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 March 31, 1996
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
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Park National Corporation
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1179518
------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
-------- --------
7,139,972 common shares, no par value per share, outstanding at
April 29, 1996.
Page 1 of 27
Exhibit Index Page 17
2
PARK NATIONAL CORPORATION
CONTENTS
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Page
----
PART I. FINANCIAL INFORMATION 3-8
Item 1. Financial Statements 3-8
Consolidated Balance Sheet as of
March 31, 1996 and December 31, 1995
(unaudited) 3
Consolidated Condensed Statement of
Income for the Three Months Ended
March 31, 1996 and 1995 (unaudited) 4,5
Consolidated Statement of Cash Flows
for the Three Months ended March 31,
1996 and 1995 (unaudited) 6,7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 9-13
Condition and Results of Operations
PART II. OTHER INFORMATION 14-15
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14-15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17-27
2
3
PARK NATIONAL CORPORATION
Consolidated Balance Sheet (Unaudited)
(Dollars in thousands, except per share data)
March 31, December 31,
1996 1995
----------- -----------
Assets:
Cash and due from banks $ 67,501 $ 92,752
Money market investments 47,800 0
Securities available-for-sale, at fair
value (amortized cost of $306,567
and $308,298 at March 31, 1996
and December 31, 1995) 310,446 317,414
Securities held-to-maturity, at amortized
cost (fair value approximates $11,365
and $11,917 at March 31, 1996
and December 31, 1995) 10,842 11,316
Loans (net of unearned interest) 1,019,811 1,024,727
Allowance for possible loan losses 25,877 25,073
Net loans 993,934 999,654
Bank premises and equipment, net 17,033 17,161
Other assets 41,273 37,911
----------- -----------
Total assets $ 1,488,829 $ 1,476,208
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing $ 162,203 $ 190,014
Interest-bearing 1,052,830 1,016,526
Total deposits 1,215,033 1,206,540
Short-term borrowings 119,255 113,992
Other liabilities 17,772 19,252
Total liabilities 1,352,060 1,339,784
Stockholders' Equity:
Common stock (No par value; 10,000,000
shares authorized; 7,222,610 shares
issued in 1996 and 1995) 26,819 26,819
Unrealized holding gain on
available-for-sale securities, net 2,521 5,926
Retained earnings 110,105 106,508
Treasury stock (84,188 shares in 1996
and 87,388 shares in 1995) (2,676) (2,829)
Total stockholders' equity 136,769 136,424
----------- -----------
Total liabilities and
stockholders' equity $ 1,488,829 $ 1,476,208
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
March 31,
1996 1995
------- -------
Interest Income:
Interest & fees on loans $24,116 $21,563
Interest on:
Obligations of U.S. Govt,
its agencies & other
securities 5,220 4,372
Obligations of states &
political subdivisions 143 159
Other interest income 424 64
Total interest income 29,903 26,158
Interest expense:
Interest on deposits:
Demand & savings deposits 3,069 3,253
Time deposits 7,838 5,499
Non-deposit interest 1,412 1,795
Total interest expense 12,319 10,547
Net interest income 17,584 15,611
Provision for loan losses 1,005 910
Net interest income
after provision 16,579 14,701
4
5
PARK NATIONAL CORPORATION
Consolidated Condensed Statement of Income (Unaudited) - (Continued)
(Dollars in thousands, except per share data)
Three Months Ended
March 31,
1996 1995
----------- -----------
Other income $ 3,681 $ 3,389
Loss on sale of securities (294) (614)
Other expense:
Salaries & employee benefits 5,471 5,085
Occupancy 595 510
Furniture & equipment 560 523
Other expenses 4,358 3,965
Total other expense 10,984 10,083
Income before federal
income taxes 8,982 7,393
Federal income taxes 2,887 2,377
Net income $ 6,095 $ 5,016
=========== ===========
Per Share:
Net income $ 0.85 $ 0.70
Weighted average common
shares outstanding 7,136,037 7,189,650
Cash dividends declared $ 0.35 $ 0.30
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
6
PARK NATIONAL CORPORATION
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
1996 1995
-------- --------
Operating activities:
Net income $ 6,095 $ 5,016
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation, amortization & accretion 63 133
Provision for loan losses 1,005 910
Amortization of the excess of cost over
net assets of banks purchased 65 143
Realized investment security losses 294 614
Changes in assets & liabilities:
Increase in other assets (1,594) (254)
Increase (decrease) in other
liabilities 1,022 (895)
Net cash provided by operating
activities 6,950 5,667
Investing activities:
Proceeds from sales of:
Available-for-sale securities 15,061 31,362
Proceeds from maturities of:
Available-for-sale securities 32,645 18,027
Held-to-maturity securities 474 764
Purchases of:
Available-for-sale securities (45,976) (25,380)
Net decrease (increase) in loans 4,858 (17,226)
Purchases of premises & equipment, net (372) (235)
Net cash provided by
investing activities 6,690 7,312
6
7
PARK NATIONAL CORPORATION
Consolidated Statement of Cash Flows (Unaudited) - (Continued)
(Dollars in thousands)
Three Months Ended
March 31,
1996 1995
--------- --------
Financing activities:
Net increase in deposits $ 8,493 $ 2,341
Net increase (decrease) in
short-term borrowings 5,263 (11,340)
Reissue of treasury stock 153 0
Cash dividends paid (5,000) (4,314)
Net cash provided by (used by)
financing activities 8,909 (13,313)
Increase (decrease) in cash &
cash equivalents 22,549 (334)
Cash & cash equivalents at beginning of year 92,752 64,116
Cash & cash equivalents
at end of period $ 115,301 $ 63,782
========= ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 12,675 $ 10,278
Income taxes 1,200 0
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
7
8
PARK NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended March 31, 1996 and 1995.
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 period ended March 31, 1996 are not necessarily indicative
of the operating results to be anticipated for the fiscal year ended December
31, 1996.
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 for the year ended December 31, 1995. Certain amounts in prior periods
have been reclassified to conform to the financial statement presentation used
for current periods.
8
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Results of Operations for the Quarters
Ended March 31, 1996 and 1995
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 $2.0 million or 12.6% to $17.6 million for the
three months ended March 31, 1996 compared to $15.6 million for the first
quarter of 1995. The following table indicates that the tax equivalent net
interest margin (defined as net interest income divided by average earning
assets) increased to 5.29% for the first quarter of 1996 compared to 5.18% for
the first quarter of 1995.
Three Months Ended March 31st
(In Thousands)
1996 1995
--------------------- ---------------------
Tax Tax
Average Equivalent Average Equivalent
Balance % Balance %
--------------------- ----------------------
Loans, Net $ 992,209 9.80% $ 962,711 9.11%
Taxable $ 312,522 6.72% $ 254,662 6.96%
Investments
Tax-Exempt
Investments $ 9,305 8.90% $ 10,385 8.98%
Money Markets $ 31,853 5.35% $ 4,381 5.93%
---------- ---- ---------- ----
Interest-Earning $1,345,889 8.98% $1,232,139 8.65%
Assets ---------- ---- ---------- ----
Interest-Bearing $1,025,723 4.25% $ 933,689 3.75%
Deposits
Borrowings $ 121,278 4.68% $ 138,111 5.27%
---------- ---- ---------- ----
Interest-Bearing $1,147,001 4.32% $1,071,800 3.99%
Liabilities ---------- ---- ---------- ----
Excess Interest- $ 198,888 4.66% $ 160,339 4.66%
Earning Assets
Net Interest Margin 5.29% 5.18%
9
10
Average interest-earning assets increased by 9.2% to $1,346 million for the
quarter ended March 31, 1996 compared to the same quarter in 1995. Net average
loans outstanding increased by 3.1% to $992 million for the first quarter of
1996 compared to the same period in 1995. Average investment securities
including money markets increased by 31.3% to $354 million in 1996 compared to
$269 million in 1995. The growth in average net loans outstanding at 3.1% in
1996 is somewhat slower than the 12.5% loan growth rate in the first quarter of
1995. The primary reason for the slower growth in net average loan balances has
been weaker loan demand. Excess funds generated from the growth of
interest-bearing deposits, and not needed to fund loans, have increased average
investment securities and money markets by 31.3%.
Average interest-bearing liabilities increased by 7.0% to $1,147 million for the
three months ended March 31, 1996 compared to the same quarter in 1995. This
increase was due to a 9.9% increase in average interest-bearing deposits to
$1,026 million in the first quarter of 1996 compared to the same quarter in
1995. The increase in average interest-bearing deposits was primarily due to an
increase in the average balance of certificates of deposit which have been more
attractive to customers due to higher interest rates being paid on these
deposits.
For the three months ended March 31, 1996 and 1995, the net interest
spread was 4.66%. The increase of .33% in the yield on interest-earning assets
to 8.98% was offset by the increase in the cost of interest-bearing liabilities
by .33% to 4.32% for first quarter of 1996 compared to the same period in 1995.
However, the net interest margin improved to 5.29% in 1996 compared to 5.18% in
1995 due to both the increase in the amount of excess interest-earning assets
and the increase in the yield on those assets to 8.98% from 8.65%.
Provision For Loan Losses
- - -------------------------
The provision for loan losses increased by $95,000 or 10.4% to $1.0 million for
the three months ended March 31, 1996 compared to $910,000 for the same period
in 1995. Net charge-offs were $201,000 for the quarter ended March 31, 1996
compared to $16,000 for the same quarter in 1995. Non-performing loans, defined
as loans that are 90 days past due, renegotiated loans and non-accrual loans,
were $4.0 million or .39% of loans at March 31, 1996 compared to $4.5 million or
.43% of loans at December 31, 1995 and $4.4 million or .44% of loans at March
31, 1995. The reserve for loan losses as a percentage of outstanding loans was
2.54% at March 31, 1996 compared to 2.45% at December 31, 1995 and 2.25% at
March 31, 1995.
Non-Interest Income
- - -------------------
Non-interest income increased by $292,000 or 8.6% to $3.7 million for the three
months ended March 31, 1996 compared to $3.4 million for the same period in
1995. The increase was primarily due to a $136,000 increase in non-yield loan
fees which resulted from increased
10
11
originations and sales into the secondary market of fixed rate mortgage loans.
Fees from fiduciary activities and service charges on deposits also increased in
1996 compared to 1995.
Security Losses
- - ---------------
Investment security losses were $294,000 for the three months ended March 31,
1996 compared to losses of $614,000 for the same period in 1995. In both 1996
and 1995, taxable investment securities were sold and the proceeds reinvested
into taxable investment securities with slightly longer maturities. The average
life of the taxable investment portfolio was approximately 3 years at both March
31, 1996 and 1995.
During the first quarter of 1996, longer-term taxable investment rates increased
which resulted in the net unrealized holding gain on available-for-sale
securities decreasing to $3.9 million at March 31, 1996 compared to $9.1 million
at December 31, 1995. If this trend of higher interest rates were to continue,
the Corporation could realize additional investment security losses in 1996.
Other Expense
- - -------------
Total other expense increased by $901,000 or 8.9% to $11.0 million for the three
months ended March 31, 1996 compared to $10.1 million for the same period in
1995. Salaries and employee benefits expense increased by $386,000 or 7.6% to
$5.5 million for the first quarter of 1996 compared to 1995. Full time
equivalent employees were 686 atMarch 31, 1996 compared to 659 at March 31,
1995. Occupancy expense increased by $85,000 or 16.7% to $595,000 in 1996
compared to 1995. This increase was primarily due to the increase in the cost of
snow removal in 1996 as a result of the severe winter.
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 $393,000 or 9.9% to $4.4 million in 1996 compared to 1995.
Increases in data processing expense, fees and service charges, and
miscellaneous expense were partially offset by a decrease in deposit insurance
premiums.
Federal Income Taxes
- - --------------------
Federal income tax expense was $2.9 million for the first quarter of 1996
compared to $2.4 million for the same period in 1995. The ratio of federal
income tax expense to income before taxes was approximately 32% for both 1996
and 1995.
11
12
Net Income
- - ----------
Net income increased by $1.1 million or 21.5% to $6.1 million for the three
months ended March 31, 1996 compared to the same period in 1995. The annualized,
first quarter net income to average assets ratio (ROA) was 1.68% in 1996
compared to 1.51% for the same period in 1995. The annualized, first quarter net
income to average equity ratio (ROE) was 17.97% in 1996 compared to 17.46% in
1995.
COMPARISON OF FINANCIAL CONDITION
FOR MARCH 31, 1996 AND DECEMBER 31, 1995
Changes in Financial Condition and Liquidity
- - --------------------------------------------
Total assets increased by $12.6 million or .9% to $1,489 million at March 31,
1996 compared to $1,476 million at December 31, 1995. Loan balances decreased by
$4.9 million to $1,020 million while federal funds sold and investment
securities increased by $40.4 million. Loan balances were 68.5% of total assets
at March 31, 1996 compared to 69.4% at December 31, 1995 and 73.5% of total
assets at March 31, 1995.
Total liabilities increased by $12.3 million or .9% to $1,352 million at March
31, 1996 compared to $1,340 million at December 31, 1995. This increase was due
to an increase in interest-bearing deposits and short-term borrowings which
more than offset the decrease in non-interest-bearing deposits.
Capital Resources and Liquidity
- - -------------------------------
Stockholders' equity at March 31, 1996 was $136.8 million or 9.19% of total
assets compared to $136.4 million or 9.24% at December 31, 1995 and $121.9
million or 8.98% of total assets at March 31, 1995.
Financial institution regulators have established guidelines for minimum capital
ratios and well capitalized capital ratios for banks, thrifts, and bank holding
companies. The unrealized net gain 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 assets less
intangible assets) is 4% and the well capitalized ratio is greater than or equal
to 5%. Park's leverage capital ratio was 9.11% at March 31, 1996 and 8.91% at
December 31, 1995. The minimum Tier I risk-based capital ratio (defined at
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
13.70% at March 31, 1996 and 13.35% at December 31, 1995. The minimum total
risk-based capital ratio (defined as leverage capital plus supplemental capital
divided
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13
by risk-adjusted assets) is 8% and the well capitalized ratio is greater than or
equal to 10%. Park's total risk-based capital ratio was 14.97% at March 31, 1996
and 14.61% at December 31, 1995.
The financial institution subsidiaries of Park each met the applicable well
capitalized capital ratio guidelines at March 31, 1996. The following table
indicates the capital ratios for each subsidiary at March 31, 1996:
Tier I Total
Leverage Risk-Based Risk-Based
-------- ---------- ----------
Park National Bank 7.84% 11.39% 12.66%
Richland Trust Company 7.97% 12.41% 13.68%
Mutual Federal Savings Bank 7.39% 12.65% 13.92%
At the April 15, 1996 Park National Corporation Board of Directors' Meeting, a
cash dividend of $.35 per share was declared payable on June 10, 1996 to
shareholders of record on May 17, 1996.
13
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PARK NATIONAL CORPORATION
PART II - OTHER INFORMATION
Item l. 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
---------------------
Not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
a. On April 15, 1996, Park National Corporation held its annual
meeting of shareholders. At the close of business on the record
date, 7,135,672 Park National Corporation common shares were
outstanding and entitled to vote. At the meeting, 6,692,787 or
93.8% of the outstanding common shares entitled to vote were
represented by proxy or in person.
b. Directors elected at annual meeting for a three year
term:
John W. Alford
6,686,734 For 6,053 Withheld -0- Abstain and broker
--------- ----- ---
Non-Vote
C. Daniel DeLawder
6,686,898 For 5,889 Withheld -0- Abstain and broker
--------- ----- ---
Non-Vote
Tamala Longaberger Kaido
6,681,194 For 11,593 Withheld -0- Abstain and broker
--------- ------ ---
Non-Vote
Howard E. LeFevre
6,686,734 For 6,053 Withheld -0- Abstain and broker
--------- ----- ---
Non-Vote
John J. O'Neill
6,686,685 For 6,102 Withheld -0- Abstain and broker
--------- ----- ---
Non-Vote
14
15
Directors whose term of office continued after the annual meeting:
Dominic C. Fanello
R. William Geyer
William T. McConnell
William A. Phillips
Phillip T. Leitnaker
J. Gilbert Reese
Rick R. Taylor
John L. Warner
c. See Item 4(b) for the voting results for directors.
Proposal to increase the authorized number of common shares,
without par value, of Park National Corporation from 10,000,000
to 20,000,000.
6,650,673 For 31,510 Against 10,604 Abstain -0- Broker Non-Vote
- - ----------- -------- -------- ----
d. Not Applicable
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
--------
See Exhibit Index at Page 17
b. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended March
31, 1996.
15
16
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 10, 1996 BY: /s/ C. Daniel Delawder
------------------ ----------------------------------
C. Daniel DeLawder
President
DATE: May 10, 1996 BY: /s/ David C. Bowers
------------------ ----------------------------------
David C. Bowers
Chief Financial Officer/Secretary
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PARK NATIONAL CORPORATION
Exhibit Index
-------------
Exhibit Number Description Page Number
-------------- ----------- -----------
3(a) Certificate of Amendment to 18
the Articles of Incorporation
of Park National Corporation
as filed with the Ohio Secretary
of State on April 16, 1996
3(b) Articles of Incorporation 21
of Park National Corporation
(as amended)
27 Financial Data Schedule 27
17