reconciliation of the beginning and ending balances of the Level 3 inputs:
Fair Value Measurements at Reporting Date Using
Significant Unobservable Inputs (Level 3)
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
AFS Securities
|
Beginning Balance
|
|
$
|
2,969
|
|
Total Unrealized (Losses)/Gains
Included in Other Comprehensive
Income
|
|
|
<107>
|
|
Ending Balance
|
|
$
|
2,862
|
|
Assets
and Liabilities Measured on a Nonrecurring Basis
:
The
following table presents financial assets and liabilities measured on
a nonrecurring basis:
Fair Value Measurements at Reporting Date Using
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
Active Markets For
|
|
Significant Other
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
Observable Inputs
|
|
Unobservable Inputs
|
Description
|
|
03/31/08
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
FAS 114 Impaired Loans
|
|
$
|
87,642
|
|
|
|
|
|
|
|
|
|
|
$
|
87,642
|
|
Impaired
loans, which are measured for impairment using the fair value of the
collateral, had a carrying amount of $92.4 million, with a valuation
allowance of $4.8 million, resulting in an additional provision for
loan losses of $1.4 million for the period.
-22-
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Managements discussion and analysis contains forward-looking statements that are provided to
assist in the understanding of anticipated future financial performance. Forward-looking
statements provide current expectations or forecasts of future events and are not guarantees of
future performance. The forward-looking statements are based on managements expectations and are
subject to a number of risks and uncertainties. Although management believes that the expectations
reflected in such forward-looking statements are reasonable, actual results may differ materially
from those expressed or implied in such statements. Risk and uncertainties that could cause actual
results to differ materially include, without limitation: deterioration in the asset value of
Vision Banks loan portfolio may be worse than expected; Parks ability to execute its business
plan successfully and within the expected timeframe; Parks ability to successfully integrate
acquisitions into Parks operations; Parks ability to achieve the anticipated cost savings and
revenue synergies from acquisitions; general economic and financial market conditions, either
national or in the state in which Park and its subsidiaries do business, are less favorable than
expected; Parks ability to convert its Ohio-based community banking subsidiaries and divisions to
one operating system and combine their charters; deterioration in credit conditions in the markets
in which Parks subsidiary banks operate; changes in the interest rate environment reduce net
interest margins; competitive pressures among financial institutions increase significantly;
changes in banking regulations or other regulatory or legislative requirements affecting the
respective businesses of Park and its subsidiaries; changes in accounting policies or procedures as
may be required by the Financial Accounting Standards Board or other regulatory agencies; the
effect of critical accounting policies and judgments; demand for loans in the respective market
areas served by Park and its subsidiaries, and other risk factors relating to the banking industry
as detailed from time to time in Parks reports filed with the Securities and Exchange Commission
including those described in Item 1A. Risk Factors of Part I of Parks Annual Report on Form 10-K
for the fiscal year ended December 31, 2007 and in Item 1A. Risk Factors of Part II of this
Quarterly Report on Form 10-Q. Undue reliance should not be placed on the forward-looking
statements, which speak only as of the date hereof. Park does not undertake, and specifically
disclaims any obligation, to publicly release the result of any revisions that may be made to
update any forward-looking statement to reflect the events or circumstances after the date on which
the forward-looking statement is made, or reflect the occurrence of unanticipated events, except to
the extent required by law.
Critical Accounting Policies
Note 1 of the Notes to Consolidated Financial Statements included in Parks 2007 Annual Report to
Shareholders lists significant accounting policies used in the development and presentation of
Parks consolidated financial statements. The accounting and reporting policies of Park conform
with U.S. generally accepted accounting principles and general practices within the financial
services industry. The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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.
-23-
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 probable incurred credit losses in the loan portfolio. Managements
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, 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.
Managements assessment of the adequacy of the allowance for loan losses considers individual
impaired loans, pools of homogeneous loans with similar risk characteristics and other
environmental risk factors. This assessment is updated on a quarterly basis. The allowance
established for individual impaired loans reflects expected losses resulting from analyses
developed through specific credit allocations for individual loans. The specific credit
allocations are based on regular analyses of commercial, commercial real estate and construction
loans where the internal credit rating is at or below a predetermined classification. These
analyses involve a high degree of judgement in estimating the amount of loss associated with
specific impaired loans.
Pools of homogeneous loans with similar risk characteristics are also assessed for probable losses.
A loss migration analysis is performed on certain commercial, commercial real estate and
construction loans. These are loans above a fixed dollar amount that are assigned an internal
credit rating. Generally, residential real estate loans and consumer loans are not individually
graded. The amount of loan loss reserve assigned to these loans is dependent on their net
charge-off history.
Management also evaluates the impact of environmental factors which pose additional risks. Such
environmental factors include: national and local economic trends and conditions; experience,
ability, and depth of lending management and staff; effects of any changes in lending policies and
procedures; levels of, and trends in, consumer bankruptcies, delinquencies, impaired loans and
charge-offs and recoveries. The determination of this component of the allowance for loan losses
requires considerable management judgement.
Parks recent adoption of SFAS No. 157 (See Note 15 to this Form 10-Q) on January 1, 2008 required
management to establish a fair value hierarchy, which has the objective of maximizing the use of
observable market inputs. This statement also requires enhanced disclosures regarding the inputs
used to calculate fair value. These are classified as Level 1, 2, and 3. Level 3 inputs are those
with significant unobservable inputs that reflect a companys own assumptions about the market for
a particular instrument. Some of this could be based on internal models and cash flow analysis.
At March 31, 2008, the Level 3 inputs for Park had an aggregate fair value of approximately $91
million. This was 5.11% of the total amount of assets measured at fair value as of the end of the
first quarter. The fair value of impaired loans was approximately $88 million (or 97%) of the
total amount of Level 3 inputs. The large majority of Parks Level 2 inputs consist of available for sale
(AFS) securities. The fair value of these AFS securities is obtained largely by the use of matrix
pricing, which is a mathematical technique widely used in the financial services industry to value
debt securities without relying exclusively on quoted market prices for the specific securities but
rather by relying on the securities relationship to other benchmark quoted securities.
-24-
Management believes that the accounting for goodwill and other intangible assets also involves a
higher degree of judgement than most other significant accounting policies Statement of Financial
Accounting Standards (SFAS) No. 142, Accounting for Goodwill and Other Intangible Assets
establishes standards for the amortization of acquired intangible assets and the impairment
assessment of goodwill. Goodwill arising from business combinations represents the value
attributable to unidentifiable intangible assets in the business acquired. Parks goodwill relates
to the value inherent in the banking industry and that value is dependent upon the ability of
Parks banking subsidiaries to provide quality, cost-effective banking services in a competitive
marketplace. The goodwill value is supported by revenue that is in part driven by the volume of
business transacted. A decrease in earnings resulting from a decline in the customer base, the
inability to deliver cost effective services over sustained periods or significant credit problems
can lead to impairment of goodwill that could adversely impact earnings in future periods. SFAS
No. 142 requires an annual evaluation of goodwill for impairment, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. The fair value of the
goodwill, which resides on the books of Parks subsidiary banks, is estimated by reviewing the past
and projected operating results for the Park subsidiary banks and banking industry comparable
information.
During the fourth quarter of 2007, Parks management determined that Vision Bank had significant
credit problems and concluded that an impairment analysis needed to be done on the goodwill balance
at Vision Bank. As a result of this impairment analysis, Vision Bank recorded a goodwill
impairment charge of $54.0 million during the fourth quarter of 2007. This impairment charge
reduced the goodwill balance carried on the books of Vision Bank to $55.0 from $109.0 million.
At March 31, 2008, on a consolidated basis, Park had core deposit intangibles of $16.2 million
subject to amortization and $127.3 million of goodwill, which was not subject to periodic
amortization. The core deposit intangibles recorded on the balance sheets of Parks Ohio-based
banks totaled $5.8 million and the core deposit intangibles at Vision Bank were $10.4 million. The
goodwill assets carried on the balance sheets of Parks Ohio-based banks totaled $72.3 million and
the goodwill balance at Vision Bank was $55.0 million. During the first quarter of 2008, Parks
management evaluated the goodwill for Parks Ohio-based banks for impairment and concluded that the
fair value of the goodwill for Parks Ohio-based banks exceeded the carrying value and accordingly
was not impaired. An impairment analysis was not performed on the goodwill at Vision Bank during
the first quarter of 2008 because the impairment analysis was completed for Vision Bank at year-end
2007. Parks management will review the goodwill at Vision Bank for impairment during the fourth
quarter of 2008.
Comparison of Results of Operations
For the Three Months Ended March 31, 2008 and 2007
Summary Discussion of Results
Net income for the first quarter of 2008 increased by $1.9 million or 9.1% to $23.0 million
compared to $21.1 million for the first three months of 2007. Diluted earnings per share increased
by $.16 or 10.7% to $1.65 for the first quarter of 2008 compared to $1.49 for the same period in
2007.
The annualized net income to average asset ratio (ROA) was 1.42% for the first quarter of 2008 and
was 1.51% for the same period in 2007. The annualized net income to average equity ratio (ROE) was
16.02% for the first three months of 2008 and was 14.58% for the first quarter of 2007.
-25-
Parks management uses certain non-GAAP (generally accepted accounting principles) financial
measures to evaluate Parks performance. Specifically, management reviews return on average
tangible realized equity (ROTRE) and has included in this Quarterly Report on Form 10-Q information
relating to ROTRE for the three-month periods ended March 31, 2008 and 2007. For purposes of
calculating the non-GAAP financial measure of ROTRE, annualized net income for each period is
divided by average tangible realized equity during the period. Average tangible realized equity
equals average stockholders equity during the applicable period less (i) average goodwill and
other intangible assets during the period and (ii) average accumulated other comprehensive income
(loss), net of taxes, during the period. Management believes that ROTRE presents a meaningful view
of Parks operating performance and ensures comparability of operating performance from period to
period while eliminating certain non-operational effects of acquisitions and unrealized gains and
losses arising from mark-to-market accounting for the fair market value of investment securities.
Reconciliation of average stockholders equity to average tangible realized equity:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In Thousands)
|
|
2008
|
|
2007
|
Average Stockholders Equity
|
|
$
|
576,879
|
|
|
$
|
585,702
|
|
Less: Avg. Goodwill and Other Intangible Assets
|
|
|
<144,119>
|
|
|
|
<108,794>
|
|
Plus: Avg. Accumulated Other Comprehensive
(Income) Loss, Net of Taxes
|
|
|
<7,306>
|
|
|
|
22,810
|
|
Average Tangible Realized Equity
|
|
$
|
425,454
|
|
|
$
|
499,718
|
|
The reconciliation is provided for the purpose of complying with SEC Regulations G and not as an
indication that return on average tangible realized equity is a substitute for return on average
equity as determined in accordance with GAAP.
The ROTRE was 21.72% for the first quarter of 2008 and was 17.09% for the first quarter of 2007.
The following tables compare the components of net income for the first quarter of 2008 and the
first quarter of 2007. The summary income statements are for Park, Vision Bank and Park Excluding
Vision Bank.
Park-Summary Income Statement
For the Three Months Ended March 31, 2008 and March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
2008
|
|
2007
|
|
Change
|
|
% Change
|
Net Interest Income
|
|
$
|
61,484
|
|
|
$
|
54,898
|
|
|
$
|
6,586
|
|
|
|
12.0
|
%
|
Provision for Loan Losses
|
|
|
7,394
|
|
|
|
2,205
|
|
|
|
5,189
|
|
|
|
235.3
|
%
|
Other Income
|
|
|
21,039
|
|
|
|
16,174
|
|
|
|
4,865
|
|
|
|
30.1
|
%
|
Gain on Sale of Securities
|
|
|
309
|
|
|
|
|
|
|
|
309
|
|
|
|
|
|
Other Expense
|
|
|
43,277
|
|
|
|
39,309
|
|
|
|
3,968
|
|
|
|
10.1
|
%
|
|
|
|
Income Before Taxes
|
|
$
|
32,161
|
|
|
$
|
29,558
|
|
|
$
|
2,603
|
|
|
|
8.8
|
%
|
|
|
|
Income Taxes
|
|
|
9,183
|
|
|
|
8,495
|
|
|
|
688
|
|
|
|
8.1
|
%
|
|
|
|
Net Income
|
|
$
|
22,978
|
|
|
$
|
21,063
|
|
|
$
|
1,915
|
|
|
|
9.1
|
%
|
|
|
|
Park acquired Vision Bancshares Inc. on March 9, 2007 and accordingly the operating results for
Vision Bank for the first quarter of 2007 only include the revenue and expense from the date of
acquisition through the end of March. As a result, the percentage increases in the various
components of the income statement are larger than normal.
-26-
Vision Bank-Summary Income Statement
For the Three Months Ended March 31, 2008 and March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
2008
|
|
2007
|
|
Change
|
|
Change
|
Net Interest Income
|
|
$
|
6,846
|
|
|
$
|
2,075
|
|
|
$
|
4,771
|
|
|
|
229.9
|
%
|
Provision for Loan Losses
|
|
|
4,800
|
|
|
|
|
|
|
|
4,800
|
|
|
|
|
|
Other Income
|
|
|
1,082
|
|
|
|
266
|
|
|
|
816
|
|
|
|
306.8
|
%
|
Other Expense
|
|
|
6,128
|
|
|
|
1,405
|
|
|
|
4,723
|
|
|
|
336.2
|
%
|
|
|
|
Income (Loss) Before
Taxes
|
|
|
<$3,000>
|
|
|
$
|
936
|
|
|
|
<$3,936>
|
|
|
|
<420.5%>
|
|
|
|
|
Income Taxes
|
|
|
<1,168>
|
|
|
|
356
|
|
|
|
<1,524>
|
|
|
|
<428.1%>
|
|
|
|
|
Net Income (Loss)
|
|
|
<$1,832>
|
|
|
$
|
580
|
|
|
|
<$2,412>
|
|
|
|
<415.9%>
|
|
|
|
|
Vision Bank continued to have significant credit problems during the first quarter of 2008, as net
loan charge-offs were $5.5 million or an annualized 3.37% of average loans. The large loan loss
provision of $4.8 million generated a $1.8 million loss for the first three months of 2008.
Park Excluding Vision Bank-Summary Income Statement
For the Three Months Ended March 31, 2008 and March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
2008
|
|
2007
|
|
Change
|
|
Change
|
Net Interest Income
|
|
$
|
54,638
|
|
|
$
|
52,823
|
|
|
$
|
1,815
|
|
|
|
3.4
|
%
|
Provision for Loan Losses
|
|
|
2,594
|
|
|
|
2,205
|
|
|
|
389
|
|
|
|
17.6
|
%
|
Other Income
|
|
|
19,957
|
|
|
|
15,908
|
|
|
|
4,049
|
|
|
|
25.5
|
%
|
Gain on Sale of Securities
|
|
|
309
|
|
|
|
|
|
|
|
309
|
|
|
|
|
|
Other Expense
|
|
|
37,149
|
|
|
|
37,904
|
|
|
|
<755>
|
|
|
|
<2.0%>
|
|
|
|
|
Income Before Taxes
|
|
$
|
35,161
|
|
|
$
|
28,622
|
|
|
$
|
6,539
|
|
|
|
22.8
|
%
|
|
|
|
Income Taxes
|
|
|
10,351
|
|
|
|
8,139
|
|
|
|
2,212
|
|
|
|
27.2
|
%
|
|
|
|
Net Income
|
|
$
|
24,810
|
|
|
$
|
20,483
|
|
|
$
|
4,327
|
|
|
|
21.1
|
%
|
|
|
|
Income before taxes increased by $6.5 million or 22.8% to $35.2 million for the first quarter of
2008 compared to the same period in 2007 for Park excluding Vision Bank. Approximately $3.1
million or 48% of the increase in income before taxes was due to the successful completion of the
Visa initial public offering.
Parks Ohio-based banks recognized $3.1 million of other income during the first quarter of 2008 as
a result of the Visa initial public offering. The Ohio-based banks received $2.2 million in cash
from Visa and also recognized $.9 million in income due to the elimination of the contingent
liability reserve for Visa litigation claims, which was established during the fourth quarter of
2007.
-27-
Net Interest Income Comparison for the First Quarter of 2008 and 2007
Net interest income (the difference between total interest income and total interest expense) is
Parks principal source of earnings, making up approximately 74.2% of total revenue for the first
quarter of 2008 and 77.2% of total revenue for the first quarter of 2007. Net interest income
increased by $6.6 million or 12.0% to $61.5 million for the first three months of 2008 compared to
$54.9 million for the same period in 2007. The large increase in net interest income for 2008
compared to 2007 was due to the acquisition of Vision Bank. Park acquired Vision Bank on March 9,
2007 and as a result only 23 days of net interest income was included in the first quarter of 2007.
Vision Bank generated net interest income of $6.85 million during the first quarter of 2008,
compared to $2.1 million for the partial first quarter of 2007. Excluding Vision Bank, net
interest income increased by $1.8 million or 3.4% to $54.6 million for the first quarter of 2008
compared to $52.8 million for the first quarter of 2007.
The tax equivalent net interest margin (annualized tax equivalent net interest income divided by
average interest earning assets) was 4.19% for the first quarter of 2008 and 4.31% for the first
quarter of 2007. The tax equivalent net interest margin for Vision Bank was 3.60% for the first
quarter of 2008 compared to 5.11% for the first quarter of 2007. Excluding Vision Bank, the tax
equivalent net interest margin was 4.28% for both the first quarter of 2008 and the first quarter
of 2007.
The large decline in the net interest margin of Vision Bank for the first quarter of 2008 compared
to the first quarter of 2007 was primarily due to the large increase in nonaccrual loans. For
loans which are placed on nonaccrual status, it is Parks policy to reverse interest previously
accrued on the loan against interest income. Interest on such loans is thereafter recorded on a
cash basis and is included in earnings only when actually received in cash and when full payment of
principal is no longer doubtful. At March 31, 2008, Vision Banks nonaccrual loans were $59.0
million or 8.87% of total loans, compared to $6.9 million or 1.16% of total loans at March 31,
2007. Excluding Vision Bank, nonaccrual loans were $46.6 million or 1.30% of total loans at March
31, 2008, compared to $27.4 million or .78% of total loans at March 31, 2007.
The following table compares the average balance sheet and tax equivalent yield on interest earning
assets and the cost of interest bearing liabilities for the first quarter of 2008 with the same
quarter in 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(In Thousands)
|
|
2008
|
|
2007
|
|
|
Average
|
|
Tax
|
|
Average
|
|
Tax
|
|
|
Balance
|
|
Equivalent %
|
|
Balance
|
|
Equivalent %
|
|
Loans
|
|
$
|
4,229,423
|
|
|
|
7.53
|
%
|
|
$
|
3,631,168
|
|
|
|
7.97
|
%
|
Taxable Investments
|
|
|
1,644,411
|
|
|
|
5.06
|
%
|
|
|
1,492,642
|
|
|
|
5.04
|
%
|
Tax Exempt Investments
|
|
|
56,236
|
|
|
|
6.74
|
%
|
|
|
68,641
|
|
|
|
6.78
|
%
|
Money Market Instruments
|
|
|
11,500
|
|
|
|
3.47
|
%
|
|
|
23,396
|
|
|
|
5.09
|
%
|
|
|
|
Interest Earning Assets
|
|
$
|
5,941,570
|
|
|
|
6.83
|
%
|
|
$
|
5,215,847
|
|
|
|
7.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Deposits
|
|
$
|
3,768,060
|
|
|
|
2.83
|
%
|
|
$
|
3,376,488
|
|
|
|
3.08
|
%
|
Short-Term Borrowings
|
|
|
571,553
|
|
|
|
3.34
|
%
|
|
|
357,052
|
|
|
|
4.45
|
%
|
Long-Term Debt
|
|
|
771,655
|
|
|
|
4.00
|
%
|
|
|
606,736
|
|
|
|
4.24
|
%
|
|
|
|
Interest Bearing Liabilities
|
|
$
|
5,111,268
|
|
|
|
3.07
|
%
|
|
$
|
4,340,276
|
|
|
|
3.36
|
%
|
Excess Interest Earning Assets
|
|
$
|
830,302
|
|
|
|
|
|
|
$
|
875,571
|
|
|
|
|
|
Net Interest Spread
|
|
|
|
|
|
|
3.76
|
%
|
|
|
|
|
|
|
3.74
|
%
|
Net Interest Margin
|
|
|
|
|
|
|
4.19
|
%
|
|
|
|
|
|
|
4.31
|
%
|
-28-
Average interest earning assets for the first quarter of 2008 increased by $726 million or 13.9% to
$5,942 million compared to $5,216 million for the same period in 2007. Vision Bank accounted for
most of the increase in average interest earning assets. Vision Bank had $768 million of average
interest earning assets in the first quarter of 2008 compared to $165 million for the first quarter
of 2007. The average yield on interest earning assets decreased by 27 basis points to 6.83% for
the first three months of 2008 compared to 7.10% for the same period in 2007.
Average interest bearing liabilities for the first quarter of 2008 increased by $771 million or
17.8% to $5,111 million compared to $4,340 million for the first three months of 2007. Vision Bank
had $680 million of average interest bearing liabilities for the first quarter of 2008 compared to
$138 million for the first quarter of 2007. The average cost of interest bearing liabilities
decreased by 29 basis points to 3.07% for the first three months of 2008 compared to 3.36% for the
same period in 2007.
Interest Rates
The Federal Open Market Committee of the Federal Reserve aggressively lowered the targeted federal
funds rate during the first quarter of 2008 by 200 basis points from 4.25% to 2.25%. The average
federal funds rate was 3.18% for the first three months of 2008 compared to 5.25% for the first
quarter of 2007.
The average prime lending rate was 6.21% for the first three months of 2008 compared to 8.25% for
the first quarter of 2007.
The average interest rate on a five year U.S. Treasury note was 2.75% for the first quarter of 2008
compared to 4.65% for the first quarter of 2007.
Discussion of Loans, Investments, Deposits and Borrowings
Total loans outstanding at March 31, 2008 were $4,253 million compared to $4,089 million at March
31, 2007, an increase of approximately $164 million or 4.0%. Vision Bank produced an increase in
loans of $67 million or 11.3% and Parks Ohio-based banks increased loans by $97 million or 2.8%
for the twelve months ended March 31, 2008.
Loan balances increased by approximately $29 million during the first quarter of 2008, with $26
million of the increase coming at Vision Bank. On an annualized basis, loans grew by 2.8% during
the first quarter of 2008. In Parks 2007 Annual Report, management projected that loans would
grow by 2% to 3% during 2008. Parks management continues to project that loans will increase by
2% to 3% in 2008.
The yield on loans decreased by 44 basis points to 7.53% for the first quarter of 2008 compared to
7.97% for the first quarter of 2007. Management expects that the yield on loans will continue to
decrease in 2008 due to the 200 basis point decrease in the prime lending rate during the first
quarter of 2008.
Parks management purchased approximately $360 million of taxable investment securities during the
first quarter of 2008. These investment securities were all U.S. Government Agencies* and were
purchased at a yield of approximately 4.90% with an expected average life of about 3.6 years. Most
of the securities were seasoned 15 year mortgage-backed securities with a weighted average maturity
of about 12 years. On an amortized cost basis, the total investment portfolio increased by
approximately $232 million during the first quarter of 2008 to $1,933 million at March 31, 2008.
The tax equivalent yield on Parks investment portfolio was 5.07% at March 31, 2008.
*
Management uses U.S. Government Agencies interchangeably with U.S. Government Sponsored Entities
Asset-Backed Securities and Other
Asset-Backed Securities.
-29-
The yield on taxable investment securities was 5.06% for the first quarter of 2008 compared to
5.04% for the same period in 2007. The tax equivalent yield on tax exempt investment securities
was 6.74% for the first three months of 2008 compared to 6.78% for the same period in 2007. On a
combined basis, the tax equivalent yield on total investment securities was 5.12% for both the
first quarter of 2008 and the first quarter of 2007.
Management expects that the average balance of the total investment portfolio will increase to
approximately $1,860 million during the second quarter of 2008 compared to the average balance for
the first quarter of 2008 of $1,701 million. Management expects that the tax equivalent yield on
the total investment portfolio will decrease to approximately 4.95% for the second quarter of 2008
compared to 5.12% for the first quarter of 2008.
Interest bearing deposit account balances decreased by $25 million or .7% to $3,809 million at
March 31, 2008 compared to $3,834 million at March 31, 2007. The average rate paid on interest
bearing deposits decreased by 25 basis points to 2.83% for the first quarter of 2008 compared to
3.08% for the first quarter of 2007. Management expects the average rate paid on deposits will
continue to decrease in 2008 due to the large decrease in market interest rates in the first
quarter of 2008.
Interest bearing deposit account balances increased by $65 million during the first quarter of 2008
to $3,809 million at March 31, 2008 compared to $3,744 million at December 31, 2007. Noninterest
bearing deposit account balances increased by $16 million during the first quarter of 2008 to $711
million at March 31, 2008 compared to $695 million at December 31, 2007. In Parks 2007 Annual
Report, management projected that total deposit balances would increase by 1% to 2% during 2008.
Parks management continues to expect modest deposit growth of 1% to 2% during 2008.
Total borrowings increased by $570 million or 56.4% to $1,581 million at March 31, 2008 compared to
$1,011 million at March 31, 2007. The average rate paid on total borrowings decreased by 60 basis
points to 3.72% for the first quarter of 2008 compared to 4.32% for the first quarter of 2007.
Management expects that the average interest rate paid on total borrowings will continue to
decrease in 2008 as a result of the 200 basis point reduction in the federal funds rate during the
first quarter of 2008.
Total borrowings increased by $191.7 million or 13.8% during the first quarter of 2008 to $1,581
million at March 31, 2008 compared to $1,390 million at December 31, 2007. This increase was
primarily needed to fund the increase in the investment portfolio.
Guidance on Net Interest Income for 2008
Management provided guidance in Parks 2007 Annual Report that net interest income for 2008 would
be approximately $240 to $242 million, the tax equivalent net interest margin would be
approximately 4.10% and that average interest earning assets for the year would be approximately
$5,900 million.
The actual results for the first quarter of 2008 were better than managements guidance. Net
interest income was $61.5 million, which annualized would be about $246 to $247 million for 2008.
The tax equivalent net interest margin was 4.19% and average interest earning assets were $5,942
million for the first quarter of 2008. Management did not anticipate having the opportunity to
purchase U.S. Government Agency securities at an average yield of 4.90% during the first quarter of
2008 and funding the purchases with a borrowing rate of below 3.00%. The most recent projection by
management indicates that net interest income for 2008 will be between $247 to $250 million. The
tax equivalent net interest margin is forecast to be approximately 4.15% for 2008 and average
interest earning assets are projected to be approximately $6,020 million for 2008.
-30-
Provision for Loan Losses
The provision for loan losses increased by $5.2 million or 235.3% to $7.4 million for the first
three months of 2008 compared to $2.2 million for the first quarter of 2007. Net loan charge-offs
were $8.6 million for the first quarter of 2008 compared to $2.2 million for the first quarter of
2007. On an annualized basis, net loan charge-offs were .82% of average loans for the first three
months of 2008 and .25% of average loans for the first quarter of 2007.
The provision for loan losses was $2.6 million for Parks Ohio-based banks and $4.8 million for
Vision Bank for the first quarter of 2008. Net loan charge-offs were $3.1 million for Parks
Ohio-based banks and $5.5 million for Vision Bank for the first three months of 2008. On an
annualized basis, net loan charge-offs were .35% of average loans for Parks Ohio-based banks and
3.37% of average loans for Vision Bank for the first quarter of 2008.
Parks annualized net loan charge-off ratio for the past five years has been .55% for 2007, .12%
for 2006, .18% for 2005, .28% for 2004 and .43% for 2003. For 2007, Parks Ohio-based banks had an
annualized net loan charge-off ratio of .39% and Vision Bank had an annualized net loan charge-off
ratio of 1.71% for 2007.
Nonperforming loans, defined as loans that are 90 days past due, nonaccrual and renegotiated loans
were $111.3 million or 2.62% of loans at March 31, 2008, $108.5 million or 2.57% of loans at
December 31, 2007 and $40.6 million or .99% of loans at March 31, 2007. The nonperforming loan
totals for Parks Ohio-based banks were $51.8 million or 1.44% of loans at March 31, 2008, $45.0
million or 1.26% of loans at December 31, 2007 and $33.7 million or .97% of loans at March 31,
2007. The nonperforming loan totals for Vision Bank were $59.5 million or 8.94% of loans at March
31, 2008, $63.5 million or 9.86% of loans at December 31, 2007 and $6.9 million or 1.16% of loans
at March 31, 2007. The non-performing loan totals have been written down on a timely basis by
management. Partial charge-offs of $3.8 million and $9.0 million have been taken on these loans
for the Ohio-based banks and Vision Bank, respectively, as of March 31, 2008.
Other real estate owned was $20.1 million at March 31, 2008, compared to $13.4 million at December
31, 2007 and $4.6 million at March 31, 2007. Vision Bank had other real estate owned of $13.7
million at March 31, 2008 compared to $0 at March 31, 2007. Management expects that other real
estate owned will increase in the second and third quarters of 2008 as Vision Bank management works
through their non-performing loans.
The reserve for loan losses as a percentage of outstanding loans was 2.02% at March 31, 2008, 2.06%
at December 31, 2007 and 1.95% at March 31, 2007.
Management provided guidance in Parks 2007 Annual Report that the loan loss provision for 2008
would be $20 to $25 million and that the annualized net loan charge-off ratio would be
approximately .45% to .55%. The actual results for the first three months of 2008 were higher than
anticipated as the loan loss provision was $7.4 million and the annualized net loan charge-off
ratio was .82%. In addition, nonperforming loans increased slightly during the first quarter of
2008 to 2.62% of loans at March 31, 2008 compared to 2.57% of loans at December 31, 2007. The most
current projection by Parks management indicates that the loan loss provision for 2008 will be $25
to $30 million and that the annualized net loan charge-off percentage for 2008 will be .55% to .70%. Management expects a reduction in the annualized net loan charge-off percentage for Vision
Bank for the last three quarters of 2008. The annualized net loan charge-off percentage for Parks
Ohio-based banks is expected to remain about the same for the next three quarters.
-31-
The following table compares nonperforming assets at March 31, 2008, December 31, 2007 and March
31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December
|
|
March 31,
|
Nonperforming Assets
|
|
2008
|
|
31, 2007
|
|
2007
|
|
|
(Dollars in Thousands)
|
Nonaccrual Loans
|
|
$
|
105,615
|
|
|
$
|
101,128
|
|
|
$
|
34,302
|
|
Renegotiated Loans
|
|
|
1,688
|
|
|
|
2,804
|
|
|
|
3,446
|
|
Loans Past Due 90 Days or More
|
|
|
4,032
|
|
|
|
4,545
|
|
|
|
2,881
|
|
Total Nonperforming Loans
|
|
$
|
111,335
|
|
|
$
|
108,477
|
|
|
$
|
40,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Real Estate Owned
|
|
|
20,113
|
|
|
|
13,443
|
|
|
|
4,598
|
|
Total Nonperforming Assets
|
|
$
|
131,448
|
|
|
$
|
121,920
|
|
|
$
|
45,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Nonperforming Loans to Loans
|
|
|
2.62
|
%
|
|
|
2.57
|
%
|
|
|
.99
|
%
|
Percentage of Nonperforming Assets to
Loans plus Other Real Estate Owned
|
|
|
3.08
|
%
|
|
|
2.88
|
%
|
|
|
1.10
|
%
|
Percentage
of Nonperforming Assets to Total Assets
|
|
|
1.94
|
%
|
|
|
1.88
|
%
|
|
|
.72
|
%
|
Total Other Income
Total other income for the first quarter of 2008 was $21.0 million, an increase of $4.865 million
or 30.1% from total other income of $16.2 million for the first quarter of 2007. The primary
reason for the increase in total other income was due to $3.1 million of other income that was
recognized by Parks Ohio-based banks resulting from the successful completion of the initial
public offering by Visa during March 2008. Total other income also increased as Vision Banks
total other income in the first quarter of 2007 was only included from the date of acquisition on
March 9, 2007. Total other income for Vision Bank increased by $816,000 to $1.1 million for the
first quarter of 2008 compared to $.3 million for the first quarter of 2007.
The following table is a summary of the changes in the components of total other income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(In Thousands)
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
Change
|
Income from Fiduciary Activities
|
|
$
|
3,573
|
|
|
$
|
3,504
|
|
|
$
|
69
|
|
Service Charges on Deposits
|
|
|
5,784
|
|
|
|
4,847
|
|
|
|
937
|
|
Other Service Income
|
|
|
3,077
|
|
|
|
2,505
|
|
|
|
572
|
|
Other
|
|
|
8,605
|
|
|
|
5,318
|
|
|
|
3,287
|
|
|
|
|
Total Other Income
|
|
$
|
21,039
|
|
|
$
|
16,174
|
|
|
$
|
4,865
|
|
|
|
|
-32-
The following table breaks out the change in total other income between Parks Ohio-based
operations and Vision Bank.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2008
|
|
Change in Other Income
|
|
Ohio-Based
|
|
|
Vision
|
|
|
|
|
(In Thousands)
|
|
Other Income
|
|
|
Bank
|
|
|
Total
|
|
Income from Fiduciary Activities
|
|
$
|
64
|
|
|
$
|
5
|
|
|
$
|
69
|
|
Service Charges on Deposits
|
|
|
470
|
|
|
|
467
|
|
|
|
937
|
|
Other Service Income
|
|
|
230
|
|
|
|
342
|
|
|
|
572
|
|
Other
|
|
|
3,285
|
|
|
|
2
|
|
|
|
3,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,049
|
|
|
$
|
816
|
|
|
$
|
4,865
|
|
|
|
|
|
|
|
|
|
|
|
The $3.1 million of income recognized in connection with the Visa initial public offering in 2008
is included in the subcategory of other income.
Management provided guidance in Parks 2007 Annual Report that total other income would be between
$75.9 million and $77.4 million for 2008. Management continues to believe that total other income
for 2008 will be approximately $77 million.
Gain (Loss) on Sale of Securities
Park realized a gain of $309,000 from the sale of $25 million of U.S. Government Agency securities
during the first quarter of 2008. These securities had an interest rate of 6.00% and were callable
during the third quarter of 2008. The securities were sold with a give-up yield of approximately
3.00% to the call date. Management expects that another $40 to $50 million of very similar U.S.
Government Agency callable securities will be sold during the second quarter of 2008. The gains
from these sales are estimated to be $.5 million. The proceeds from the sale of the investment
securities are generally reinvested in U.S. Government Agency, 15 year mortgage-backed securities.
Total Other Expense
Total other expense increased by $4.0 million or 10.1% to $43.3 million for the first three months
of 2008 compared to $39.3 million for the first quarter of 2007. Total other expense for Vision
Bank increased by $4.7 million to $6.1 million for the first quarter of 2008 compared to $1.4
million for the same period in 2007. Total other expense for Parks Ohio-based operations
decreased by $755,000 or 2.0% for the first quarter of 2008 compared to the same period in 2007.
-33-
The following table is a summary of the changes in the components of total other expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In Thousands)
|
|
2008
|
|
2007
|
|
Change
|
Salaries and Employee Benefits
|
|
$
|
24,671
|
|
|
$
|
23,061
|
|
|
$
|
1,610
|
|
Net Occupancy Expense
|
|
|
3,025
|
|
|
|
2,560
|
|
|
|
465
|
|
Furniture and Equipment Expense
|
|
|
2,317
|
|
|
|
2,176
|
|
|
|
141
|
|
Data Processing Fees
|
|
|
1,756
|
|
|
|
1,340
|
|
|
|
416
|
|
Professional Fees and Service Charges
|
|
|
2,852
|
|
|
|
2,507
|
|
|
|
345
|
|
Amortization of Intangibles
|
|
|
1,006
|
|
|
|
684
|
|
|
|
322
|
|
Marketing
|
|
|
998
|
|
|
|
1,153
|
|
|
|
<155>
|
|
Insurance
|
|
|
437
|
|
|
|
336
|
|
|
|
101
|
|
Postage and Telephone
|
|
|
1,885
|
|
|
|
1,636
|
|
|
|
249
|
|
State Taxes
|
|
|
764
|
|
|
|
734
|
|
|
|
30
|
|
Other
|
|
|
3,566
|
|
|
|
3,122
|
|
|
|
444
|
|
Total Other Expense
|
|
$
|
43,277
|
|
|
$
|
39,309
|
|
|
$
|
3,968
|
|
The following table breaks out the change in total other expense between Parks Ohio-based
operations and Vision Bank.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2008
|
Change in Total Other Expense
|
|
Ohio-Based
|
|
|
|
|
(In Thousands)
|
|
Other Expense
|
|
Vision Bank
|
|
Total
|
Salaries and Employee Benefits
|
|
|
<$812>
|
|
|
$
|
2,422
|
|
|
$
|
1,610
|
|
Net Occupancy Expense
|
|
|
75
|
|
|
|
390
|
|
|
|
465
|
|
Furniture and Equipment Expense
|
|
|
<145>
|
|
|
|
286
|
|
|
|
141
|
|
Data Processing Fees
|
|
|
<38>
|
|
|
|
454
|
|
|
|
416
|
|
Professional Fees and Service Charges
|
|
|
168
|
|
|
|
177
|
|
|
|
345
|
|
Amortization of Intangibles
|
|
|
<31>
|
|
|
|
353
|
|
|
|
322
|
|
Marketing
|
|
|
<238>
|
|
|
|
83
|
|
|
|
<155>
|
|
Insurance
|
|
|
<42>
|
|
|
|
143
|
|
|
|
101
|
|
Postage and Telephone
|
|
|
91
|
|
|
|
158
|
|
|
|
249
|
|
State Taxes
|
|
|
5
|
|
|
|
25
|
|
|
|
30
|
|
Other
|
|
|
212
|
|
|
|
232
|
|
|
|
444
|
|
Total Other Expense
|
|
|
<$755>
|
|
|
$
|
4,723
|
|
|
$
|
3,968
|
|
Parks management has concentrated on controlling operating expenses in 2008. The number of full
time equivalent employees for Park was 2,035 at March 31, 2008 compared to 2,057 at March 31, 2007
a decrease of 22 or 1.1%. Vision Bank had an increase in full time equivalent employees of 26 to
207 at March 31, 2008 compared to 181 at March 31, 2007. Vision Bank has added three new branch
locations in the past year. Parks Ohio-based banks actually had a decrease in full time
equivalent employees of 48 employees or 2.6% of the Ohio-based employees at March 31, 2007. This
decrease in employees at Parks Ohio-based banks resulted from managements efforts to improve
efficiency. Management is working on consolidating Parks eight Ohio-based banks onto one common
operating system. Several of Parks Ohio-based banks will be consolidated into the lead bank, The
Park National Bank, during the second half of 2008. This process (known as Project EPS) is
expected to be completed during the second quarter of 2009.
-34-
Management provided guidance in Parks 2007 Annual Report that total other expense would be
approximately $177 million for 2008. Management continues to believe that this estimate is
accurate.
Income Tax
Federal income tax expense was $9.335 million for the first quarter of 2008 and state income tax
expense was a credit of <$152,000>. Vision Bank is subject to state income tax in the states
of Alabama and Florida. State tax expense was a credit in the first quarter of 2008 because Vision
Bank had a loss for the quarter. Park and its Ohio-based subsidiary banks do not pay state income
tax to the state of Ohio, but pay a franchise tax based on year-end equity. The franchise tax
expense is included in state taxes as part of total other expense on Parks Consolidated
Statements of Income.
Federal income tax expense was $8.456 million for the first quarter of 2007 and state income tax
expense was $39,000.
Federal income tax expense as a percentage of income before taxes was 29.0% for the first quarter
of 2008 compared to 28.6% for the first quarter of 2007. A lower federal effective tax rate than
the statutory rate of 35% is primarily due to tax-exempt interest income from state and municipal
investments and loans, low income housing tax credits and income from bank owned life insurance.
Management provided guidance in Parks 2007 Annual Report that the federal effective income tax
rate for 2008 will be approximately 29.4%. Management continues to believe that this estimate is
accurate.
Comparison of Financial Condition
At March 31, 2008 and December 31, 2007
Changes in Financial Condition and Liquidity
Total assets increased by
$280 million, or 4.3% to $6,781 million at March 31, 2008 compared to
$6,501 at December 31, 2007. Approximately $253 million of this increase was due to purchases of
investment securities and approximately $29 million was due to increases in loans.
Total investment securities (including interest bearing deposits) increased by $253 million to
$1,956 million at March 31, 2008 compared to $1,703 million at December 31, 2007. During the first
quarter of 2008, Parks management purchased approximately $360 million of taxable investment
securities. These consist of U.S. Government Agencies yielding approximately 4.90%. Management
expects that the investment portfolio will decrease as the result of pay-downs in the second,
third, and fourth quarters of 2008.
Loan balances increased by $29 million to $4,253 million at March 31, 2008 compared to $4,224
million at December 31, 2007. Vision Bank loan balances increased approximately $26.4 million
during the first quarter 2008, from $639.1 million at December 31, 2007 to $665.5 million at March
31, 2008.
Total liabilities increased by $269 million during the first quarter 2008 to $6,190 million at
March 31, 2008 from $5,921 million at December 31, 2007. Total borrowings increased by $191.7
million during the first quarter of 2008, primarily to fund the increase in the investment
portfolio.
-35-
Total deposits increased by $81 million to $4,520 million at March 31, 2008 compared to $4,439
million at December 31, 2007. Total deposits for Vision Bank decreased by approximately $34
million to $623 million at March 31, 2008 from $657 million at December 31, 2007. The Ohio-based
banking subsidiaries of Park had an increase in total deposits of approximately $115 million.
Total stockholders equity
increased by $11 million to $591 million at March 31, 2008 from $580
million at December 31, 2007. Retained earnings decreased by $2 million during the quarter ended
March 31, 2008 due to: (i) the net income of $23.0 million, (ii) the declaration of dividends of
$13.1 million, (iii) $11.6 million booked as a reduction to retained earnings for
the adoption of
EITF 06-04 (see Note 12 to these unaudited consolidated financial statements), and (iv) recording
the measurement date provisions of SFAS No. 158 for $.3 million. Accumulated other comprehensive
income (loss) increased by $13 million to $11 million at March 31, 2008. This increase was due to
a unrealized net holding gain on available for sale securities of $14 million, net of taxes, during
the first quarter, which was partially offset by a reduction consisting of the $.6 million
adjustment to record the net unrealized net holding loss, net of taxes, for cash flow hedges.
The increase or decrease in the investment securities portfolio and short-term borrowings and
long-term debt is greatly dependent upon the growth in loans and deposits. The primary objective
of management is to grow loan and deposit totals. To the extent that management is unable to grow
loan totals at a desired growth rate, additional investment securities may be acquired. Likewise,
both short-term borrowings and long-term debt are utilized to fund the growth in earning assets if
the growth in deposits and cash flow from operations is not sufficient to do so.
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 Corporations loan to
asset ratio was 62.7% at March 31, 2008 compared to 65.0% at December 31, 2007 and 64.8% at March
31, 2007. Cash and cash equivalents were $184.9 million at March 31, 2008 compared to $193.4
million at December 31, 2007 and $198.1 million at March 31, 2007. The present funding sources
provide more than adequate liquidity for the Corporation to meet its cash flow needs.
Capital Resources
Stockholders equity at March 31, 2008 was
$591 million or 8.72% of total assets compared to $580
million or 8.92% of total assets at December 31, 2007 and $661 million or 10.48% of total assets at
March 31, 2007.
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%. Parks leverage ratio was 7.10% at
March 31, 2008 and 7.10% at December 31, 2007. The minimum Tier 1 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%. Parks Tier 1 risk-based capital ratio was 9.98% at March 31,
2008 and 10.16% at December 31, 2007. 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%. Parks total risk-based capital ratio was
11.78% at March 31, 2008 and 11.97% December 31, 2007.
-36-
The financial institution subsidiaries of Park each met the well capitalized ratio guidelines at
March 31, 2008. The following table indicates the capital ratios for each subsidiary and Park at
March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I
|
|
Total
|
|
|
Leverage
|
|
Risk-Based
|
|
Risk-Based
|
Park National Bank
|
|
|
5.26
|
%
|
|
|
7.41
|
%
|
|
|
10.19
|
%
|
Richland Trust Company
|
|
|
5.66
|
%
|
|
|
11.30
|
%
|
|
|
12.56
|
%
|
Century National Bank
|
|
|
5.75
|
%
|
|
|
8.98
|
%
|
|
|
10.67
|
%
|
First-Knox National Bank
|
|
|
5.22
|
%
|
|
|
7.84
|
%
|
|
|
10.37
|
%
|
Second National Bank
|
|
|
5.51
|
%
|
|
|
8.44
|
%
|
|
|
10.62
|
%
|
United Bank, N.A.
|
|
|
6.06
|
%
|
|
|
11.63
|
%
|
|
|
12.89
|
%
|
Security National Bank
|
|
|
5.97
|
%
|
|
|
9.35
|
%
|
|
|
10.89
|
%
|
Citizens National Bank
|
|
|
6.70
|
%
|
|
|
13.49
|
%
|
|
|
14.74
|
%
|
Vision Bank
|
|
|
8.17
|
%
|
|
|
9.47
|
%
|
|
|
10.74
|
%
|
Park National Corporation
|
|
|
7.10
|
%
|
|
|
9.98
|
%
|
|
|
11.78
|
%
|
Minimum Capital Ratio
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
8.00
|
%
|
Well Capitalized Ratio
|
|
|
5.00
|
%
|
|
|
6.00
|
%
|
|
|
10.00
|
%
|
Contractual Obligations and Commitments
In the ordinary course of operations, Park enters into certain contractual obligations. Such
obligations include the funding of operations through debt issuances as well as leases for
premises. See page 32 of Parks 2007 Annual Report to Shareholders (Table 12) for disclosure
concerning contractual obligations and commitments at December 31, 2007. There were no significant
changes in contractual obligations and commitments during the first quarter of 2008.
Financial Instruments with Off-Balance Sheet Risk
All of the subsidiary banks of Park are party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of their respective customers. These
financial instruments include loan commitments and standby letters of credit. The instruments
involve, to varying degrees, elements of credit and interest rate risk in excess of the amount
recognized in the financial statements.
The exposure to credit loss (for the subsidiary banks of Park) in the event of nonperformance by
the other party to the financial instrument for loan commitments and standby letters of credit is
represented by the contractual amount of those instruments. Park (and all of its subsidiary banks)
uses the same credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. Since many of the loan commitments may expire without being drawn
upon, the total commitment amount does not necessarily represent future cash requirements. The
credit risk involved in issuing letters of credit is essentially the same as that involved in
extended loan commitments to customers.
The total amounts of off-balance sheet financial instruments with credit risk were as follows:
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
March 31, 2008
|
|
December 31, 2007
|
Loan Commitments
|
|
$
|
983,215
|
|
|
$
|
995,775
|
|
Unused Credit Card lines
|
|
|
133,002
|
|
|
|
132,242
|
|
Standby Letters of Credit
|
|
|
29,801
|
|
|
|
30,009
|
|
-37-
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 Parks 2007 Annual Report to Shareholders, which is incorporated
by reference into Parks 2007 Form 10-K.
On page 31 (Table 11) of Parks 2007 Annual Report to Shareholders, management reported that Parks
twelve month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $178
million or 3.0% of interest earning assets at December 31, 2007. At March 31, 2008, Parks twelve
month cumulative rate sensitivity gap decreased to a negative (liabilities exceeding assets) $36
million or 0.58% of interest earning assets. The most significant factor contributing to this
change in sensitivity gap was the purchase of $360 million in investment securities during the
quarter, which were funded with rate sensitive borrowings.
Management supplements the interest rate sensitivity gap analysis with periodic simulations of
balance sheet sensitivity under various interest rate and what-if scenarios to better forecast and
manage the net interest margin. Management uses a 50 basis point change in market interest rates
per quarter for a total of 200 basis points per year in evaluating the impact of changing interest
rates on net interest income and net income over a twelve month horizon.
On page 32 of Parks 2007 Annual Report to Shareholders, management reported that at December 31,
2007, the earnings simulation model projected that net income would increase by 0.2% using a rising
interest rate scenario and decrease by 0.6% using a declining interest rate scenario over the next
year. At February 29, 2008, the earnings simulation model projected that net income would decrease
by 0.5% using a rising interest rate scenario and increase by 0.5% using a declining interest rate
scenario. At March 31, 2008, management continues to believe that gradual changes in interest
rates (50 basis points per quarter for a total of 200 basis points per year) will have a small
impact on net income.
-38-
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
With the participation of the Chairman of the Board and Chief Executive Officer (the principal
executive officer) and the Chief Financial Officer (the principal financial officer) of Park,
Parks management has evaluated the effectiveness of Parks disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act)) as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based
on that evaluation, Parks Chairman of the Board and Chief Executive Officer and Parks Chief
Financial Officer have concluded that:
|
|
information required to be disclosed by Park in this Quarterly Report on Form 10-Q and
other reports that Park files or submits under the Exchange Act would be accumulated and
communicated to Parks management, including its principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required disclosure;
|
|
|
information required to be disclosed by Park in this Quarterly Report on Form 10-Q and the
other reports that Park files or submits under the Exchange Act would be recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms; and
|
|
|
Parks disclosure controls and procedures were effective as of the end of the quarterly
period covered by this Quarterly Report on
Form 10-Q.
|
Changes in Internal Control Over Financial Reporting
There were no changes in Parks internal control over financial reporting (as defined in Rule 13a
15(f) under the Exchange Act) that occurred during Parks fiscal quarter ended March 31, 2008,
that have materially affected, or are reasonably likely to materially affect, Parks internal
control over financial reporting.
-39-
PARK NATIONAL CORPORATION
PART II OTHER INFORMATION
Item 1.
Legal Proceedings
There are no pending legal proceedings to which Park or any of its subsidiaries is a party
or to which any of their property is subject, except for routine legal proceedings to which
Parks subsidiary banks are parties incidental to their respective banking business. Park
considers none of those proceedings to be material.
Item 1A.
Risk Factors
There are certain risks and uncertainties in our business that could cause our actual
results to differ materially from those anticipated. In ITEM 1A. RISK FACTORS of Part I
of Parks Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (the 2007
Form 10-K), we included a detailed discussion of our risk factors. The following
information updates certain of our risk factors and should be read in conjunction with the
risk factors disclosed in the 2007 Form 10-K. These risk factors should be read carefully
in connection with evaluating our business and in connection with the forward-looking
statements contained in this Quarterly Report on Form 10-Q. Any of the risks described
below or in the 2007 Form 10-K could materially adversely affect our business, financial
condition or future results and the actual outcome of matters as to which forward-looking
statements are made. These are not the only risks we face. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating results.
Changes in economic and political conditions could adversely affect our earnings, as our
borrowers ability to repay loans and the value of the collateral securing our loans decline.
Our success depends, to a certain extent, upon economic and political conditions, local and
national, as well as governmental monetary policies. Conditions such as inflation, recession,
unemployment, changes in interest rates, money supply and other factors beyond our control
may adversely affect our asset quality, deposit levels and loan demand and, therefore, our
earnings. Because we have a significant amount of real estate loans, decreases in real estate
values could adversely affect the value of property used as collateral. Adverse changes in
the economy may also have a negative effect on the ability of our borrowers to make timely
repayments of their loans, which would have an adverse impact on our earnings. The
substantial majority of the loans made by our subsidiaries are to individuals and businesses
in Ohio or in Gulf Coast communities in Alabama and the Florida panhandle. Consequently, a
significant continued decline in the economy in Ohio or in Gulf Coast communities in Alabama
or the panhandle of Florida could have a materially adverse effect on our financial condition
and results of operations.
-40-
As disclosed earlier within this Form 10-Q, we continue to experience difficult credit
conditions in the Ohio, Alabama, and Florida markets in which we operate. Net loan
charge-offs were 0.82% and 0.25% as a percentage of average loans on an annualized basis for
the first quarter 2008 and 2007, respectively. Net loans charge-offs for Vision Bank were
$5.5 million for the first quarter of 2008. Nonperforming loans, defined as loans that are
90 days past due, nonaccrual and renegotiated loans, were $111.3 million or 2.62% of loans at
March 31, 2008, $108.5 million or 2.57% of loans at December 31, 2007 and $40.6 million or
0.99% of loans at March 31, 2007. Nonaccrual loans were $105.6 million at March 31, 2008,
with $59.0 million coming from Vision Bank. It is uncertain when the negative credit trends
in our markets (and nationally) will reverse and therefore, Parks future earnings are
susceptible to further declining credit conditions in the markets in which we operate.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
|
(a.)
|
|
Not applicable
|
|
|
(b.)
|
|
Not applicable
|
|
|
(c.)
|
|
No purchases of Parks common shares were made by or on behalf of Park or any
affiliated purchaser as defined in Rule 10b-18(a)(3) under the Securities Exchange
Act of 1934, as amended, during the three months ended March 31, 2008. The following
table provides information concerning changes in the maximum number of common shares
that may be purchased under Parks previously announced repurchase programs as a
result of the forfeiture of previously outstanding incentive stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Common
|
|
Maximum Number of
|
|
|
|
|
|
|
Average Price
|
|
Shares Purchased as
|
|
Common Shares that May
|
|
|
Total Number of
|
|
Paid Per
|
|
Part of
|
|
Yet be Purchased
|
|
|
Common Shares
|
|
Common
|
|
Publicly Announced Plans
|
|
Under the
|
Period
|
|
Purchased
|
|
Share
|
|
or Programs
|
|
Plans or Programs (1)
|
January 1 thru
January 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,806,668
|
|
February 1 thru
February 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,805,195
|
|
March 1 thru
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,797,352
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,797,352
|
|
|
|
|
(1)
|
|
The number shown represents, as of the end of each period, the maximum
aggregate number of common shares that may yet be purchased as part of Parks publicly
announced stock repurchase authorization to fund the Park National Corporation 2005
and 1995 Incentive Stock Option Plans as well as Parks publicly announced stock
repurchase program.
|
-41-
|
|
|
|
|
On July 16, 2007, Park announced that its Board of Directors authorized management to
purchase up to an aggregate of 1 million common shares over the three-year period ending
July 15, 2010 in open market purchases or through privately negotiated transactions, to
be held as treasury shares for general corporate purposes. During 2007, Park purchased
7,826 common shares under this authorization. At March 31, 2008, 992,174 common shares
remained authorized for repurchase under this stock repurchase authorization. No
treasury shares have been purchased in 2008.
|
|
|
|
The Park National Corporation 2005 Incentive Stock Option Plan (the 2005 Plan) was
adopted by the Board of Directors of Park on January 18, 2005 and was approved by the
Park shareholders at the Annual Meeting of Shareholders on April 18, 2005. Under the
2005 Plan, 1,500,000 common shares are authorized for delivery upon the exercise of
incentive stock options granted under the 2005 Plan. All of the common shares
delivered upon the exercise of incentive stock options granted under the 2005 Plan are
to be treasury shares. As of March 31, 2008, incentive stock options covering 288,060
common shares were outstanding and 1,211,940 common shares were available for future
grants.
|
|
|
|
The Park National Corporation 1995 Incentive Stock Option Plan (the 1995 Plan) was
adopted April 17, 1995, and amended April 20, 1998 and April 16, 2001. Pursuant to the
terms of the 1995 Plan, all of the common shares delivered upon exercise of incentive
stock options granted under the 1995 Plan are to be treasury shares. No further
incentive stock options may be granted under the 1995 Plan. As of March 31, 2008,
incentive stock options covering 302,194 common shares were outstanding.
|
|
|
|
Incentive stock options, granted under both the 2005 Plan and the 1995 Plan, covering
590,254 common shares were outstanding as of March 31, 2008 and 1,211,940 common shares
were available for future grants. With 997,016 common shares held as treasury shares
for purposes of the 2005 Plan and 1995 Plan at March 31, 2008, an additional 805,178
common shares remain authorized for repurchase for purposes of funding the 2005 Plan
and 1995 Plan.
|
Item 3.
Defaults Upon Senior Securities
(a.), (b.) Not applicable.
Item 4.
Submission of Matters to a Vote of Security Holders
I. Annual Meeting of Shareholders April 21, 2008:
|
(a.)
|
|
On April 21, 2008, Park National Corporation held its Annual
Meeting of Shareholders. At the close of business on the February 25, 2008
record date, 13,964,569 Park National Corporation common shares were outstanding
and entitled to vote. At the Annual Meeting, 11,503,087 or 82.37% of the
outstanding common shares entitled to vote were represented by proxy or in
person.
|
-42-
|
(b), (c)
|
|
Directors elected at the Annual Meeting for a three year term
to expire at the 2011 Annual Meeting of Shareholders:
|
|
|
|
|
|
|
|
|
|
Nicholas L. Berning
|
|
|
|
|
11,349,902
|
|
For
|
|
153,185
|
|
Withheld
|
|
|
|
|
|
|
|
|
|
C. Daniel DeLawder
|
|
|
|
|
11,166,999
|
|
For
|
|
336,088
|
|
Withheld
|
|
|
|
|
|
|
|
|
|
Harry O. Egger
|
|
|
|
|
11,181,429
|
|
For
|
|
321,658
|
|
Withheld
|
|
|
|
|
|
|
|
|
|
F. William Englefield IV
|
|
|
|
|
11,347,335
|
|
For
|
|
155,752
|
|
Withheld
|
|
|
|
|
|
|
|
|
|
John J. O'Neill
|
|
|
|
|
11,191,483
|
|
For
|
|
311,604
|
|
Withheld
|
|
|
|
|
|
|
|
Other directors whose term of office continued after the Annual Meeting:
|
|
|
Maureen Buchwald
James J. Cullers
William T. McConnell
William A. Phillips
J. Gilbert Reese
Rick R. Taylor
David L. Trautman
Leon Zazworsky
|
|
|
(d).
|
|
With respect to the vote upon the proposed amendment to Parks Regulations to
add a new Section 5.10 to Article Five in order to clarify certain limits on the
indemnification Park may provide to, and the insurance coverage Park may
maintain on behalf of, its officers, directors and employees in accordance with
applicable state and federal laws and regulations:
|
|
|
|
|
|
|
|
|
|
|
|
Number of Votes
|
For
|
|
Against
|
|
Abstain
|
11,334,630
|
|
|
67,333
|
|
|
|
101,124
|
|
|
|
|
Since the proposed amendment to Article Five to add new Section 5.10 received the
affirmative vote of holders of more than two-thirds of the issued and outstanding common shares, the Chairman declared the amendment adopted by the shareholders.
|
Item 5.
Other Information
(a), (b) Not applicable
-43-
Item 6.
Exhibits
|
|
|
Exhibits
|
|
|
3.1(a)
|
|
Articles of Incorporation of Park National Corporation as filed with the
Ohio Secretary of State on March 24, 1992 (incorporated herein by reference
to Exhibit 3(a) to Park National Corporations Form 8-B, filed on May 20,
1992 (File No. 0-18772) (Parks Form 8-B))
|
|
|
|
3.1(b)
|
|
Certificate of Amendment to the Articles of Incorporation of Park National
Corporation as filed with the Ohio Secretary of State on May 6, 1993
(incorporated herein by reference to Exhibit 3(b) to Park National
Corporations Annual Report on Form 10-K for the fiscal year ended December
31, 1993 (File No. 0-18772))
|
|
|
|
3.1(c)
|
|
Certificate of Amendment to the Articles of Incorporation of Park National
Corporation as filed with the Ohio Secretary of State on April 16, 1996
(incorporated herein by reference to Exhibit 3(a) to Park National
Corporations Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1996 (File No. 1-13006))
|
|
|
|
3.1(d)
|
|
Certificate of Amendment by Shareholders to the Articles of Incorporation
of Park National Corporation as filed with the Ohio Secretary of State on
April 22, 1997 (incorporated herein by reference to Exhibit 3(a)(1) to Park
National Corporations Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997 (File No. 1-13006) (Parks June 30, 1997 Form
10-Q))
|
|
|
|
3.1(e)
|
|
Articles of Incorporation of Park National Corporation (reflecting
amendments through April 22, 1997) [for SEC reporting compliance purposes
only not filed with Ohio Secretary of State] (incorporated herein by
reference to Exhibit 3(a)(2) to Parks June 30, 1997 Form 10-Q)
|
|
|
|
3.2(a)
|
|
Regulations of Park National Corporation (incorporated herein by reference
to Exhibit 3(b) to Parks Form 8-B)
|
|
|
|
3.2(b)
|
|
Certified Resolution regarding Adoption of Amendment to Subsection 2.02(A)
of the Regulations of Park National Corporation by Shareholders on April
21, 1997 (incorporated herein by reference to Exhibit 3(b)(1) to Parks
June 30, 1997 Form 10-Q)
|
|
|
|
3.2(c)
|
|
Certificate Regarding Adoption of Amendments to Sections 1.04 and 1.11 of
Park National Corporations Regulations by the Shareholders on April 17,
2006 (incorporated herein by reference to Exhibit 3.1 to Park National
Corporations Current Report on Form 8-K dated and filed on April 18, 2006
(File No. 1-13006))
|
|
|
|
3.2(d)
|
|
Certificate Regarding Adoption by the Shareholders of Park National
Corporation on April 21, 2008 of Amendment to Regulations to Add a New
Section 5.10 to Article Five (filed herewith)
|
|
|
|
3.2(e)
|
|
Regulations of Park National Corporation (reflecting amendments through
April 21, 2008) [For purposes of SEC reporting compliance only] (filed
herewith)
|
-44-
|
|
|
Exhibits
|
|
|
10.1
|
|
Summary of Base Salaries for Executive Officers of Park National
Corporation for the fiscal year ending December 31, 2008 (incorporated
herein by reference to Exhibit 10.1 to Park National Corporations Annual
Report on Form 10-K for the fiscal year ended December 31, 2007 (File No.
1-13006) (Parks 2007 Form 10-K))
|
|
|
|
10.2(a)
|
|
Description of Park National Corporation Supplemental Executive Retirement
Benefits as in effect from and after February 18, 2008 (incorporated herein
by reference to Exhibit 10.7(a) to Parks 2007 Form 10-K)
|
|
|
|
10.2 (b)
|
|
Supplemental Executive Retirement Benefits Agreement, made as of February
18, 2008, between Park National Corporation and David L. Trautman
(incorporated herein by reference to Exhibit 10.1 to Park National
Corporations Current Report on Form 8-K dated and filed February 19, 2008
(File No. 1-13006)(Parks February 19, 2008 Form 8-K))
|
|
|
|
10.2 (c)
|
|
Form of Amended and Restated Supplemental Executive Retirement Benefits
Agreement, made as of February 18, 2008, between Park National Corporation
and each of C. Daniel DeLawder, John W. Kozak and William T. McConnell
(incorporated herein by reference to Exhibit 10.2 to Parks February 19,
2008 Form 8-K)
|
|
|
|
10.3 (a)
|
|
Amendment to Credit Agreement, dated as of January 10, 2008, between Park
National Corporation and JPMorgan Chase Bank, N.A. (incorporated herein by
reference to Exhibit 10.1 to Park National Corporations Current Report on
Form 8-K dated and filed on January 11, 2008 (File No. 1-13006) (Parks
January 11, 2008 Form 8-K))
|
|
|
|
10.3 (b)
|
|
Line of Credit Note, dated January 10, 2008, issued by Park National
Corporation to JPMorgan Chase Bank, N.A. or order (incorporated herein by
reference to Exhibit 10.2 to Parks January 11, 2008 Form 8-K)
|
|
|
|
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)
|
-45-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
PARK NATIONAL CORPORATION
|
|
DATE: May 6, 2008
|
BY:
|
/s/ C. Daniel DeLawder
|
|
|
|
C. Daniel DeLawder
|
|
|
|
Chairman of the Board and
Chief Executive Officer
|
|
|
|
|
|
DATE: May 6, 2008
|
BY:
|
/s/ John W. Kozak
|
|
|
|
John W. Kozak
|
|
|
|
Chief Financial Officer
|
|
|
-46-
Exhibit 3.2 (e)
Regulations of Park National Corporation
(reflecting amendments through April 21, 2008)
[For purposes of SEC reporting compliance only]
REGULATIONS
OF
PARK NATIONAL CORPORATION
(reflecting amendments through April 21, 2008)
[For purposes of SEC reporting compliance only]
INDEX
|
|
|
|
|
|
|
Section
|
|
Caption
|
|
Page No.
|
|
|
|
ARTICLE ONE
|
|
|
|
|
|
|
MEETINGS OF SHAREHOLDERS
|
|
|
|
|
1.01
|
|
Annual Meetings
|
|
|
1
|
|
1.02
|
|
Calling of Meetings
|
|
|
1
|
|
1.03
|
|
Place of Meetings
|
|
|
1
|
|
1.04
|
|
Notice of Meetings
|
|
|
1
|
|
1.05
|
|
Waiver of Notice
|
|
|
2
|
|
1.06
|
|
Quorum
|
|
|
2
|
|
1.07
|
|
Votes Required
|
|
|
2
|
|
1.08
|
|
Order of Business
|
|
|
2
|
|
1.09
|
|
Shareholders Entitled to Vote
|
|
|
2
|
|
1.10
|
|
Cumulative Voting
|
|
|
3
|
|
1.11
|
|
Proxies
|
|
|
3
|
|
1.12
|
|
Inspectors of Election
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
ARTICLE TWO
|
|
|
|
|
|
|
DIRECTORS
|
|
|
|
|
2.01
|
|
Authority and Qualifications
|
|
|
3
|
|
2.02
|
|
Number of Directors and Term of Office
|
|
|
3
|
|
2.03
|
|
Nomination and Election
|
|
|
4
|
|
2.04
|
|
Removal
|
|
|
5
|
|
2.05
|
|
Vacancies
|
|
|
5
|
|
2.06
|
|
Meetings
|
|
|
5
|
|
2.07
|
|
Notice of Meetings
|
|
|
6
|
|
2.08
|
|
Waiver of Notice
|
|
|
6
|
|
2.09
|
|
Quorum
|
|
|
6
|
|
2.10
|
|
Executive Committee
|
|
|
6
|
|
2.11
|
|
Compensation
|
|
|
7
|
|
2.12
|
|
By-Laws
|
|
|
7
|
|
i
|
|
|
|
|
|
|
Section
|
|
Caption
|
|
Page No.
|
|
|
|
ARTICLE THREE
|
|
|
|
|
|
|
OFFICERS
|
|
|
|
|
3.01
|
|
Officers
|
|
|
7
|
|
3.02
|
|
Tenure of Office
|
|
|
7
|
|
3.03
|
|
Chief Executive Officer
|
|
|
8
|
|
3.04
|
|
Chairman of the Board
|
|
|
8
|
|
3.05
|
|
President
|
|
|
8
|
|
3.06
|
|
Vice Presidents
|
|
|
8
|
|
3.07
|
|
Secretary
|
|
|
8
|
|
3.08
|
|
Treasurer
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
ARTICLE FOUR
|
|
|
|
|
|
|
SHARES
|
|
|
|
|
4.01
|
|
Certificates
|
|
|
9
|
|
4.02
|
|
Transfers
|
|
|
9
|
|
4.03
|
|
Transfer Agents and Registrars
|
|
|
9
|
|
4.04
|
|
Lost, Wrongfully Taken or Destroyed Certificates
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
ARTICLE FIVE
|
|
|
|
|
|
|
INDEMNIFICATION AND INSURANCE
|
|
|
|
|
5.01
|
|
Mandatory Indemnification
|
|
|
10
|
|
5.02
|
|
Court-Approved Indemnification
|
|
|
10
|
|
5.03
|
|
Indemnification for Expenses
|
|
|
11
|
|
5.04
|
|
Determination Required
|
|
|
11
|
|
5.05
|
|
Advances for Expenses
|
|
|
11
|
|
5.06
|
|
Article FIVE Not Exclusive
|
|
|
12
|
|
5.07
|
|
Insurance
|
|
|
12
|
|
5.08
|
|
Certain Definitions
|
|
|
12
|
|
5.09
|
|
Venue
|
|
|
13
|
|
5.10
|
|
Laws and Regulations
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
ARTICLE SIX
|
|
|
|
|
|
|
MISCELLANEOUS
|
|
|
|
|
6.01
|
|
Amendments
|
|
|
13
|
|
6.02
|
|
Action by Shareholders or Directors Without a Meeting
|
|
|
13
|
|
6.03
|
|
Section 1701.831 of the Ohio Revised Code Not Applicable
|
|
|
14
|
|
ii
REGULATIONS
OF
PARK NATIONAL CORPORATION
(reflecting amendments through April 21, 2008)
[For purposes of SEC reporting compliance only]
ARTICLE ONE
MEETINGS OF SHAREHOLDERS
Section 1.01. Annual Meetings
. The annual meeting of the shareholders for the
election of directors, for the consideration of reports to be laid before such meeting and for the
transaction of such other business as may properly come before such meeting, shall be held on the
third Monday of April in each year or on such other date as may be fixed from time to time by the
directors.
Section 1.02. Calling of Meetings
. Meetings of the shareholders may be called only
by the chairman of the board, the president, or, in case of the presidents absence, death, or
disability, the vice president authorized to exercise the authority of the president; the
secretary; the directors by action at a meeting, or a majority of the directors acting without a
meeting; or the holders of at least twenty-five percent of all shares outstanding and entitled to
vote thereat.
Section 1.03. Place of Meetings
. All meetings of shareholders shall be held at the
principal office of the corporation, unless otherwise provided by action of the directors. Meetings
of shareholders may be held at any place within or without the State of Ohio.
Section 1.04. Notice of Meetings
.
(A) Written notice stating the time, place and purposes of a meeting of the shareholders
shall be given either by personal delivery or by mail, overnight delivery service, or any other
means of communication authorized by the shareholder to whom the notice is given, not less than ten
nor more than 60 days before the date of the meeting (i) to every shareholder of record entitled to
notice of the meeting (ii) by or at the direction of the president, the secretary, or another
officer expressly authorized by action of the directors to give such notice. If mailed or sent by
overnight delivery service, such notice shall be addressed to the shareholder at such shareholder
s address as it appears on the records of the corporation. If sent by another means of
communication authorized by the shareholder, the notice shall be sent to the address furnished by
the shareholder for those transmissions. Notice of adjournment of a meeting need not be given if
the time and place to which it is adjourned are fixed and announced at such meeting. In the event
of a transfer of shares after the record date for determining the shareholders who are entitled to
receive notice of a meeting of shareholders, it shall not be necessary to give notice to the
transferee. Nothing herein contained shall prevent the setting of a record date in the manner
provided by law, the Articles or the Regulations for the determination of shareholders who are
entitled to receive notice of or to vote at any meeting of shareholders or for any purpose required
or permitted by law.
[Amended April 17, 2006 by Shareholders.]
(B) Upon request in writing delivered either in person or by registered mail to the president
or the secretary, specifying the purpose or the purposes for which the persons properly making such
request have called a meeting of shareholders, that officer shall forthwith cause to be given to
the shareholders entitled thereto notice of a meeting to be held on a date not less than ten nor
more than 60 days after the receipt of such request, as the officer may fix. If the notice is not
given within 15 days
1
after the receipt of such request by the president or the secretary, then the persons properly
calling the meeting may fix the time of the meeting and give notice thereof in accordance with
Section 1.04(A), or cause the notice to be so given by any designated representative.
[Amended
April 17, 2006 by Shareholders.]
Section 1.05. Waiver of Notice
. Notice of the time, place and purpose or purposes of
any meeting of shareholders may be waived in writing, either before or after the holding of such
meeting, by any shareholders, which writing shall be filed with or entered upon the records of such
meeting. The attendance of any shareholder, in person or by proxy, at any such meeting without
protesting the lack of proper notice, prior to or at the commencement of the meeting, shall be
deemed to be a waiver by such shareholder of notice of such meeting.
Section 1.06. Quorum
. At any meeting of shareholders, the holders of a majority of
the voting shares of the corporation then outstanding and entitled to vote thereat, present in
person or by proxy, shall constitute a quorum for such meeting. The holders of a majority of the
voting shares represented at a meeting, whether or not a quorum is present, or the chairman of the
board, the president, or the officer of the corporation acting as chairman of the meeting, may
adjourn such meeting from time to time, and if a quorum is present at such adjourned meeting any
business may be transacted as if the meeting had been held as originally called.
Section 1.07. Votes Required
. At all elections of directors, the candidates
receiving the greatest number of votes shall be elected. Any other matter submitted to the
shareholders for their vote shall be decided by the vote of such proportion of the shares, or of
any class of shares, or of each class, as is required by law, the Articles or the Regulations.
Section 1.08. Order of Business
. The order of business at any meeting of
shareholders shall be determined by the officer of the corporation acting as chairman of such
meeting unless otherwise determined by a vote of the holders of a majority of the voting shares of
the corporation then outstanding, present in person or by proxy, and entitled to vote at such
meeting.
Section 1.09. Shareholders Entitled to Vote
. Each shareholder of record on the books
of the corporation on the record date for determining the shareholders who are entitled to vote at
a meeting of shareholders shall be entitled at such meeting to one vote for each share of the
corporation standing in his name on the books of the corporation on such record date. The directors
may fix a record date for the determination of the shareholders who are entitled to receive notice
of and to vote at a meeting of shareholders, which record date shall not be a date earlier than the
date on which the record date is fixed and which record date may be a maximum of sixty days
preceding the date of the meeting of shareholders.
Section 1.10. Cumulative Voting
. If notice in writing shall be given by a
shareholder to the president, a vice president or the secretary of the corporation, not less than
forty-eight hours before the time fixed for holding a meeting of the shareholders for the purpose
of electing directors if notice of such meeting shall have been given at least ten days prior
thereto, and otherwise not less than twenty-four hours before such time, that such shareholder
desires that the voting at such election shall be cumulative, and if an announcement of the giving
of such notice is made upon the convening of the meeting by the chairman or secretary or by or on
behalf of the shareholder giving such notice, each shareholder shall have the right to cumulate
such voting power as he possesses and to give one candidate as many votes as is determined by
multiplying the number of directors to be elected by the number of votes to which such shareholder
is entitled, or to distribute such number of votes on the same principle among two or more
candidates, as he sees fit.
Section 1.11. Proxies
. At meetings of the shareholders, any shareholder entitled to
vote thereat may be represented and may vote by a proxy or proxies appointed by a writing signed,
or a verifiable communication authorized, by such shareholder, but such writing or verifiable
communication must be filed with the secretary of the meeting before such proxy shall be allowed to
vote thereunder.
[Amended April 17, 2006 by Shareholders.]
Section 1.12. Inspectors of Election
. In advance of any meeting of shareholders, the
directors may appoint inspectors of election to act at such meeting or any adjournment thereof; if
inspectors are not so appointed, the officer of the corporation acting as chairman of any such
meeting may make such appointment. In case any person appointed as inspector fails to appear or
act, the vacancy may be filled only by appointment made by the directors in advance of such meeting
or, if not so filled, at the meeting by the officer of the corporation acting as chairman of such
meeting. No other person or persons may appoint or require the appointment of inspectors of
election.
ARTICLE TWO
DIRECTORS
Section 2.01. Authority and Qualifications
. Except where the law, the Articles or
the Regulations otherwise provide, all authority of the corporation shall be vested in and
exercised by its directors. Directors must be shareholders of the corporation.
Section 2.02. Number of Directors and Term of Office
.
(A) The number of directors of the corporation may be determined at a meeting of the
shareholders called for the purpose of electing directors at which a quorum is present, by the
affirmative vote of the holders of not less than a majority of the voting shares which are
represented at the meeting, in person or by proxy, and entitled to vote on such proposal; or by
resolution adopted by the affirmative vote of a majority of the directors then in office.
Notwithstanding the foregoing, the number of directors shall in no event be fewer than five or more
than sixteen and the directors may not increase the number of directors to a number which exceeds
by more than two the number of directors last elected by the shareholders.
[Amended April 21, 1997
by Shareholders.]
(B) The board of directors shall be divided into three classes as nearly equal in number as
the then fixed number of directors permits, with the term of office of one class expiring each
year. The election of each class of directors shall be a separate election. At the first meeting
of shareholders, directors of one class shall be elected to hold office for a term expiring at the
1993 annual meeting, directors of another class shall be elected to hold office for a term expiring
at the 1994 annual meeting and directors of another class shall be elected to hold office for a
term expiring at the 1995 annual meeting. At the 1993 annual meeting of shareholders and each
succeeding annual meeting, successors to the class of directors whose term then expires shall be
elected to hold office for a three-year term. A director shall hold office until the annual
meeting for the year in which his term expires and until his successor is duly elected and
qualified, or until his earlier resignation, removal from office or death. In the event of any
increase in the number of directors of the corporation, the additional directors shall be similarly
classified in such a manner that each class of directors shall be as equal in number as possible.
In the event of any decrease in the number of directors of the corporation, such decrease shall be
effected in such a manner that each class of directors shall be as equal in number as possible.
(C) The directors may fill any directors office that is created by an increase in the number
of directors.
(D) No reduction in the number of directors shall of itself have the effect of shortening the
term of any incumbent director.
Section 2.03. Nomination and Election
.
(A) Any nominee for election as a director of the corporation may be proposed only by or at
the direction of the board of directors or by any shareholder entitled to vote for the election of
directors. Nominations, other than those made by or at the direction of the board of directors,
shall be made in writing and shall be delivered or mailed to the president of the corporation not
less than fourteen days nor more than fifty days prior to any meeting of shareholders called for
the election of directors; provided, however, that if less than twenty-one days notice of the
meeting is given to shareholders, such nomination shall be mailed or delivered to the president of
the corporation not later than the close of business on the seventh day following the day on which
the notice of meeting was mailed. Such notification shall contain the following information to the
extent known to the notifying shareholder:
|
(1)
|
|
the name and address of each proposed nominee;
|
|
|
(2)
|
|
the principal occupation of each proposed nominee;
|
|
|
(3)
|
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the total number of shares of capital stock of the
corporation that will be voted for each proposed nominee;
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(4)
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the name and residence address of the notifying
shareholder; and
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(5)
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the number of shares of capital stock of the
corporation beneficially owned by the notifying shareholder.
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(B) If a shareholder shall attempt to nominate one or more persons for election as a director
at any meeting at which directors are to be elected without having identified each such person in a
written notice given as contemplated by, and/or without having provided therein the information
specified in, division (A) of this Section, each such attempted nomination shall be invalid and
shall be disregarded unless the person acting as chairman of the meeting determines that the facts
warrant the acceptance of such nomination.
(C) The election of directors shall be by ballot whenever requested by the presiding officer
of the meeting or by the holders of a majority of the voting shares outstanding, entitled to vote
at such meeting and present in person or by proxy, but unless such request is made, the election
shall be by voice vote.
Section 2.04. Removal
. A director or directors may be removed from office, with or
without assigning any cause, only by the vote of the holders of shares entitling them to exercise
not less than a majority of the voting power of the corporation to elect directors in place of
those to be removed, provided that unless all the directors, or all the directors of a particular
class (if the directors of the corporation are divided into classes), are removed, no individual
director shall be removed in case the votes of a sufficient number of shares are cast against his
removal that, if cumulatively voted at an election of all directors, or all the directors of a
particular class, as the case may be, would be sufficient to elect at least one director. In case
of any such removal, a new director may be elected at the same meeting for the unexpired term of
each director removed. Failure to elect a director to fill the unexpired term of any director
removed shall be deemed to create a vacancy in the board.
Section 2.05. Vacancies
. The remaining directors, though less than a majority of the
whole authorized number of directors, may, by the vote of a majority of their number, fill any
vacancy in the
board for the unexpired term. A vacancy in the board exists within the meaning of this Section
2.05 in case the shareholders increase the authorized number of directors but fail at the meeting
at which such increase is authorized, or an adjournment thereof, to elect the additional directors
provided for, or in case the shareholders fail at any time to elect the whole authorized number of
directors.
Section 2.06. Meetings
. A meeting of the directors shall be held immediately
following the adjournment of each annual meeting of shareholders at which directors are elected,
and notice of such meeting need not be given. The directors shall hold such other meetings as may
from time to time be called, and such other meetings of directors may be called only by the
chairman of the board, the president, or any two directors. All meetings of directors shall be
held at the principal office of the corporation in Newark, Ohio or at such other place within or
without the State of Ohio, as the directors may from time to time determine by a resolution.
Meetings of the directors may be held through any communications equipment if all persons
participating can hear each other and participation in a meeting pursuant to this provision shall
constitute presence at such meeting.
Section 2.07. Notice of Meetings
. Notice of the time and place of each meeting of
directors for which such notice is required by law, the Articles, the Regulations or the By-Laws
shall be given to each of the directors by at least one of the following methods:
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(A)
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In a writing mailed not less than three days before such meeting
and addressed to the residence or usual place of business of a director, as such
address appears on the records of the corporation; or
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(B)
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By telegraph, cable, radio, wireless, or a writing sent or
delivered to the residence or usual place of business of a director as the same
appears on the records of the corporation, not later than the day before the
date on which such meeting is to be held; or
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(C)
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Personally or by telephone not later than the day before the date
on which such meeting is to be held.
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Notice given to a director by any one of the methods specified in the Regulations shall be
sufficient, and the method of giving notice to all directors need not be uniform. Notice of any
meeting of directors may be given only by the chairman of the board, the president or the secretary
of the corporation. Any such notice need not specify the purpose or purposes of the meeting.
Notice of adjournment of a meeting of directors need not be given if the time and place to which it
is adjourned are fixed and announced at such meeting.
Section 2.08. Waiver of Notice
. Notice of any meeting of directors may be waived in
writing, either before or after the holding of such meeting, by any director, which writing shall
be filed with or entered upon the records of the meeting. The attendance of any director at any
meeting of directors without protesting, prior to or at the commencement of the meeting, the lack
of proper notice, shall be deemed to be a waiver by him of notice of such meeting.
Section 2.09. Quorum
. A majority of the directors then in office shall be necessary
to constitute a quorum for a meeting of directors. The act of a majority of the directors present
at a meeting at which a quorum is present is the act of the board, except as otherwise provided by
law, the Articles or the Regulations.
Section 2.10. Executive Committee
. The directors may create an executive committee
or any other committee of directors, to consist of not less than three directors, and may authorize
the delegation to such executive committee or other committees of any of the authority of the
directors, however
conferred, other than that of filling vacancies among the directors or in the executive committee
or in any other committee of the directors.
Such executive committee or any other committee of directors shall serve at the pleasure of
the directors, shall act only in the intervals between meetings of the directors, and shall be
subject to the control and direction of the directors. Such executive committee or other committee
of directors may act by a majority of its members at a meeting or by a writing or writings signed
by all of its members.
Any act or authorization of any act by the executive committee or any other committee within
the authority delegated to it shall be as effective for all purposes as the act or authorization of
the directors. No notice of a meeting of the executive committee or of any other committee of
directors shall be required. A meeting of the executive committee or of any other committee of
directors may be called only by the president or by a member of such executive or other committee
of directors. Meetings of the executive committee or of any other committee of directors may be
held through any communications equipment if all persons participating can hear each other and
participation in such a meeting shall constitute presence thereat.
Section 2.11. Compensation
. Directors shall be entitled to receive as compensation
for services rendered and expenses incurred as directors, such amounts as the directors may
determine.
Section 2.12. By-Laws
. The directors may adopt, and amend from time to time, By-Laws
for their own government, which By-Laws shall not be inconsistent with the law, the Articles or the
Regulations.
ARTICLE THREE
OFFICERS
Section 3.01. Officers
. The officers of the corporation to be elected by the
directors shall be a president, a secretary, a treasurer, and, if desired, one or more vice
presidents and such other officers and assistant officers as the directors may from time to time
elect. The directors shall elect a chairman of the board, who must be a director. Officers need
not be shareholders of the corporation, and may be paid such compensation as the board of directors
may determine. Any two or more offices may be held by the same person, but no officer shall
execute, acknowledge, or verify any instrument in more than one capacity if such instrument is
required by law, the Articles, the Regulations or the By-Laws to be executed, acknowledged, or
verified by two or more officers.
Section 3.02. Tenure of Office
. The officers of the corporation shall hold office at
the pleasure of the directors. Any officer of the corporation may be removed, either with or
without cause, at any time, by the affirmative vote of a majority of all the directors then in
office; such removal, however, shall be without prejudice to the contract rights, if any, of the
person so removed.
Section 3.03. Chief Executive Officer
. The chief executive officer of the
corporation, who shall be a member of the board of directors and shall also be either the chairman
of the board or the president (or if the chairman of the board and the president shall be absent or
unable to act, a vice president), shall be such officer who from time to time is so designated by
the directors. The chief executive officer shall have general and active management of the
business of the corporation and shall see that all orders and regulations of the directors are
carried into effect. The chief executive officer shall perform all duties incident to the office
of chief executive officer and shall have and may exercise such other powers and duties as from
time to time may be conferred upon or assigned to him by the directors.
Section 3.04. Chairman of the Board
. The directors shall appoint one of the
directors to be chairman of the board to serve at the pleasure of the directors. Such person shall
preside at all meetings of the directors and at all meetings of the shareholders. He shall have
and may exercise such other powers and duties as from time to time may be conferred upon or
assigned to him by the directors.
Section 3.05. President
. The directors shall appoint one of the directors to be
president of the corporation. In the absence of the chairman of the board, he shall preside at any
meeting of the directors and at any meeting of the shareholders. The president shall have and may
exercise such other powers and duties as from time to time may be conferred upon or assigned to him
by the directors.
Section 3.06. Vice Presidents
. The directors may appoint one or more vice
presidents, one or more executive vice presidents and one or more senior vice presidents. Each
officer shall have and may exercise such powers and duties as from time to time may be conferred
upon or assigned to him by the directors.
Section 3.07. Secretary
. The directors shall appoint and designate an officer who
shall be secretary of the corporation and shall keep minutes of all proceedings of the shareholders
and the directors and make a proper record of the same. The secretary shall attend to the giving
of all notices required by law, the Articles or the Regulations to be given; shall be custodian of
the records, documents and papers of the corporation; shall provide for the keeping of proper
records of all transactions of the corporation; shall have and may exercise any and all powers and
duties pertaining to the office of secretary as may be required by law, the Articles or the
Regulations; and upon the expiration of his term of office, shall deliver all records, documents,
papers and property of the corporation in his possession or custody to his successor or the chief
executive officer. The secretary shall have and may exercise such other powers and duties as from
time to time may be conferred upon or assigned to him by the directors.
Section 3.08. Treasurer
. The directors shall appoint a treasurer who shall receive
and safely keep in charge all money, bills, notes, chooses in action, securities and similar
property belonging to the corporation, and shall do with or disburse the same as directed by the
chief executive officer or the directors; shall keep an accurate account of the finances and
business of the corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, stated capital and shares, together with such other accounts as may
be required and hold the same open for inspection and examination by the directors; shall give bond
in such sum with such security as the directors may require for the faithful performance of his
duties; shall, upon the expiration of his term of office, deliver all money and other property of
the corporation in his possession or custody to his successor or the chief executive officer; and
shall have and may exercise such other powers and duties as from time to time may be conferred upon
or assigned to him by the directors.
ARTICLE FOUR
SHARES
Section 4.01. Certificates
. Certificates evidencing ownership of shares of the
corporation shall be issued to those entitled to them. Each certificate evidencing shares of the
corporation shall bear a distinguishing number; the signatures of the chairman of the board, the
president, or a vice president, and of the secretary, an assistant secretary, the treasurer or an
assistant treasurer (except that when any such certificate is countersigned by an incorporated
transfer agent or registrar, such signatures may be facsimile, engraved, stamped or printed); and
such recitals as may be required by law. Certificates evidencing shares of the corporation shall
be of such tenor and design as the directors may from time to time adopt and may bear such recitals
as are permitted by law.
Section 4.02. Transfers
. Shares of the corporation shall be transferable in the
manner prescribed by law and these Regulations. Transfers of shares shall be made on the share
transfer books of the corporation only by the person named in the certificate or by attorney
lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be
cancelled when a new certificate shall be issued.
Section 4.03. Transfer Agents and Registrars
. The directors may appoint one or more
agents to transfer or to register shares of the corporation, or both.
Section 4.04. Lost, Wrongfully Taken or Destroyed Certificates
. Except as otherwise
provided by law, where the owner of a certificate evidencing shares of the corporation claims that
such certificate has been lost, destroyed or wrongfully taken, the directors must cause the
corporation to issue a new certificate in place of the original certificate if the owner:
(1) So requests before the corporation has notice that such original certificate has been
acquired by a bona fide purchaser; and
(2) Files with the corporation, unless waived by the directors, an indemnity bond, with
surety or sureties satisfactory to the corporation, in such sums as the directors may, in their
discretion, deem reasonably sufficient as indemnity against any loss or liability that the
corporation may incur by reason of the issuance of each such new certificate; and
(3) Satisfies any other reasonable requirements which may be imposed by the directors, in
their discretion.
ARTICLE FIVE
INDEMNIFICATION AND INSURANCE
Section 5.01. Mandatory Indemnification
. The corporation shall indemnify any officer
or director of the corporation who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, without limitation, any action threatened or instituted
by or in the right of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee or agent of another corporation (domestic or
foreign, nonprofit or for profit), partnership, joint venture, trust or other enterprise, against
expenses (including, without limitation, attorneys fees, filing fees, court reporters fees and
transcript costs), judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the corporation, and with
respect to any criminal action or proceeding, he had no reasonable cause to believe his conduct was
unlawful. A person claiming indemnification under this Section 5.01 shall be presumed, in respect
of any act or omission giving rise to such claim for indemnification, to have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal matter, to have had no reasonable cause to believe
his conduct was unlawful, and the termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, rebut such presumption.
Section 5.02. Court-Approved Indemnification
. Anything contained in the Regulations
or elsewhere to the contrary notwithstanding:
(A) the corporation shall not indemnify any officer or director of the corporation who was a
party to any completed action or suit instituted by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation as a director,
trustee, officer, employee or agent of another corporation (domestic or foreign, nonprofit or for
profit), partnership, joint venture, trust or other enterprise, in respect of any claim, issue or
matter asserted in such action or suit as to which he shall have been adjudged to be liable for
acting with reckless disregard for the best interests of the corporation or misconduct (other than
negligence) in the performance of his duty to the corporation unless and only to the extent that
the Court of Common Pleas of Licking County, Ohio or the court in which such action or suit was
brought shall determine upon application that, despite such adjudication of liability, and in view
of all the circumstances of the case, he is fairly and reasonably entitled to such indemnity as
such Court of Common Pleas or such other court shall deem proper; and
(B) the corporation shall promptly make any such unpaid indemnification as is determined by a
court to be proper as contemplated by this Section 5.02.
Section 5.03. Indemnification for Expenses
. Anything contained in the Regulations or
elsewhere to the contrary notwithstanding, to the extent that an officer or director of the
corporation has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 5.01, or in defense of any claim, issue or matter therein, he
shall be promptly indemnified by the corporation against expenses (including, without limitation,
attorneys fees, filing fees, court reporters fees and transcript costs) actually and reasonably
incurred by him in connection therewith.
Section 5.04 Determination Required
. Any indemnification required under Section 5.01
and not precluded under Section 5.02 shall be made by the corporation only upon a determination
that such indemnification of the officer or director is proper in the circumstances because he has
met the applicable standard of conduct set forth in Section 5.01. Such determination may be made
only (A) by a majority vote of a quorum consisting of directors of the corporation who were not and
are not parties to, or threatened with, any such action, suit or proceeding, or (B) if such a
quorum is not obtainable or if a majority of a quorum of disinterested directors so directs, in a
written opinion by independent legal counsel other than an attorney, or a firm having associated
with it an attorney, who has been retained by or who has performed services for the corporation, or
any person to be indemnified, within the past five years, or (C) by the shareholders, or (D) by the
Court of Common Pleas of Licking County, Ohio or (if the corporation is a party thereto) the court
in which such action, suit or proceeding was brought, if any; any such determination may be made by
a court under division (D) of this Section 5.04 at any time [including, without limitation, any
time before, during or after the time when any such determination may be requested of, be under
consideration by or have been denied or disregarded by the disinterested directors under division
(A) or by independent legal counsel under division (B) or by the shareholders under division (C) of
this Section 5.04]; and no failure for any reason to make any such determination, and no decision
for any reason to deny any such determination, by the disinterested directors under division (A) or
by independent legal counsel under division (B) or by shareholders under division (C) of
this Section 5.04 shall be evidence in rebuttal of the presumption recited in Section 5.01. Any
determination made by the disinterested directors under division (A) or by independent legal
counsel under division (B) of this Section 5.04 to make indemnification in respect of any claim,
issue or matter asserted in an action or suit threatened or brought by or in the right of the
corporation shall be promptly communicated to the person who threatened or brought such action or
suit, and within ten (l0) days after receipt of such notification such person shall have the right
to petition the Court of Common Pleas of Licking County, Ohio or the court in which such action or
suit was brought, if any, to review the reasonableness of such determination.
Section 5.05. Advances for Expenses
. Expenses (including, without limitation,
attorneys fees, filing fees, court reporters fees and transcript costs) incurred in defending any
action, suit or proceeding referred to in Section 5.01 shall be paid by the corporation in advance
of the final disposition of such action, suit or proceeding to or on behalf of the officer or
director promptly as such expenses are incurred by him, but only if such officer or director shall
first agree, in writing, to repay all amounts so paid in respect of any claim, issue or other
matter asserted in such action, suit or proceeding in defense of which he shall not have been
successful on the merits or otherwise:
(A) if it shall ultimately be determined as provided in Section 5.04 that he is not entitled
to be indemnified by the corporation as provided under Section 5.01; or
(B) if, in respect of any claim, issue or other matter asserted by or in the right of the
corporation in such action or suit, he shall have been adjudged to be liable for acting with
reckless disregard for the best interests of the corporation or misconduct (other than negligence)
in the performance of his duty to the corporation, unless and only to the extent that the Court of
Common Pleas of Licking County, Ohio or the court in which such action or suit was brought shall
determine upon application that, despite such adjudication of liability, and in view of all the
circumstances, he is fairly and reasonably entitled to all or part of such indemnification.
Section 5.06. Article FIVE Not Exclusive
. The indemnification provided by this
Article FIVE shall not be exclusive of, and shall be in addition to, any other rights to which any
person seeking indemnification may be entitled under the Articles or the Regulations or any
agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be an officer or director of the corporation and shall
inure to the benefit of the heirs, executors, and administrators of such a person.
Section 5.07. Insurance
. The corporation may purchase and maintain insurance or
furnish similar protection, including but not limited to trust funds, letters of credit, or
self-insurance, on behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a director, trustee,
officer, employee, or agent of another corporation (domestic or foreign, nonprofit or for profit),
partnership, joint venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such, whether or not the
corporation would have the obligation or the power to indemnify him against such liability under
the provisions of this Article FIVE. Insurance may be purchased from or maintained with a person
in which the corporation has a financial interest.
Section 5.08. Certain Definitions.
For purposes of this Article FIVE, and as
examples and not by way of limitation:
(A) A person claiming indemnification under this Article FIVE shall be deemed to have been
successful on the merits or otherwise in defense of any action, suit or proceeding referred to in
Section 5.01, or in defense of any claim, issue or other matter therein, if such action, suit or
proceeding
shall be terminated as to such person, with or without prejudice, without the entry of a judgment
or order against him, without a conviction of him, without the imposition of a fine upon him and
without his payment or agreement to pay any amount in settlement thereof (whether or not any such
termination is based upon a judicial or other determination of the lack of merit of the claims made
against him or otherwise results in a vindication of him); and
(B) References to an other enterprise shall include employee benefit plans; references to a
fine shall include any excise taxes assessed on a person with respect to an employee benefit
plan; and references to serving at the request of the corporation shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the best interests of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests
of the corporation within the meaning of that term as used in this Article FIVE.
Section 5.09. Venue
. Any action, suit or proceeding to determine a claim for
indemnification under this Article FIVE may be maintained by the person claiming such
indemnification, or by the corporation, in the Court of Common Pleas of Licking County, Ohio. The
corporation and (by claiming such indemnification) each such person consent to the exercise of
jurisdiction over its or his person by the Court of Common Pleas of Licking County, Ohio in any
such action, suit or proceeding.
Section 5.10. Laws and Regulations
. Anything contained in the Regulations or
elsewhere to the contrary notwithstanding, any indemnification or insurance provided for under this
Article Five shall be subject to the limitations of and conditioned upon compliance with the
provisions of applicable state and federal laws and regulations, including, without limitation:
(A) the provisions of the Ohio Revised Code governing indemnification by an Ohio corporation of,
and insurance maintained by an Ohio corporation on behalf of, its officers, directors or employees;
and (B) the provisions of 12 U.S.C. § 1828(k) and Part 359 of the regulations of the Federal
Deposit Insurance Corporation (the FDIC) (12 C.F.R. Part 359), which provisions contain certain
prohibitions and limitations on the making of certain indemnification payments and the maintenance
of certain insurance coverage by FDIC-insured depository institutions and their holding companies.
[Added upon Approval by Shareholders on April 21, 2008.]
ARTICLE SIX
MISCELLANEOUS
Section 6.01. Amendments
. The Regulations may be amended, or new regulations may be
adopted, at a meeting of shareholders held for such purpose, only by the affirmative vote of the
holders of shares entitling them to exercise not less than two-thirds of the voting power of the
corporation on such proposal, or without a meeting by the written consent of the holders of shares
entitling them to exercise not less than two-thirds of the voting power of the corporation on such
proposal.
Section 6.02. Action by Shareholders or Directors Without a Meeting
. Anything
contained in the Regulations to the contrary notwithstanding, except as provided in Section 6.01,
any action which may be authorized or taken at a meeting of the shareholders or of the directors or
of a committee of the directors, as the case may be, may be authorized or taken without a meeting
with the affirmative vote or approval of, and in a writing or writings signed by, all the
shareholders who would be entitled to notice of a meeting of the shareholders held for such
purpose, or all the directors, or all the members of such committee of the directors, respectively,
which writings shall be filed with or entered upon the records of the corporation.
Section 6.03. Section 1701.831 of the Ohio Revised Code Not Applicable
. Section
1701.831 of the Ohio Revised Code does not apply to control share acquisitions of shares of the
corporation.