<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended 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
<PAGE> 2
PARK NATIONAL CORPORATION
CONTENTS
--------
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
-2-
<PAGE> 3
PARK NATIONAL CORPORATION
Consolidated Balance Sheet (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
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
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
PARK NATIONAL CORPORATION
Consolidated Condensed Statement of Income (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
4
<PAGE> 5
PARK NATIONAL CORPORATION
Consolidated Condensed Statement of Income (Unaudited) - (Continued)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
PARK NATIONAL CORPORATION
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
--------- ---------
<S> <C> <C>
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)
</TABLE>
6
<PAGE> 7
PARK NATIONAL CORPORATION
Consolidated Statement of Cash Flows (Unaudited) - (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
-------- --------
<S> <C> <C>
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
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 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-
<PAGE> 9
Separate results of operations for Park and First-Knox follow:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, 1996 Ended September 30, 1996
------------------------ ------------------------
<S> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
(In Thousands)
1997 1996
---- ----
<S> <C> <C>
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
======= =======
</TABLE>
-9-
<PAGE> 10
Note 4 - Long-Term Debt
--------------
<TABLE>
<CAPTION>
Description (In Thousands)
-----------
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
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
======= =======
</TABLE>
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-
<PAGE> 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.
<TABLE>
<CAPTION>
Three Months Ended September 30th
(In Thousands)
1997 1996
---- ----
Tax Tax
Average Equivalent Average Equivalent
Balance % Balance %
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
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%
</TABLE>
-11-
<PAGE> 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.
<TABLE>
<CAPTION>
Nine Months Ended September 30th
(In Thousands)
1997 1996
---------------------------- ----------------------------
Tax Tax
Average Equivalent Average Equivalent
Balance % Balance %
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Loans $1,512,038 9.38% $1,361,103 9.41%
</TABLE>
-12-
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C>
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%
</TABLE>
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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 17
<TABLE>
<CAPTION>
Tier I Total
Leverage Risk-Based Risk-Based
-------- ---------- ----------
<S> <C> <C> <C>
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%
</TABLE>
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-
<PAGE> 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-
<PAGE> 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-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 93,595
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 537,824
<INVESTMENTS-CARRYING> 8,603
<INVESTMENTS-MARKET> 8,964
<LOANS> 1,562,686
<ALLOWANCE> 35,020
<TOTAL-ASSETS> 2,260,695
<DEPOSITS> 1,810,876
<SHORT-TERM> 178,542
<LIABILITIES-OTHER> 22,864
<LONG-TERM> 31,069
0
0
<COMMON> 68,238
<OTHER-SE> 149,106
<TOTAL-LIABILITIES-AND-EQUITY> 2,260,695
<INTEREST-LOAN> 105,692
<INTEREST-INVEST> 28,284
<INTEREST-OTHER> 430
<INTEREST-TOTAL> 134,406
<INTEREST-DEPOSIT> 49,540
<INTEREST-EXPENSE> 57,694
<INTEREST-INCOME-NET> 76,712
<LOAN-LOSSES> 4,169
<SECURITIES-GAINS> (7)
<EXPENSE-OTHER> 45,971
<INCOME-PRETAX> 41,905
<INCOME-PRE-EXTRAORDINARY> 28,925
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,925
<EPS-PRIMARY> 3.07
<EPS-DILUTED> 3.07
<YIELD-ACTUAL> 5.06
<LOANS-NON> 1,713
<LOANS-PAST> 2,932
<LOANS-TROUBLED> 2,142
<LOANS-PROBLEM> 6,787
<ALLOWANCE-OPEN> 32,347
<CHARGE-OFFS> 3,500
<RECOVERIES> 2,004
<ALLOWANCE-CLOSE> 35,020
<ALLOWANCE-DOMESTIC> 35,020
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
