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 --------------------------------------------------------- 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 <TABLE> <CAPTION> CONTENTS -------- Page ---- <S> <C> 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 </TABLE> 2
3 PARK NATIONAL CORPORATION Consolidated Balance Sheet (Unaudited) (Dollars in thousands, except per share data) <TABLE> <CAPTION> March 31, December 31, 1996 1995 ----------- ----------- <S> <C> <C> 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 </TABLE> 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) <TABLE> <CAPTION> Three Months Ended March 31, 1996 1995 ------- ------- <S> <C> <C> 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 </TABLE> 4
5 PARK NATIONAL CORPORATION Consolidated Condensed Statement of Income (Unaudited) - (Continued) (Dollars in thousands, except per share data) <TABLE> <CAPTION> Three Months Ended March 31, 1996 1995 ----------- ----------- <S> <C> <C> 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 </TABLE> 5
6 PARK NATIONAL CORPORATION Consolidated Statement of Cash Flows (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> Three Months Ended March 31, 1996 1995 -------- -------- Operating activities: <S> <C> <C> 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 </TABLE> 6
7 PARK NATIONAL CORPORATION Consolidated Statement of Cash Flows (Unaudited) - (Continued) (Dollars in thousands) <TABLE> <CAPTION> Three Months Ended March 31, 1996 1995 --------- -------- Financing activities: <S> <C> <C> 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 </TABLE> 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) <TABLE> <CAPTION> 1996 1995 --------------------- --------------------- Tax Tax Average Equivalent Average Equivalent Balance % Balance % --------------------- ---------------------- <S> <C> <C> <C> <C> 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% </TABLE> 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 12
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: <TABLE> <CAPTION> Tier I Total Leverage Risk-Based Risk-Based -------- ---------- ---------- <S> <C> <C> <C> 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% </TABLE> 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
14 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 16
17 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