PARK NATIONAL CORPORATION Item 2.02 - Results of Operations and Financial Condition.
OnJanuary 27, 2020 ,Park National Corporation ("Park") issued a news release (the "Financial Results News Release") announcing financial results for the three months and twelve months endedDecember 31, 2019 . A copy of the Financial Results News Release is included as Exhibit 99.1 to this Current Report on Form 8-K and incorporated by reference herein. Non-GAAP Financial Measures Item 7.01 of this Current Report on Form 8-K as well as the Financial Results News Release contain non-GAAP (generally accepted accounting principles) financial measures where management believes it to be helpful in understanding Park's results of operations or financial position. Where non-GAAP financial measures are used, the comparableU.S. GAAP financial measure, as well as the reconciliation to the comparableU.S. GAAP financial measure, can be found in the Financial Results News Release. Items Impacting Comparability of Period Results From time to time, revenue, expenses, and/or taxes are impacted by items judged by management of Park to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by management of Park at that time to be infrequent or short-term in nature. Most often, these items impacting comparability of period results are due to merger and acquisition activities and revenue and expenses related to former Vision Bank loan relationships. In other cases, they may result from management's decisions associated with significant corporate actions outside of the ordinary course of business. Even though certain revenue and expense items are naturally subject to more volatility than others due to changes in market and economic environment conditions, as a general rule volatility alone does not result in the inclusion of an item as one impacting comparability of period results. For example, changes in the provision for credit losses (aside from former Vision Bank loan relationships), gains (losses) on equity securities, and asset valuation writedowns, reflect ordinary banking activities and are, therefore, typically excluded from consideration as items impacting comparability of period results. Management believes the disclosure of items impacting comparability of period results provides a better understanding of our performance and trends and allows management to ascertain which of such items, if any, to include or exclude from an analysis of our performance; i.e., within the context of determining how that performance differed from expectations, as well as how, if at all, to adjust estimates of future performance taking such items into account.
Items impacting comparability of the results of particular periods are not intended to be a complete list of items that may materially impact current or future period performance.
Non-GAAP Ratios Park's management uses certain non-GAAP financial measures to evaluate Park's performance. Specifically, management reviews return on average tangible equity, return on average tangible assets, tangible equity to tangible assets and tangible book value per share. Management has included in the Financial Results News Release information relating to the annualized return on average tangible equity, annualized return on average tangible assets, tangible equity to tangible assets and tangible book value per share for the three months ended and atDecember 31, 2019 ,September 30, 2019 , andDecember 31, 2018 and the twelve months endedDecember 31, 2019 andDecember 31, 2018 . For purposes of calculating the return on average tangible equity, a non-GAAP financial measure, net income for each period is divided by average tangible equity during the period. Average tangible equity equals average shareholders' equity during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating the return on average tangible assets, a non-GAAP financial measure, net income for each period is divided by average tangible assets during the period. Average tangible assets equals average assets during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating tangible equity to tangible assets, a non-GAAP financial measure, tangible equity is divided by tangible assets. Tangible equity equals total shareholders' equity less goodwill and other intangible assets, in each case at period end. Tangible assets equals total assets less goodwill and other intangible assets, in each case at period end. For the purpose of calculating tangible book value per share, a non-GAAP financial measure, tangible equity is divided by the number of common shares outstanding, in each case at period end. 2 -------------------------------------------------------------------------------- Management believes that the disclosure of return on average tangible equity, return on average tangible assets, tangible equity to tangible assets and tangible book value per share presents additional information to the reader of the consolidated financial statements, which, when read in conjunction with the consolidated financial statements prepared in accordance with GAAP, assists in analyzing Park's operating performance, ensures comparability of operating performance from period to period, and facilitates comparisons with the performance of Park's peer financial holding companies and bank holding companies, while eliminating certain non-operational effects of acquisitions. In the Financial Results News Release, Park has provided a reconciliation of average tangible equity to average shareholders' equity, average tangible assets . . .
Item 5.02 - Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
(a) Not applicable.
(b) OnJanuary 27, 2020 ,James R. DeRoberts , who currently serves in the class of directors of Park whose terms expire at the 2020 Annual Meeting of Shareholders (the "2020 Annual Meeting"), notified the Park Board of Directors that he has decided to retire as a director of Park at the end of his current term, effective immediately prior to the 2020 Annual Meeting, which is currently scheduled to be held onApril 27, 2020 . There are no disagreements betweenMr. DeRoberts and Park.
(c) Not applicable. (d) Not applicable. (e) Not applicable..
Item 7.01 - Regulation FD Disclosure
Financial Results by Segment
The table below reflects the net income (loss) by segment for each quarter of 2019 and for the years endedDecember 31, 2019 , 2018 and 2017. Park's segments includeThe Park National Bank ("PNB"),Guardian Financial Services Company ("GFSC") and "All Other" which primarily consists of Park as the "Parent Company" andSE Property Holdings, LLC ("SEPH"). SEPH is a non-bank subsidiary of Park, holding former Vision Bank other real estate owned ("OREO") property and non-performing loans. Net income (loss) by segment (In thousands) Q4 2019 Q3 2019 Q2 2019 Q1 2019 2019 2018 2017 PNB$ 26,578 $ 30,948 $ 29,382 $ 26,692 $ 113,600 $ 109,472 $ 87,315 GFSC 109 203 163 287$ 762 521 260 All Other (2,751) (5) (7,382) (1,524)$ (11,662) 394 (3,333)Total Park $ 23,936 $ 31,146 $ 22,163 $ 25,455 $ 102,700 $ 110,387 $ 84,242 3
-------------------------------------------------------------------------------- Net income for the twelve months endedDecember 31, 2019 of$102.7 million represented a$7.7 million , or 7.0%, decrease compared to$110.4 million for the twelve months endedDecember 31, 2018 . Net income for both the twelve months endedDecember 31, 2019 and the twelve months endedDecember 31, 2018 included several items of income and expense that impact comparability of period results. These items are detailed in the "Financial Reconciliations" section within the Financial Results News Release.
The following discussion provides additional information regarding the two segments that make up Park's ongoing operations, followed by additional information regarding All Other, which consists of the Parent Company and SEPH.
In 2020, Park will execute a rebranding initiative to operate all 12 banking divisions of PNB under one name. The banking divisions will discontinue use of their former bank division name and logos; and they will share new, unified PNB branding in all marketing and communications to the communities they serve. This rebranding will make it easier for bank customers and prospective customers to recognize and access the full depth and breadth of the banking organization. Leadership structure, service style, and local community involvement will not be affected by the rebranding.
The table below reflects PNB's net income for each quarter of 2019 and for the
years ended
(In thousands) Q4 2019 Q3 2019 Q2 2019 Q1 2019 2019 2018 2017
Net interest income $ 75,775 $ 76,180 $ 74,893 $ 66,282 $ 293,130 $ 258,547 $ 235,243
Provision for loan losses 1,793 2,320 1,803 2,440 8,356 7,569 9,898
Other income 24,168 24,842 22,674 20,708 92,392 88,981 82,742
Other expense 64,502 60,943 60,014 51,974 237,433 206,843 185,891
Income before income taxes $ 33,648 $ 37,759 $ 35,750 $ 32,576 $ 139,733 $ 133,116 $ 122,196
Income tax expense 7,070 6,811 6,368 5,884 26,133 23,644 34,881
Net income $ 26,578 $ 30,948 $ 29,382 $ 26,692 $ 113,600 $ 109,472 $ 87,315
Net interest income of $293.1 million for the twelve months ended December 31,
2019 represented a $34.6 million , or 13.4%, increase compared to $258.5 million
for the twelve months ended December 31, 2018 . The increase was a result of a
$52.1 million increase in interest income, offset by a $17.5 million increase in
interest expense.
The $52.1 million increase in interest income was primarily due to a $52.6
million increase in interest income on loans. The increase in interest income on
loans was partially the result of a $746.2 million increase in average loans
from $5.44 billion for the twelve months ended December 31, 2018 , to $6.19
billion for the twelve months ended December 31, 2019 . Additionally, the yield
on loans increased 27 basis points to 5.12% for the twelve months ended December
31, 2019 , compared to 4.85% for the twelve months ended December 31, 2018 .
Interest income was impacted by the acquisition of NewDominion Bank
("NewDominion") on July 1, 2018 and the acquisition of CAB Financial
Corporation , the parent of Carolina Alliance Bank ("Carolina Alliance ") on April
1, 2019 . The NewDominion Bank Division and the Carolina Alliance Bank Division
contributed an aggregate of $41.3 million to interest income at PNB during the
twelve months ended December 31, 2019 . The NewDominion Bank Division contributed
$8.1 million to interest income at PNB during the twelve months ended December
31, 2018 .
The $17.5 million increase in interest expense was primarily due to a $18.7
million increase in interest expense on deposits, partially offset by a $1.2
million decrease in interest expense on borrowings. The increase in interest
expense on deposits was partially the result of a $555.8 million increase in
average interest-bearing deposits from $4.47 billion for the twelve months ended
December 31, 2018 , to $5.03 billion for the twelve months ended December 31,
2019 . Additionally, the cost of deposits increased by 29 basis points from 0.72%
for the twelve months ended December 31, 2018 to 1.01% for the twelve months
ended December 31, 2019 . Interest expense was impacted by the acquisitions of
NewDominion and Carolina Alliance. The NewDominion Bank Division and the
Carolina Alliance Bank Division contributed an aggregate of $5.3 million to
interest expense at PNB during the twelve months ended December 31, 2019 . The
NewDominion Bank Division contributed $674,000 to interest expense at PNB during
the twelve months ended December 31, 2018 .
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The provision for loan losses of $8.4 million for the twelve months ended
December 31, 2019 represented an increase of $787,000 , compared to $7.6 million
for the twelve months ended December 31, 2018 . Refer to the "Credit Metrics and
Provision for (Recovery of) Loan Losses" section for additional details
regarding the level of the provision for (recovery of) loan losses recognized in
each period presented above.
Other income of $92.4 million for the twelve months ended December 31, 2019
represented an increase of $3.4 million , or 3.8%, compared to $89.0 million for
the twelve months ended December 31, 2018 . The $3.4 million increase was
primarily related to a $2.9 million increase in debit card fee income, a $2.4
million increase in other service income, a $1.5 million increase in income from
fiduciary activities, a $1.3 million increase in operating lease income, which
is included in miscellaneous income, and a decrease of $1.8 million in net
. . .
Item 8.01 - Other Events
Declaration of Cash Dividend
As reported in the Financial Results News Release, on January 27, 2020 , the Park
Board of Directors (the "Park Board") declared a $1.02 per common share
quarterly cash dividend and a special cash dividend of $0.20 per common share in
respect of Park's common shares. These cash dividends are payable on March 10,
2020 to common shareholders of record as of the close of business on February
21, 2020 . A copy of the Financial Results News Release is included as Exhibit
99.1 and the portion thereof addressing the declaration of the cash dividends by
the Park Board is incorporated by reference herein.
Item 9.01 - Financial Statements and Exhibits.
(a)Not applicable (b)Not applicable (c)Not applicable
(d)Exhibits. The following exhibits are included with this Current Report on Form 8-K:
Exhibit No. Description 99.1 News Release issued byPark National Corporation onJanuary 27, 2020 addressing financial results for the three months and twelve months endedDecember 31, 2019 and declaration of quarterly cash dividend and special cash dividend.
104 Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)
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