Park National Corp. could re-emerge as a bank acquirer in the not-so-distant future. Hopefully it will have better luck picking a target this time.

The $7.3 billion-asset company agreed earlier this month to sell the operations of its Vision Bank in Panama City, Fla., for $27.9 million to Home BancShares Inc. in Conway, Ark. Park National bought the bank for $171 million in early 2007.

The deal, set to close early next year, calls for the Newark, Ohio, company to retain $156 million of nonperforming and underperforming loans, though analysts say they view the deal as the end of a five-year nightmare. As it fences in its total exposure, Park National can focus on exiting the Troubled Asset Relief Program and then hopefully use its excess capital for acquisitions.

"They have a lot of work to do still, but I think acquisitions are a part of the natural evolution for them," said Chris McGratty, an analyst at KBW Inc.'s Keefe, Bruyette & Woods. "They will have to be much more selective, but I think they'll have to consider doing it. The first deal they announce will get a lot of attention."

Park National was one of several banks in the Midwest that looked at Florida as a way to augment growth. Others included National City Corp. in Cleveland, which bought two large community banks in deals unveiled a week apart.

(National City was eventually sold in late 2008 to PNC Financial Services Group Inc. after unsuccessful efforts to corral its credit issues.)

"The Midwest economy has been a lot of things, but 'robust' is not a word associated with it," David L. Trautman, Park Natonal's president, said in an American Banker interview in 2006, when the company announced the Vision deal.

The company's executives did not return a call for comment for this story.

The Vision acquisition was Park National's seventh in a seven-year stretch. It didn't take long for the deal to go from a boon to a burden. By the third quarter of 2007, the company started reporting upticks in its loan-loss provision largely due to credit quality problems at Vision.

"Vision was profitable for a quarter or two and then everything went pear-shaped on them," said John Moran, an analyst at Macquarie Capital Ltd.

Park National's saving grace has been twofold. First, at roughly $689 million assets at its acquisition, Vision was never big enough to jeopardize Park National's future. Also, the core Ohio bank that Park National wanted to augment with faster growth kept the company profitable throughout the downturn, except for the third quarter of 2008, when it wrote off $55 million of goodwill.

"They were smart enough not to buy something so big that it could bring them down, instead it was just a very annoying thorn in their side," said Kenneth James, an analyst at Sterne Agee & Leach Inc. "They made a lot less money, for sure. But they never even cut their dividend."

Profitability, combined with several private placements completed in recent years, have left Park National flush with capital. At Sept. 30, its tangible common equity ratio was 11.5%, well above the 7% mark that analysts prefer. That level of capital gives the company the ability to decide how it wants to resolve the remaining Florida assets

Several analysts said they would prefer to see Park National pursue a bulk sale of assets, if for nothing else than to be completely done with Florida.

"They are a Midwest company, but I'm rarely asked about the Midwest bank," McGratty said. "I think the sooner they can resolve Florida, the better visibility we will have in earnings. The Midwest bank is very profitable. Florida is a huge drag."

Still, the company will likely opt to work out the assets over time, several analysts said.

"I think they will try to squeeze every penny they can from the borrowers," James said. "I think their philosophy is more tortoise than hare."

In making its next bank acquisition, Park National will almost certainly stick closer to home, analysts said.

"They would have to take a harder look at anything out of market, it would be tough not to," said R. Scott Siefers, an analyst at Sandler O'Neill & Partners LP. "I'd guess they are going to stick to things more in their comfort zone."

While Midwestern banks will likely avoid chasing growth in Florida for a while, observers say Park National's ability to sell the performing parts of Vision are a positive sign for the state.

The so-called carve-out structure was also used in BB&T Corp.'s planned acquisition of the thrift belonging to BankAtlantic Bancorp Inc. in Fort Lauderdale, Fla.

Paula S. Johannsen, a Florida-based managing director at Monroe Securities Inc. in Chicago, said carve outs are perfect for a place like Florida where nonperforming assets have begun to show signs of leveling.

Buyers might not want to take on the problems or the potential problems, but they can now reach a comfort level with the existing book. If the good loans have performed so far, there is a good chance they will continue to perform.

"Two years ago, everything was moving so rapidly down you couldn't get a handle on where the bottom might be," Johannsen said. "They still might take some big marks, but now they are comfortable enough to look. They can price things in way that they couldn't have done previously."

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