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, 1998
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
----- -----
9,358,677 common shares, no par value per share, outstanding at April 30, 1998.
- ---------
Page 1 of 20
Exhibit Index Page 18
2
PARK NATIONAL CORPORATION
CONTENTS
--------
Page
----
PART I. FINANCIAL INFORMATION 3-11
Item 1. Financial Statements 3-11
Consolidated Balance Sheets as of March 31, 1998 and
and December 31, 1997 (unaudited) 3
Consolidated Condensed Statements of Income for the
Three Months Ended March 31, 1998 and 1997 (unaudited) 4,5
Consolidated Condensed Statements of Changes in Stockholders'
Equity for the Three Months ended March 31, 1998 and 1997
(unaudited) 6
Consolidated Statements of Cash Flows for the Three Months
ended March 31, 1998 and 1997 (unaudited) 7,8
Notes to Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-16
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
PART II. OTHER INFORMATION 17-18
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17-18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT 27 20
-2-
3
PARK NATIONAL CORPORATION
Consolidated Balance Sheets (Unaudited)
(dollars in thousands, except per share data)
March 31, December 31,
1998 1997
---------- ------------
Assets:
Cash and due from banks $ 95,498 $ 93,585
Securities available-for-sale, at fair value
(amortized cost of $541,248 and $522,179
at March 31, 1998 and December 31,1997) 550,981 532,922
Securities held-to-maturity, at amortized cost
(fair value approximates $7,631 and $8,156
at March 31, 1998 and December 31,1997) 7,313 7,808
Loans (net of unearned interest) 1,588,994 1,591,927
Allowance for possible loan losses 37,251 35,595
Net loans 1,551,743 1,556,332
Bank premises and equipment, net 27,446 27,805
Other assets 72,388 69,931
---------- ----------
Total assets $2,305,369 $2,288,383
Liabilities and Stockholders' Equity:
Deposits:
Noninterest bearing $ 256,293 $ 257,867
Interest bearing 1,604,266 1,597,097
Total deposits 1,860,559 1,854,964
Short-term borrowings 182,366 151,624
Long-term debt 17,968 30,868
Other liabilities 20,192 28,810
---------- ----------
Total liabilities 2,081,085 2,066,266
Stockholders' Equity:
Common stock (No par value; 20,000,000
shares authorized; 9,551,203 shares
issued in 1998 and 1997) 68,275 68,275
Retained earnings 160,611 154,535
Treasury stock (190,361 shares in 1998
and 158,864 in 1997) (10,964) (7,712)
Accumulated other comprehensive income,
net of taxes 6,362 7,019
---------- ----------
Total stockholders' equity 224,284 222,117
---------- ----------
Total liabilities and
stockholders' equity $2,305,369 $2,288,383
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-3-
4
PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Income (Unaudited)
(dollars in thousands, except per share data)
Three Months Ended
March 31,
1998 1997
------- -------
Interest income:
Interest and fees on loans $36,446 $33,871
Interest on:
Obligations of U.S. Government, its
agencies and other securities 7,965 8,372
Obligations of states and
political subdivisions 1,093 870
Other interest income 56 285
------- -------
Total interest income 45,560 43,398
Interest expense:
Interest on deposits:
Demand and savings deposits 4,080 4,093
Time deposits 12,910 12,237
Interest on borrowings:
Short-term borrowings 1,963 1,367
Long-term debt 282 1,080
------- -------
Total interest expense 19,235 18,777
------- -------
Net interest income 26,325 24,621
Provision for loan losses 1,674 1,194
------- -------
Net interest income after
provision for loan losses 24,651 23,427
Other income 5,981 5,201
Gain on sale of securities 97 0
-4-
5
PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Income (Unaudited) - Continued
(dollars in thousands, except per share data)
Three Months Ended
March 31,
1998 1997
---------- ----------
Other expense:
Salaries and employee benefits $ 7,896 $ 7,653
Occupancy expense 837 830
Furniture and equipment expense 966 899
Other expense 5,725 6,230
---------- ----------
Total other expense 15,424 15,612
---------- ----------
Income before federal income taxes 15,305 13,016
Federal income taxes 4,722 4,027
---------- ----------
Net income $ 10,583 $ 8,989
========== ==========
PER SHARE:
Net income:
Basic $ 1.13 $ 0.96
Diluted 1.12 0.96
========== ==========
Weighted average common shares outstanding:
Basic 9,386,913 9,343,358
Diluted 9,431,895 9,390,649
========== ==========
Cash dividends declared $ 0.48 $ 0.40
========== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-5-
6
PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Changes in Stockholders' Equity (Unaudited)
(dollars in thousands, except per share data)
Accumulated
Treasury Other
Common Retained Stock Comprehensive Comprehensive
Stock Earnings at Cost Income Income
------- -------- -------- ------------- -------------
BALANCE AT DECEMBER 31, 1996 $64,611 $132,648 ($2,985) $4,687
Net income 8,989 $8,989
Net unrealized losses on securities
available-for-sale
net of income taxes of ($2,307) (4,284) (4,284)
-------
Total comprehensive income $4,705
=======
Cash dividends on common stock:
Park at $.40 per share (2,853)
First-Knox prior to merger (902)
Shares issued for stock options -
622 shares 27
Treasury stock purchased -
36,450 shares (1,898)
Treasury stock reissued for options -
5,100 shares 244
------- -------- -------- ------
BALANCE AT MARCH 31, 1997 $64,638 $137,882 ($4,639) $403
===========================================================================================
BALANCE AT DECEMBER 31, 1997 $68,275 $154,535 ($7,712) $7,019
Net income 10,583 $10,583
Net unrealized losses on securities
available-for sale
net of income taxes of ($353) (657) (657)
-------
Total comprehensive income $9,926
=======
Cash dividends on common stock:
Park at $.48 per share (4,507)
Treasury stock purchased -
43,265 shares (3,879)
Treasury stock reissued for options -
11,768 shares 627
------- -------- -------- ------
BALANCE AT MARCH 31, 1998 $68,275 $160,611 ($10,964) $6,362
===========================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-6-
7
PARK NATIONAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
Three Months Ended
March 31,
1998 1997
-------- --------
Operating activities:
Net income $ 10,583 $ 8,989
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and accretion 364 38
Provision for loan losses 1,674 1,194
Amortization of the excess of cost over
net assets of banks purchased 697 490
Realized net investment security gain (97) 0
Changes in assets and liabilities:
Increase in other assets (2,800) (4,149)
Decrease in other liabilities (4,107) (286)
-------- --------
Net cash provided from
operating activities 6,314 6,276
Investing activities:
Proceeds from sales of:
Available-for-sale securities 51,839 24,924
Proceeds from maturity of:
Available-for-sale securities 24,414 70,241
Held-to-maturity securities 495 59
Purchases of:
Available-for-sale securities (94,791) (77,373)
Net decrease/(increase) in loans 3,011 (21,556)
Purchases of premises and equipment, net (535) (548)
-------- --------
Net cash used by investing activities (15,567) (4,253)
-7-
8
PARK NATIONAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited) - Continued
(dollars in thousands)
Three Months Ended
March 31,
1998 1997
-------- --------
Financing activities:
Net increase in deposits $ 5,595 $ 13,027
Net increase in short-term borrowings 30,742 16,448
Issuance of common stock 0 27
Purchase of treasury stock, net (3,252) (1,654)
Repayment of long-term debt (12,900) (757)
Cash dividends paid (9,019) (6,607)
-------- --------
Net cash provided from
financing activities 11,166 20,484
-------- --------
Increase in cash and cash equivalents 1,913 22,507
Cash and cash equivalents at beginning of year 93,585 81,765
-------- --------
Cash and cash equivalents at end of period $ 95,498 $104,272
======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 19,471 $ 19,164
======== ========
Income taxes 1,000 0
======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-8-
9
PARK NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Period Ended March 31, 1998 and 1997.
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, 1998 are not necessarily indicative
of the operating results to be anticipated for the fiscal year ended December
31, 1998.
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 10-K for the year ended December 31, 1997. Certain amounts in
1997 have been reclassified to conform to the financial statement presentation
used for 1998.
Park does not have any off-balance sheet derivative financial instruments such
as interest-rate swap agreements.
As of January 1, 1998, Park adopted Statement of Financial Accounting Standard
("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes
reporting and display standards for comprehensive income and its components in a
full set of general-purpose financial statements. Comprehensive income is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances arising from nonowner sources.
The new statement requires Park's unrealized gains or losses on securities
available-for-sale, which prior to adoption were reported as a separate
component of shareholders' equity, to be included in other comprehensive income.
Since SFAS No. 130 only requires additional information, it had no impact on
Park's financial position or results of operation. Prior year financial
statements have been reclassified to conform with the new requirements.
Comprehensive income is presented in the Statement of Change in Shareholders'
Equity on page 6.
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.
Separate results of operations for Park and First-Knox follow:
-9-
10
Three Months
Ended March 31, 1997
--------------------
Net Interest Income
Park $19,077
First-Knox 5,544
-------
Combined $24,621
Net Income
Park $ 7,296
First-Knox 1,693
-------
Combined $ 8,989
Basic Net Income Per Share
Park $ 1.02
First-Knox .45
-------
Combined $ .96
Diluted Net Income Per Share
Park $ 1.02
First-Knox .44
-------
Combined $ .96
Certain amounts in 1997 have been reclassified to conform to the financial
statement presentation used in 1998.
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)
1998 1997
---- ----
Balance January 1, $35,595 $32,347
Provision for loan losses 1,674 1,194
Losses charged to the reserve (1,212) (910)
Recoveries 1,194 955
------- -------
Balance March 31, $37,251 $33,586
======= =======
-10-
11
Note 4 - Long-Term Debt
--------------
Description (In Thousands)
-----------
March 31, December 31,
Fixed rate Federal Home Loan Bank advances 1998 1997
with monthly principal and interest payments: ---- ----
5.60% Advance due August 1, 2003 $ 1,830 $ 1,902
6.35% Advance due August 1, 2013 2,412 2,628
5.95% Advance due March 1, 2004 502 519
5.70% Advance due May 1, 2004 4,092 4,230
5.85% Advance due January 1, 2016 3,803 4,259
2.00% Advance due November 1, 2027 39 40
2.00% Advance due January 1, 2028 40 40
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 -0- 5,000
5.70% Advance due June 1, 1999 -0- 7,000
6.35% Advance due March 1, 2004 250 250
------- -------
$17,968 $30,868
------- -------
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.
Note 5 - Earnings Per Share
------------------
The following table sets forth the computation of basic and diluted earnings per
share for the three month periods ended March 31, 1998 and 1997.
(Dollars in thousands, except per share data)
Three Months Ended
March 31, 1998 1997
--------- ---- ----
Numerator:
Net Income $ 10,583 $ 8,989
Denominator:
Denominator for basic earnings per share weighted average 9,386,913 9,343,358
shares
Effect of dilutive securities 44,982 47,291
Denominator for diluted earnings per share-adjusted 9,431,895 9,390,649
weighted-average shares and assumed conversions
=============================================================================================
Earnings per share:
Basic earnings per share $ 1.13 $ .96
Diluted earnings per share $ 1.12 $ .96
-11-
12
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, 1998 and 1997
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 $1.7 million or 6.9% to $26.3 million for the three
months ended March 31, 1998 compared to $24.6 million for the first quarter of
1997. The following table compares the average balance and tax equivalent
yield/cost for interest earning assets and interest bearing liabilities for the
first quarter of 1998 with the same quarter in 1997.
Three Months Ended March 31st
(In Thousands)
1998 1997
---- ----
Tax Tax
Average Equivalent Average Equivalent
Balance % Balance %
====================== ======================
Loans $1,583,427 9.36% $1,479,706 9.31%
Taxable Investments $ 452,071 7.15% $ 487,045 6.97%
Tax Exempt Investments $ 81,888 7.60% $ 60,377 8.23%
Federal Funds Sold $ 3,877 5.64% $ 21,384 5.38%
Interest Earning Assets $2,121,263 8.81% $2,048,512 8.68%
Interest Bearing Deposits $1,598,620 4.31% $1,547,080 4.28%
Short-term Borrowings $ 162,663 4.89% $ 132,086 4.20%
Long-term Debt $ 19,431 5.88% $ 63,726 6.87%
Interest Bearing Liabilities $1,780,714 4.38% $1,742,892 4.37%
Excess Interest Earning Assets $ 340,549 4.43% $ 305,620 4.31%
Net Interest Margin 5.14% 4.97%
Average interest earning assets increased by $73 million or 3.6% to $2,121
million for the quarter ended March 31, 1998 compared to the same quarter in
1997. Average loans outstanding increased by $104 million or 7.0% to $1,583
million for the first quarter of 1998 compared to the first quarter of 1997.
Approximately $12 million of this increase was due to loans acquired as part of
the purchase of branch offices in Lancaster, Ohio in December, 1997. Average
investment securities including federal funds sold decreased by $31 million or
5.4% to $538 million for the first quarter of 1998 compared to the same period
in 1997.
The 7.0% increase in average loans outstanding in 1998 compared to 1997 was
primarily due to strong loan demand for commercial, commercial real estate, and
consumer loans secured by automobiles. The demand for fixed-rate residential
real estate loans was quite strong during the first quarter of 1998 due to
relatively low longer term interest rates. However, a large percentage of the
fixed-rate loan originations are refinances of existing mortgages. Park sells in
the secondary market all fixed-rate mortgage loans that are originated and as a
result has experienced a decrease of $9.2 million in residential real estate
loans during the first quarter of 1998. This trend in residential real estate
loans may continue at current interest rate levels.
-12-
13
The $31 million decrease in average investment securities in 1998 compared to
1997 was used to help fund the increase in average loans outstanding and to
repay long-term debt.
Average interest bearing liabilities increased by $38 million or 2.2% to $1,781
million for the quarter ended March 31, 1998 compared to the same quarter in
1997. Average interest bearing deposits increased by $52 million or 3.3% to
$1,599 million for the first quarter of 1998 compared to the same period in
1997. This increase in deposits was primarily due to $49 million of deposits
acquired as part of the purchase of branch offices in Lancaster, Ohio in
December, 1997. Average short-term borrowings increased by $31 million or 23.2%
to $163 million for the first quarter of 1998 compared to the same period in
1997. This increase in short-term borrowings was used to assist in funding the
repayment of long-term debt. Average long-term debt decreased by $44 million to
$19 million in the first quarter of 1998 compared to the same period in 1997.
Higher rate long-term debt was repaid from additional short-term borrowings and
from the proceeds from the sale of taxable investment securities.
The yield on average interest earning assets increased by .13% to 8.81% for the
first quarter of 1998 compared to 8.68% for the same period in 1997. This
increase was due to both a change in the mix of average interest earning assets
and an increase in yields. Average loans were 74.7% of average interest earning
assets for the first quarter of 1998 compared to 72.2% for the same period in
1997. The yield on loans increased to 9.36% in 1998 compared to 9.31% in 1997.
The yield on total investment securities including federal funds sold was 7.21%
in 1998 compared to 7.04% in 1997.
The cost of average interest bearing liabilities has been relatively stable with
a cost of 4.38% in 1998 and 4.37% in 1997.
The increase in net interest income of $1.7 million or 6.9% to $26.3 million for
the three months ended March 31, 1998 was due to both increases in the net
interest spread and interest earning assets. The net interest spread (the
difference between the yield on interest earning assets and the cost of interest
bearing liabilities) improved by .12% to 4.43% in 1998 compared to 4.31% in
1997. Average interest earning assets increased by $73 million or 3.6% in 1998
compared to 1997 and excess interest earning assets increased by $35 million or
11.4% to $341 million in 1998 compared to 1997. The tax equivalent net interest
margin (defined as net interest income divided by average interest earning
assets) increased by .17% to 5.14% for the first quarter of 1998 compared to
4.97% for the same period in 1997.
Provision for Loan Losses
- -------------------------
The provision for loan losses increased by $480,000 or 40.2% to $1.7 million for
the three months ended March 31, 1998 compared to $1.2 million for the same
period in 1997. Net charge-offs were $18,000 in 1998 compared to net recoveries
of $45,000 in 1997. Nonperforming loans, defined as loans that are 90 days past
due, renegotiated loans and nonaccrual loans, were $7.0 million or .44% of loans
at March 31, 1998 compared to $6.2 million or .39% of loans at December 31, 1997
and $7.1 million or .48% of loans at March 31, 1997. The reserve for loan losses
as a percentage of outstanding loans was 2.34% at March 31, 1998 compared to
2.24% at December 31, 1997 and 2.25% at March 31, 1997. See Footnote 3 for a
discussion of the factors considered by management in determining the provision
for loan losses.
Noninterest Income
- ------------------
Noninterest income increased by $780,000 or 15.0% to $6.0 million for the first
quarter of 1998 compared to $5.2 million for the same period in 1997. Following
is a summary of the change in noninterest income.
-13-
14
Three Months End
March 31, (Thousands)
1998 1997 Change
---- ---- ------
Fees from fiduciary activities $1,285 $1,356 $ (71)
Service charges on deposit accounts 1,594 1,523 71
Other service income 1,358 891 467
Other income 1,744 1,431 313
------ ------ -----
Total $5,981 $5,201 $ 780
====== ====== =====
The increase in other service income of $467,000 was primarily due to fee income
earned from the origination and sale in the secondary market of fixed-rate
residential mortgage loans. The increase in the subcategory other income of
$313,000 was primarily due to an increase in rental fees from operating leases.
Security Gains
- --------------
Investment security gains were $97,000 for the three months ended March 31, 1998
compared to no gains for the same period in 1997. Securities sold for gains were
due to mature later in 1998 and the proceeds from the sales were used to
purchase mortgage-backed securities with an average life of approximately 4.5
years.
At March 31, 1998, the net unrealized holding gain on available-for-sale
securities was $6.4 million compared to a net unrealized gain of $7.0 million at
December 31, 1997. An increase in longer term interest rates would decrease the
net unrealized gain in available-for-sale securities and could possibly cause
Park to realize some investment security losses later in 1998. The average
maturity of the investment portfolio was approximately 3.5 years at March 31,
1998 and December 31, 1997.
Other Expense
- -------------
Total other expense decreased by $188,000 or 1.2% to $15.4 million for the three
months ended March 31, 1998 compared to $15.6 million for the same period in
1997. Salaries and employee benefits expense increased by $243,000 or 3.2% to
$7.9 million for the first quarter of 1998 compared to the same period in 1997.
Full time equivalent employees were 985 at March 31, 1998 compared to 965 at
March 31, 1997.
The subcategory other expense which includes data processing expense, fees and
service charges, supplies, marketing, telephone, postage, deposit insurance
premiums, amortization of intangibles, and expenses pertaining to other real
estate owned, decreased by $505,000 or 8.1% to $5.7 million for the first
quarter of 1998 compared to the same period in 1997. Decreases in data
processing expense and fees and service charges were partially offset by
increases in the amortization of intangibles and supplies expense.
Federal Income Taxes
- --------------------
Federal income tax expense was $4.7 million for the first quarter of 1998
compared to $4.0 million for the same period in 1997. The ratio of federal
income tax expense to income before taxes was approximately 31% for both 1998
and 1997.
Net Income
- ----------
Net income increased by $1.6 million or 17.7% to $10.6 million for the three
months ended March 31, 1998 compared to $9.0 million for the same period in
1997. The annualized, first quarter net income to average assets ratio (ROA) was
1.89% in 1998 compared to 1.67% for the same period in 1997. The annualized,
first quarter net income to average equity ratio (ROE) was 20.02% in 1998
compared to 18.72% in 1997.
-14-
15
COMPARISON OF FINANCIAL CONDITION
FOR MARCH 31, 1998 AND DECEMBER 31, 1997
Changes in Financial Condition and Liquidity
- --------------------------------------------
Total assets increased by $17 million or .7% to $2,305 million at March 31, 1998
compared to $2,288 million at December 31, 1997. Investment securities increased
by $18 million to $558 million and loan balances decreased by $3 million to
$1,589 million. The decrease in loan balances was due to the strong demand for
fixed-rate mortgage loans which when originated are sold in the secondary
market. Some of the fixed-rate mortgage loan originations were refinances of
adjustable-rate mortgage loan balances.
Total liabilities increased by $15 million or .7% to $2,081 million at March 31,
1998 compared to $2,066 million at December 31. 1997. Total deposits increased
by $6 million to $1,861 million and total borrowed money increased by $18
million to $200 million. During the first quarter of 1998, $13 million of
long-term debt was repaid and replaced with lower rate short-term debt.
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 68.9% at March 31, 1998 compared to 69.6% at December 31, 1997
and 67.6% at March 31, 1997. Cash and cash equivalents totaled $95 million at
March 31, 1998 compared to $94 million at December 31, 1997 and $104 million at
March 31, 1997. The present funding sources provide more than adequate liquidity
for the Corporation to meet its cash flow needs.
Capital Resources
- -----------------
Stockholders' equity at March 31, 1998 was $224.3 million or 9.73% of total
assets compared to $222.1 million or 9.71% of total assets at December 31, 1997
and $198.3 million or 8.97% of total assets at March 31, 1997.
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
8.98% at March 31, 1998 and 8.91% at December 31, 1997. 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 13.59% at March 31, 1998 and 13.46%
at December 31, 1997. 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 14.86% at March 31, 1998 and 14.72% at December 31,
1997.
The financial institution subsidiaries of Park each met the well capitalized
capital ratio guidelines at March 31, 1998. The following table indicates the
capital ratios for each subsidiary and Park at March 31, 1998:
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Tier I Total
Leverage Risk-Based Risk-Based
-------- ---------- ----------
Park National Bank 6.43% 9.03% 11.64%
Richland Trust Company 6.35% 11.59% 12.86%
Century National Bank 6.39% 10.82% 12.09%
First-Knox National Bank 6.43% 10.85% 12.73%
Park National Corporation 8.98% 13.59% 14.86%
Minimum Capital Ratio 4.00% 4.00% 8.00%
Well Capitalized Ratio 5.00% 6.00% 10.00%
At the April 20, 1998 Park National Corporation Board of Directors' Meeting, a
cash dividend of $.48 per share was declared payable on June 10, 1998 to
stockholders of record on May 15, 1998.
Year 2000 Compliance Issues
- ---------------------------
In early 1997, Park formed a Year 2000 project team to identify software systems
and computer-related devices that require modification for the Year 2000. A
project plan has been developed with goals and target dates. The Corporation's
business areas are in various stages of completing this project plan. The
project plan follows a five phase approach - awareness, assessment, renovation,
validation, and implementation - recommended by regulators and others. The
Corporation has incurred expenses throughout 1997 related to this project and
will continue to incur expenses over the next two years. These expenses are not
expected to materially impact operating results in any one period, with a
significant portion of these expenses represented by existing staff that has
been redeployed to this project. Many of the Corporation's systems are
vendor-supplied. All the vendors have been contacted and most have provided
certification, a commitment letter for compliance before Year 2000, or
instructions on how the Corporation can test the software systems and
computer-related devices for Year 2000 readiness.
The Corporation is regulated by both state and federal bank regulatory agencies.
These agencies have issued numerous directives with respect to the Year 2000
issue, with which we are acting to comply.
Management presently believes that with the planned modifications to existing
systems, conversion to new systems, and vendor delivery of millennium-compliant
systems, the Year 2000 compliance issues will be resolved on a timely basis, and
any related costs will not have a material impact on the operations, cash flows,
or financial condition of future periods.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK -
See Footnote 1 for disclosure that Park does not have any off-balance sheet
derivative financial instruments.
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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
---------------------------------------------------
a. On April 20, 1998, Park National Corporation held its Annual
Meeting of Shareholders. At the close of business on the
record date, 9,374,107 Park National Corporation common shares
were outstanding and entitled to vote. At the meeting,
8,348,520 or 89.1% of the outstanding common shares entitled
to vote were represented by proxy or in person.
b. Directors elected at the Annual Meeting for a three year term:
Maureen Buchwald
8,325,019 For 23,501 Withheld -0- Abstain and Broker Non-Votes
--------- ------ ---
Dominic C. Fanello
8,324,722 For 23,798 Withheld -0- Abstain and Broker Non-Votes
--------- ------ ---
Phillip T. Leitnaker
8,326,807 For 21,713 Withheld -0- Abstain and Broker Non-Votes
--------- ------ ---
J. Gilbert Reese
8,324,080 For 24,440 Withheld -0- Abstain and Broker Non-Votes
--------- ------ ---
Rick R. Taylor
8,328,004 For 20,516 Withheld -0- Abstain and Broker Non-Votes
--------- ------ ---
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Directors whose term of office continued after the Annual Meeting:
C. Daniel DeLawder
Phillip H. Jordan, Jr.
Tamala Longaberger Kaido
Howard L. LeFevre
James J. Cullers
John J. O'Neill
R. William Geyer
William T. McConnell
James A. McElroy
William A. Phillips
John L. Warner
c. See Item 4(b) for the voting results for directors.
1. Proposal to adopt amendments to the Park National Corporation
1995 Incentive Stock Option Plan. The proposal passed with
80.9% of the eligible shares voting for the proposal, 75% of
the eligible shares were required for passage.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
7,581,000 130,927 106,230 530,363
d. 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
-------------------
A Form 8-K was filed by Park on April 17, 1998 for the purpose
of providing an updated summary of the material attributes of
the common shares, without par value, of Park National
Corporation.
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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 13, 1998 BY: /s/ C. Daniel DeLawder
------------------------ -------------------------
C. Daniel DeLawder
President
DATE: May 13, 1998 BY: /s/ John W. Kozak
------------------------ -------------------------
John W. Kozak
Chief Financial Officer
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