-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UW0uWJ4WRcLyFSFJVzSrtiA136Z863UBJEjzblmocGhI6FlQfBbGppqqHjrudXyS A6lwUfErMDJ3MrMUnjJ8Yw== 0000950152-97-007909.txt : 19971113 0000950152-97-007909.hdr.sgml : 19971113 ACCESSION NUMBER: 0000950152-97-007909 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARK NATIONAL CORP /OH/ CENTRAL INDEX KEY: 0000805676 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 311179518 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13006 FILM NUMBER: 97715426 BUSINESS ADDRESS: STREET 1: 50 NORTH THIRD ST CITY: NEWARK STATE: OH ZIP: 43055 BUSINESS PHONE: 6143498451 MAIL ADDRESS: STREET 1: P O BOX 3500 CITY: NEWARK STATE: OH ZIP: 43058-3500 10-Q 1 PARK NATIONAL CORPORATION FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- ------------------- Commission File Number 1-13006 --------- Park National Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 31-1179518 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 50 North Third Street, Newark, Ohio 43055 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (614) 349-8451 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- 9,387,210 common shares, no par value per share, outstanding at October 31, 1997. Page 1 of 20 Exhibit Index At Page 18 2 PARK NATIONAL CORPORATION CONTENTS --------
Page ---- PART I. FINANCIAL INFORMATION 3-8 Item 1. Financial Statements 3-8 Consolidated Balance Sheet as of September 30, 1997 and and December 31, 1996 (unaudited) 3 Consolidated Condensed Statement of Income for the Three Months Ended and for the Nine Months Ended September 30, 1997 and 1996 (unaudited) 4-5 Consolidated Statement of Cash Flows for the Nine Months ended September 30, 1997 and 1996 (unaudited) 6-7 Notes to Consolidated Financial Statements 8-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-17 PART II. OTHER INFORMATION 18 Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 EXHIBITS 20
-2- 3 PARK NATIONAL CORPORATION Consolidated Balance Sheet (Unaudited) (Dollars in thousands, except per share data)
September 30, December 31, 1997 1996 ------------- ------------ Assets: Cash and due from banks $ 93,595 $ 81,765 Federal funds sold 0 0 Securities available-for-sale, at fair value (amortized cost of $527,898 and $556,436 at September 30, 1997 and December 31, 1996) 537,824 563,613 Securities held-to-maturity, at amortized cost (fair value approximates $8,964 and $11,217 at September 30, 1997 and December 31, 1996) 8,603 10,780 Loans (net of unearned interest) 1,562,686 1,472,024 Allowance for possible loan losses 35,020 32,347 Net loans 1,527,666 1,439,677 Bank premises and equipment, net 27,297 27,548 Other assets 65,710 61,587 ---------- ---------- Total assets $2,260,695 $2,184,970 Liabilities and Stockholders' Equity Deposits: Noninterest-bearing $ 248,358 $ 225,424 Interest-bearing 1,562,518 1,537,994 Total deposits 1,810,876 1,763,418 Short-term borrowings 178,542 135,111 Long-term debt 31,069 62,375 Other liabilities 22,864 25,105 Total liabilities 2,043,351 1,986,009 Stockholders' Equity: Common stock (No par value; 20,000,000 shares authorized; 9,550,712 shares in 1997 and 9,443,864 shares issued in 1996) 68,238 64,612 Unrealized holding gain on available-for-sale securities, net 6,483 4,687 Retained earnings 150,279 132,647 Treasury stock (162,397 shares in 1997 and 89,426 shares in 1996) (7,656) (2,985) Total stockholders' equity 217,344 198,961 ---------- ---------- Total liabilities and stockholders' equity $2,260,695 $2,184,970
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 4 PARK NATIONAL CORPORATION Consolidated Condensed Statement of Income (Unaudited) (Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------- ------- -------- -------- Interest Income: Interest & fees on loans $36,435 $32,434 $105,692 $ 95,544 Interest on: Obligations of U.S. Govt its agencies & other securities 8,142 7,187 25,326 20,403 Obligations of states & political subdivisions 1,150 885 2,958 2,609 Other interest income 4 568 430 1,669 Total interest income 45,731 41,074 134,406 120,225 Interest expense: Interest on deposits: Demand & savings deposits 4,228 4,019 12,590 11,918 Time deposits 12,413 11,166 36,950 33,128 Non-deposit interest: Short-term borrowings 2,334 1,367 5,759 4,105 Long-term debt 476 931 2,395 1,894 Total interest expense 19,451 17,483 57,694 51,045 Net interest income 26,280 23,591 76,712 69,180 Provision for loan losses 1,521 1,216 4,169 3,558 Net interest income after provision 24,759 22,375 72,543 65,622
4 5 PARK NATIONAL CORPORATION Consolidated Condensed Statement of Income (Unaudited) - (Continued) (Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 -------- -------- -------- -------- Other income $ 5,181 $ 4,531 $ 15,340 $ 13,502 Loss on sale of securities (7) (168) (7) (868) Other expense: Salaries & employee benefits 7,477 7,076 22,864 21,130 Occupancy 832 753 2,484 2,318 Furniture & equipment 907 887 2,696 2,688 Other expenses 5,677 5,051 17,927 16,045 Total other expense 14,893 13,767 45,971 42,181 Income before federal income taxes 15,040 12,971 41,905 36,075 Federal income taxes 4,656 4,024 12,980 11,116 Net income $ 10,384 $ 8,947 $ 28,925 $ 24,959 ======== ======== ======== ======== Per Share: Net income per share: Primary $ 1.10 $ 0.95 $ 3.07 $ 2.66 Fully diluted $ 1.10 $ 0.95 $ 3.07 $ 2.66 Weighted average common shares outstanding: Primary 9,447,301 9,384,030 9,417,244 9,382,439 Fully Diluted 9,453,936 9,384,449 9,423,442 9,383,323 Cash dividends declared $ 0.40 $ 0.35 $ 1.20 $ 1.05
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 6 PARK NATIONAL CORPORATION Consolidated Statement of Cash Flows (Unaudited) (Dollars in thousands)
Nine Months Ended September 30, 1997 1996 --------- --------- Operating activities: Net income $ 28,925 $ 24,958 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization & accretion 528 248 Provision for loan losses 4,169 3,558 Amortization of the excess of cost over net assets of banks purchased 1,463 385 Realized investment security losses 7 868 Changes in assets & liabilities: Increase in other assets (6,540) (2,511) Increase/(decrease) in other liabilities 1,514 (457) Net cash provided from operating activities 30,066 27,049 Investing activities: Proceeds from sales of: Available-for-sale securities 45,083 56,845 Proceeds from maturities of: Available-for-sale securities 117,274 76,083 Held-to-maturity securities 2,178 1,207 Purchases of: Available-for-sale securities (132,586) (184,377) Held-to-maturity securities 0 (1,575) Net increase in loans (91,516) (61,479) Purchases of premises & equipment, net (2,160) (1,477) Net cash used by investing activities (61,727) (114,773)
6 7 PARK NATIONAL CORPORATION Consolidated Statement of Cash Flows (Unaudited) - (Continued) (Dollars in thousands)
Nine Months Ended September 30, 1997 1996 -------- -------- Financing activities: Net increase in deposits $ 47,458 $ 44,415 Net increase in short-term borrowings 43,431 19,256 Exercise of stock options 3,626 144 Purchase of treasury stock (4,671) (221) Proceeds from issuance of long-term debt 0 30,000 Repayment of long-term debt (31,306) (772) Cash dividends paid (15,047) (11,530) Net cash provided from financing activities 43,491 81,292 Increase/(decrease) in cash & cash equivalents 11,830 (6,432) Cash & cash equivalents at beginning of year 81,765 113,164 Cash & cash equivalents at end of period $ 93,595 $106,732 ======== ======== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 57,753 $ 51,384 Income taxes 9,455 12,360
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 7 8 PARK NATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Three and Nine Month Periods Ended September 30, 1997 and 1996. Note 1 - Basis of Presentation --------------------- The consolidated financial statements included in this report have been prepared by Park National Corporation (the "Registrant", "Corporation", or "Park") without audit. In the opinion of management, all adjustments (consisting solely of normal recurring accruals) necessary for a fair presentation of results of operations for the interim periods included herein have been made. The results of operations for the periods ended September 30, 1997 are not necessarily indicative of the operating results to be anticipated for the fiscal year ended December 31, 1997. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q, and therefore, do not include all information and footnotes necessary for a fair presentation of the balance sheet, condensed statement of income and statement of cash flows in conformity with generally accepted accounting principles. These financial statements should be read in conjunction with the financial statements included in the Annual Report on Form 10K for the year ended December 31, 1996. Certain amounts in prior periods have been reclassified to conform to the financial statement presentation used for current periods. Primary earnings per share is computed based on the weighted average shares outstanding during the periods presented plus common equivalent shares arising from dilutive stock options, using the treasury stock method. Fully diluted earnings per share reflects additional dilution related to stock options due to the use of market price at the end of the period when higher than the average price for the period. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Corporation will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements, primary earnings per share will be replaced by a more simply calculated basic earnings per share which will not include the impact of any potentially dilutive securities. Diluted earnings per share will continue to be disclosed and will be calculated using a methodology not significantly different from that presently used to calculate fully diluted earnings per share. The new calculation methods will not have a material impact on the earnings per share results as the Corporation has not had significant dilution from stock options. Park does not have any off-balance sheet derivative financial instruments such as interest-rate swap agreements. Note 2 - Acquisition ----------- On May 5, 1997, Park merged with First-Knox Banc Corp. ("First-Knox"), a $569 million bank holding company headquartered in Mount Vernon, Ohio, in a transaction accounted for as a pooling-of-interests. Park issued approximately 2.3 million shares of common stock to the stockholders of First-Knox based upon an exchange ratio of .5914 shares of Park common stock for each outstanding share of First-Knox common stock. The historical financial statements of Park have been restated to show Park and First-Knox on a combined basis. -8- 9 Separate results of operations for Park and First-Knox follow:
Three Months Nine Months Ended September 30, 1996 Ended September 30, 1996 ------------------------ ------------------------ Net Interest Income Park $18,178 $53,276 First-Knox 5,413 15,904 ------- ------- Combined $23,591 $69,180 Net Income Park $ 7,343 $20,242 First-Knox 1,604 4,717 ------- ------- Combined $ 8,947 $24,959 Net Income Per Common Share Park $ 1.03 $ 2.84 First-Knox .42 1.24 Combined $ .95 $ 2.66
Certain amounts in prior periods in 1996 have been reclassified to conform to the financial statement presentation used for current periods. Note 3 - Allowance for Possible Loan Losses ---------------------------------- The allowance for possible loan losses is that amount believed adequate to absorb estimated credit losses in the loan portfolio based on management's evaluation of various factors including overall growth in the loan portfolio, an analysis of individual loans, prior and current loss experience, and current and anticipated economic conditions. A provision for loan losses is charged to operations based on management's periodic evaluation of these and other pertinent factors.
(In Thousands) 1997 1996 ---- ---- Balance January 1 $32,347 $29,239 Provision for loan losses 4,169 3,558 Losses charged to the reserve (3,500) (2,987) Recoveries 2,004 1,840 ------- ------- Balance September 30, 1997 $35,020 $31,650 ======= =======
-9- 10 Note 4 - Long-Term Debt --------------
Description (In Thousands) ----------- September 30, December 31, 1997 1996 ------------- ------------ Fixed rate Federal Home Loan Bank advances with monthly principal and interest payments: 5.60% Advance due August 1, 2003 $ 1,973 $ 2,180 6.35% Advance due August 1, 2013 $ 2,653 $ 2,723 5.95% Advance due March 1, 2004 $ 536 $ 586 5.70% Advance due May 1, 2004 $ 4,365 $ 4,760 5.85% Advance due January 1, 2016 $ 4,292 $ 4,876 Fixed rate Federal Home Loan Bank advances with monthly interest payments: 5.35% Advance due February 1, 1999 $ 5,000 $ 5,000 5.60% Advance due April 1, 1999 $ 5,000 $ 5,000 5.70% Advance due June 1, 1999 $ 7,000 $ 7,000 6.35% Advance due March 1, 2004 $ 250 $ 250 6.15% Advance due July 21, 1997 $ -0- $10,000 6.60% Advance due July 21, 1999 $ -0- $10,000 6.90% Advance due July 21, 2001 $ -0- $10,000 ------- ------- $31,069 $62,375 ======= =======
Federal Home Loan Bank (FHLB) advances are collateralized by the FHLB stock owned by Park's affiliate banks and by residential mortgage loans pledged under a blanket agreement by Park's affiliate banks. -10- 11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison of Results of Operations for the Three and Nine Month Periods Ended September 30, 1997 and 1996 Net Interest Income - ------------------- The Corporation's principal source of earnings is net interest income, the difference between total interest income and total interest expense. Net interest income increased by $2.7 million or 11.4% to $26.3 million for the three months ended September 30, 1997 compared to $23.6 million for the third quarter of 1996. The following table compares the average balance and tax equivalent yield/cost for interest-earning assets and interest-bearing liabilities for the third quarter of 1997 with the same quarter in 1996.
Three Months Ended September 30th (In Thousands) 1997 1996 ---- ---- Tax Tax Average Equivalent Average Equivalent Balance % Balance % ---------------------------- ---------------------------- Loans $1,544,201 9.39% $1,387,039 9.33% Taxable Investments $ 464,924 6.95% $ 422,443 6.77% Tax-Exempt Investments $ 82,726 8.14% $ 62,334 8.54% Federal Funds Sold $ 446 3.29% $ 37,372 6.05% ---------- ---- ---------- ---- Interest-Earning Assets $2,092,297 8.80% $1,909,188 8.68% ---------- ---- ---------- ---- Interest-Bearing Deposits $1,542,756 4.28% $1,425,169 4.23% Short-Term Borrowings $ 186,573 4.96% $ 122,229 4.45% Long-Term Borrowings $ 33,077 5.72% $ 61,265 6.04% ---------- ---- ---------- ---- Interest-Bearing Liabilities $1,762,406 4.38% $1,608,663 4.32% ---------- ---- ---------- ---- Excess Interest-Earning Assets $ 329,891 4.42% $ 300,525 4.36% Net Interest Margin 5.11% 5.03%
-11- 12 Average interest-earning assets increased by $183 million or 9.6% to $2,092 million for the quarter ended September 30, 1997 compared to the same quarter in 1996. Average loans outstanding increased by $157 million or 11.3% to $1,544 million for the third quarter of 1997 compared to the same quarter in 1996. Approximately $31 million of this increase was due to loans acquired as part of the purchase of branches in Richland County in December, 1996. Loan demand continues to be relatively strong. Average investment securities including federal funds sold increased by $26 million or 5.0% to $548 million in 1997 compared to the same quarter in 1996. The yield on taxable investments increased to 6.95% for the third quarter of 1997 compared to 6.77% for the same quarter in 1996. The increase in yield on taxable investments resulted primarily from the purchase of longer-term mortgage-backed securities and callable U.S. Agency securities acquired during the third quarter of 1996. The tax equivalent yield on tax-exempt investment securities decreased to 8.14% for the third quarter of 1997 compared to 8.54% for the same quarter in 1996. This decrease in yield resulted primarily from the purchase of $25 million of tax-exempt securities during the second and third quarters of 1997 at a tax equivalent yield of 7.47%. Average interest-bearing liabilities increased by $154 million or 9.6% to $1,762 million for the quarter ended September 30, 1997 compared to the same quarter in 1996. Average interest-bearing deposits increased by $118 million or 8.3% to $1,543 million for the third quarter of 1997 compared to the same quarter in 1996. Approximately $98 million of this increase was due to deposits acquired as part of the purchase of branches in Richland County in December, 1996. Average short-term borrowings increased by $64 million or 53% to $187 million for the third quarter of 1997 compared to the same quarter in 1996. The increase in average short-term borrowings was primarily used to fund the purchase of longer-term investment securities and to repay higher rate long-term borrowings. Average long-term borrowings decreased by $28 million to $33 million for the third quarter of 1997 compared to the same period in 1996. The increase in net interest income of $2.7 million or 11.4% to $26.3 million for the three months ended September 30, 1997 was due to the 9.6% increase in average interest-earning assets and the increase in the net interest spread. The tax equivalent net interest margin (defined as net interest income divided by average earning assets) increased to 5.11% for the third quarter of 1997 compared to 5.03% for the same quarter in 1996. For the three months ended September 30, 1997, the net interest spread (the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities) increased by .06% to 4.42% compared to 4.36% for the same period in 1996. The yield on interest-earning assets increased by .12% to 8.80% for the third quarter of 1997 compared to 8.68% for the same quarter in 1996 and the cost of interest-bearing liabilities increased by .06% to 4.38% for the third quarter of 1997 compared to 4.32% for the same period in 1996. Net interest income increased by $7.5 million or 10.9% to $76.7 million for the nine months ended September 30, 1997 compared to $69.2 million for the same period in 1996. The following table compares the average balance and tax equivalent yield/cost for interest-earning assets and interest-bearing liabilities for the first nine months of 1997 with the same period in 1996.
Nine Months Ended September 30th (In Thousands) 1997 1996 ---------------------------- ---------------------------- Tax Tax Average Equivalent Average Equivalent Balance % Balance % ---------------------------- ---------------------------- Loans $1,512,038 9.38% $1,361,103 9.41%
-12- 13 Taxable Investment $ 484,569 6.99% $ 401,231 6.79% Tax-Exempt Investments $ 70,182 8.44% $ 61,541 8.56% Federal Funds Sold $ 10,815 5.30% $ 40,116 5.56% ---------- ---- ---------- ---- Interest-Earning Assets $2,077,604 8.77% $1,863,991 8.74% ---------- ---- ---------- ---- Interest-Bearing Deposits $1,548,229 4.28% $1,407,914 4.27% Short-Term Borrowings $ 160,679 4.79% $ 119,920 4.57% Long-Term Borrowings $ 51,917 6.17% $ 44,596 5.67% ---------- ---- ---------- ---- Interest-Bearing Liabilities $1,760,825 4.38% $1,572,430 4.34% ---------- ---- ---------- ---- Excess Interest- Earning Assets $ 316,779 4.39% $ 291,561 4.40% Net Interest Margin 5.06% 5.08%
Average interest-earning assets increased by $214 million or 11.5% to $2,078 million for the nine months ended September 30, 1997 compared to the same period in 1996. Average loans outstanding increased by $151 million or 11.1% to $1,512 million for the first nine months of 1997 compared to the same period in 1996. Approximately $31 million of this increase was due to loans acquired as part of the purchase of branches in Richland County in December, 1996. Loan demand continues to be relatively strong. Average investment securities including federal funds sold increased by $63 million or 12.5% to $566 million for the first nine months of 1997 compared to the same period in 1996. The yield on taxable investments increased to 6.99% for the first nine months of 1997 compared to 6.79% for the same period in 1996. The increase in yield on taxable investments resulted primarily from the purchase of longer-term mortgage-backed securities and callable U.S. Agency securities acquired during the third quarter of 1996. Average interest-bearing liabilities increased by $188 million or 12.0% to $1,761 million for the first nine months of 1997 compared to the same period in 1996. Average interest-bearing deposits increased by $140 million or 17.0% to $1,548 million for the first nine months of 1997 compared to the same period in 1996. Approximately $98 million of this increase was due to deposits acquired as part of the purchase of branches in Richland County in December, 1996. Average short-term borrowings increased by $41 million or 34.0% to $161 million for the first nine months of 1997 compared to the same period in 1996. The increase in average short-term borrowings was primarily used to fund the purchase of longer-term investment securities. The increase in net interest income of $7.5 million or 10.9% to $76.7 million for the first nine months of 1997 was primarily due to the 11.5% increase in average interest-earning assets. The tax equivalent net -13- 14 interest margin (defined as net interest income divided by average earning assets) decreased to 5.06% for the first half of 1997 compared to 5.08% for the same period in 1996. For the nine months ended September 30, 1997, the net interest spread (the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities) decreased by .01% to 4.39% compared to 4.40% for the same period in 1996. The yield on interest-earning assets increased by .03% to 8.77% in 1997 compared to 8.74% for 1996 and the cost of interest-bearing liabilities increased by .04% to 4.38% in 1997 compared to 4.34% in 1996. Provision for Loan Losses - ------------------------- The provision for loan losses increased by $305,000 to $1.52 million for the three months ended September 30, 1997 and increased by $611,000 to $4.17 million for the nine months ended September 30, 1997 compared to the same periods in 1996. Net charge-offs were $826,000 and $1.5 million respectively, for the three and nine month periods ended September 30, 1997 compared to net charge-offs of $424,000 and $1.15 million, respectively, for the same periods in 1996. Non-performing loans, defined as loans that are 90 days past due, renegotiated loans and non-accrual loans were $6.8 million or .43% of loans at September 30, 1997 compared to $7.8 million or .53% of loans at December 31, 1996 and $7.5 million or .53% of loans at September 30, 1996. The reserve for loan losses as a percentage of outstanding loans was 2.24% at September 30, 1997 compared to 2.20% at December 31, 1996 and 2.24% at September 30, 1996. See Footnote 3 for a discussion of the factors considered by management in determining the provision for loan losses. Non-Interest Income - ------------------- Non-interest income increased by $650,000 or 14.4% to $5.2 million for the three months ended September 30, 1997 and increased by $1.8 million or 13.6% to $15.3 million for the nine months ended September 30, 1997 compared to the same periods in 1996. The increase in non-interest income for both periods in 1997 compared to 1996 was primarily due to increases in fees from fiduciary activities and service charges on deposit accounts. Security Losses - --------------- Investment security losses were $7,000 for the three and nine month periods ended September 30, 1997 compared to losses of $168,000 and $868,000 for the three and nine month periods ended September 30, 1996, respectively. In 1996, taxable investment securities were sold and the proceeds reinvested into taxable investment securities with slightly longer maturities. At September 30, 1997, the unrealized net holding gain on available-for-sale securities was $6.5 million compared to an unrealized net holding gain of $4.7 million at December 31, 1996. If longer-term interest rates would increase during the fourth quarter of 1997, the Corporation could realize some investment security losses during the quarter. Other Expense - ------------- Total other expense increased by $1.1 million or 8.2% to $14.9 million for the three months ended September 30, 1997 compared to $13.8 million for the same quarter in 1996. Salaries and employee benefits increased by $401,000 or 5.7% to $7.5 million for the quarter ended September 30, 1997 compared to $7.1 million for the same period a year ago. Full time equivalent employees were 971 at September 30, 1997 compared to 939 at September 30, 1996. -14- 15 The subcategory other expense which includes data processing expense, fees and service charges, marketing, telephone, postage, deposit insurance premiums, amortization of intangibles, and expenses pertaining to other real estate owned increased by $626,000 or 12.4% to $5.7 million for the quarter ended September 30, 1997 compared to $5.1 million for the same quarter in 1996. The increase in the subcategory other expense was primarily due to a $357,000 increase in the amortization of intangibles and to a lesser extent increases in marketing expense and data processing expense. For the nine month period ended September 30, 1997, total other expense increased by $3.8 million or 9.0% to $46.0 million compared to $42.2 million for the same period in 1996. Salaries and employee benefits increased by $1.7 million or 8.2% to $22.9 million for the nine months ended September 30, 1997 compared to the same period in 1996. Included in salaries and employee benefits expense were expenses pertaining to the payment of stock appreciation rights and the related payroll taxes, and payroll taxes pertaining to the exercise of non-qualifying employee stock options. The stock appreciation rights and the stock options were exercised by the First-Knox employees during May, 1997 after the merger with Park was completed. See Footnote 2 for information about the merger. The additional expense due to the exercise of the stock appreciation rights and the stock options was $437,000 for the nine months ended September 30, 1997 compared to the same period in 1996. The subcategory other expense increased by $1.9 million or 11.7% to $17.9 million for the nine months ended September 30, 1997 compared to $16.0 million for the same period in 1996. The increase was primarily due to a $1.1 million increase in the amortization of intangibles and to a lesser extent increases in marketing expense and other fees and services. Federal Income Taxes - -------------------- Federal income tax expense increased by $632,000 to $4.6 million and by $1.9 million to $13.0 million for the three and nine month periods ended September 30, 1997, respectively, compared to the same periods in 1996. The ratio of federal income tax expense to income before taxes was approximately 31% for both periods in 1997 and 1996. Net Income - ---------- Net income increased by $1.4 million or 16.1% to $10.38 million for the three months ended September 30, 1997 compared to $8.95 million for the same period in 1996. For the nine months ended September 30, 1997, net income increased by $4.0 million or 15.9% to $28.93 million compared to $24.96 million for the same period in 1996. The annualized, net income to average asset ratio (ROA) was 1.85% and 1.75%, respectively, for the three and nine month periods ended September 30, 1997 compared to 1.76% and 1.68%, respectively, for the same periods in 1996. The annualized, net income to average equity ratios (ROE) was 19.49% and 19.05%, respectively, for the three and nine month periods ended September 30, 1997 compared to 19.06% and 18.04%, respectively, for the same periods in 1996. -15- 16 COMPARISON OF FINANCIAL CONDITION FOR SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 Changes in Financial Condition and Liquidity - -------------------------------------------- Total assets increased by $76 million or 3.5% to $2,261 million at September 30, 1997 compared to $2,185 million at December 31, 1996. Loan balances increased by $91 million to $1,563 million and investment securities decreased by $28 million to $546 million. Total liabilities increased by $57 million or 2.8% to $2,043 million at September 30, 1997 compared to $1,986 million at December 31. 1996. This increase was due to increases in deposits and short-term borrowings. Total borrowings increased by $12 million to $210 million at September 30, 1997. Short-term borrowings, which primarily consist of overnight repurchase agreements with customers, increased by $43 million to $179 million while long-term debt, which consists of Federal Home Loan Bank advances, decreased by $31 million to $31 million at September 30, 1997. Proceeds from short-term borrowings were used to prepay higher rate long-term debt at the end of the second quarter of 1997. Total deposits increased by $47 million to $1,811 million at September 30, 1997 as noninterest-bearing deposits increased by $23 million and interest-bearing deposits increased by $24 million. Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as the operating cash needs of the Corporation, are met. Funds are available from a number of sources, including the securities portfolio, the core deposit base, Federal Home Loan Bank borrowings, and the capability to securitize or package loans for sale. The Corporation's loan to asset ratio was 69.1% at September 30, 1997 compared to 67.4% at December 31, 1996 and 68.4% at September 30, 1996. Cash and cash equivalents increased by $12 million during the nine months ended September 30, 1997 to $94 million. The present funding sources provide more than adequate liquidity for the Corporation to meet its cash flow needs. Capital Resources - ----------------- Stockholders' equity at September 30, 1997 was $217.3 million or 9.61% of total assets compared to $199.0 million or 9.11% of total assets at December 31, 1996 and $192.6 million or 9.31% of total assets at September 30, 1996. 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 not included in computing regulatory capital. The minimum leverage capital ratio (defined as stockholders' equity less intangible assets divided by tangible assets) is 4% and the well capitalized ratio is greater than or equal to 5%. Park's leverage ratio was 9.02% at September 30, 1997 and 8.73% at December 31, 1996. The minimum Tier I risk-based capital ratio (defined as leverage capital divided by risk-adjusted assets) is 4% and the well capitalized ratio is greater than or equal to 6%. Park's Tier I risk-based capital ratio was 13.78% at September 30, 1997 and 13.16% at December 31, 1996. The minimum total risk-based capital ratio (defined as leverage capital plus supplemental capital divided by risk-adjusted assets) is 8% and the well capitalized ratio is greater than or equal to 10%. Park's total risk-based capital ratio was 15.04% at September 30, 1997 and 14.42% at December 31, 1996. The financial institution subsidiaries of Park each met the well capitalized capital ratio guidelines at September 30, 1997. The following table indicates the capital ratios for each subsidiary and Park at September 30, 1997: -16- 17
Tier I Total Leverage Risk-Based Risk-Based -------- ---------- ---------- Park National Bank 8.21% 11.45% 12.72% Richland Trust Company 6.99% 12.29% 13.56% Century National Bank 8.63% 14.57% 15.84% First-Knox National Bank 7.85% 12.95% 14.87% Farmers and Savings Bank 8.39% 12.31% 13.57% Park National Corporation 9.02% 13.78% 15.04% Minimum Capital Ratio 4.00% 4.00% 8.00% Well Capitalized Ratio 5.00% 6.00% 10.00%
Park has established a task force that is working on the year 2000 software issue. Management does not anticipate that a material amount of management time or other expense will be needed to complete this project. -17- 18 PARK NATIONAL CORPORATION PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- Park National Corporation is not engaged in any legal proceedings of a material nature at the present time. Item 2. Changes in Securities and Use of Proceeds ----------------------------------------- Not applicable Item 3. Defaults Upon Senior Securities ------------------------------- Not applicable Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not applicable Item 5. Other Information ----------------- Not Applicable Item 6. Exhibits and Reports on Form 8-K -------------------------------- a. Exhibits -------- See Exhibit 27, Financial Data Schedule on Page 20. b. Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the quarter ended September 30, 1997. -18- 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PARK NATIONAL CORPORATION DATE: November 12, 1997 BY: /s/ C. Daniel DeLawder ------------------ ------------------------------------ C. Daniel DeLawder President DATE: November 12, 1997 BY: /s/ David C. Bowers ------------------ ------------------------------------ David C. Bowers Chief Financial Officer/Secretary -19- EX-27 2 EXHIBIT 27
9 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 93,595 0 0 0 537,824 8,603 8,964 1,562,686 35,020 2,260,695 1,810,876 178,542 22,864 31,069 0 0 68,238 149,106 2,260,695 105,692 28,284 430 134,406 49,540 57,694 76,712 4,169 (7) 45,971 41,905 28,925 0 0 28,925 3.07 3.07 5.06 1,713 2,932 2,142 6,787 32,347 3,500 2,004 35,020 35,020 0 0
-----END PRIVACY-ENHANCED MESSAGE-----