PARK NATIONAL CORPORATION Item 2.02 - Results of Operations and Financial Condition.
OnJuly 27, 2020 ,Park National Corporation ("Park") issued a news release (the "Financial Results News Release") announcing financial results for the three and six months endedJune 30, 2020 . 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 measures, as well as the reconciliation to the comparableU.S. GAAP financial measures, 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 loan losses (aside from those related to 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, the tangible equity to tangible assets ratio 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, the annualized return on average tangible assets, the tangible equity to tangible assets ratio and the tangible book value per share for the three and six months ended and atJune 30, 2020 ,March 31, 2020 , andJune 30, 2019 . For purposes of calculating the annualized 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 annualized 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 the tangible equity to tangible assets ratio, 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 the 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 the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio and the 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 withU.S. 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 theFinancial Results News Release, Park has provided a reconciliation of average tangible equity to average shareholders' equity, average tangible assets to average assets, tangible equity to total shareholders' equity and tangible assets to total assets solely for the purpose of complying with SEC Regulation G and not as an indication that the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio and the tangible book value per share are substitutes for the annualized return on average equity, the annualized return on average assets, the total shareholders' equity to total assets ratio and the book value per share, respectively, as determined in accordance withU.S. GAAP. FTE (fully taxable equivalent) Ratios Interest income, yields, and ratios on a FTE basis are considered non-GAAP financial measures. Management believes net interest income on a FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a corporate federal statutory tax rate of 21 percent. In the Financial Results News Release, Park has provided a reconciliation of FTE interest income solely for the purpose of complying with SEC Regulation G and not as an indication that FTE interest income, yields and ratios are substitutes for interest income, yields and ratios, as determined in accordance withU.S. GAAP.
Item 7.01 - Regulation FD Disclosure
COVID-19 Considerations
Banking has been identified by federal and state governmental authorities to be
an essential service and Park is fully committed to continue serving our
customers and communities through the COVID-19 public health crisis. For those
in our communities experiencing a financial hardship, Park offers various
methods of support including loan modifications, payment deferral programs,
participation in the CARES Act Paycheck Protection Program ("PPP") and various
other case by case accommodations. Park has implemented various social
distancing guidelines to help protect associates, such as allowing associates to
work from home, where practical, while maintaining customer service via our
online banking services, mobile app, and ATMs, by keeping drive-thru lanes open
to serve customers, maintaining selective branch office openings, and offering
other banking services by appointment when necessary.
During the first six months of 2020, Park continued to pay its associates, even
those unable to work due to the COVID-19 pandemic. Additionally, Park provided
special one-time bonuses to certain associates. The cost of the calamity pay and
special bonuses amounted to $2.2 million for the six months ended June 30, 2020 ,
and is included within salaries expense.
Park is committed to helping individuals and businesses in the communities it serves.
Paycheck Protection Program: ThroughJune 30, 2020 , Park had approved and funded 4,438 loans totaling$543.1 million under the PPP. These PPP loans had an average balance of$122,000 . Of the$543.1 million in PPP loans, 21 loans totaling$68.2 million were greater than$2 million . For its assistance in making and retaining these loans, Park has received an aggregate of$20.2 million in fees from the SBA, of which$2.8 million were recognized during the three months endedJune 30, 2020 . Park funded the PPP loans with excess on balance sheet liquidity. Loan Modifications: During the six months endedJune 30, 2020 , Park had modified 4,474 consumer loans, with an aggregate balance of$113 million , and modified 1,387 commercial loans, with an aggregate balance of$635 million , in each case related to a hardship caused by the COVID-19 pandemic and responses thereto. Park is working with borrowers and providing modifications in the form of either interest only deferral or principal and interest deferral, in each case, for initial periods of up to 90 days. As necessary, Park is making available a second 90 day interest only deferral or principal and interest deferral bringing the total potential deferral period to 6 months. Modifications are structured in a manner to best address each individual customer's current situation. A majority of these modifications are excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. Modified loans will be considered 3 --------------------------------------------------------------------------------
current and will continue to accrue interest during the deferral period.
Detail of COVID-19 modifications on Park's loan portfolios during the six months endedJune 30, 2020 follows: June 30, 2020 June 30, 2020 (Dollars in thousands) Total Balance Balance Modified Percent Modified Commercial$ 4,140,491 $ 634,952 15.3 % Home equity 204,542 3,746 1.8 % Installment 1,494,151 49,649 3.3 % Real estate 1,341,739 57,559 4.3 % Guardian Finance Service Company ("GFSC") 18,489 2,383 12.9 % Other 5,033 - - % Total Loans$ 7,204,445 $ 748,289 10.4 %
Detail of COVID-19 modifications on selected commercial loan portfolios during
the six months ended
June 30, 2020 June 30, 2020
(Dollars in thousands) Total Balance Balance Modified Percent Modified
Non-bank consumer finance companies $ 254,356 $ - - %
Hotel and accommodations 211,106 163,455 77.4 %
Restaurants and food service 51,442 12,641 24.6 %
Arts and recreation 45,108 16,907 37.5 %
Healthcare and social assistance 244,980 39,751 16.2 %
Strip shopping centers 218,237 73,117 33.5 %
Other real estate rental and leasing 1,077,898 192,076 17.8 %
PPP loans 543,086 - - %
Other loans 1,494,278 137,005 9.2 %
Total commercial loans $ 4,140,491 $ 634,952 15.3 %
Financial Results by Segment
The table below reflects the net income (loss) by segment for the first and
second quarters of 2020, for the first half of each of 2020 and 2019 and for the
years ended December 31, 2019 and 2018. Park's segments include The Park
National Bank ("PNB"), GFSC and "All Other" which primarily consists of Park as
the "Parent Company" and SE 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
Six months Six months
(In thousands) Q2 2020 Q1 2020 YTD 2020 YTD 2019 2019 2018
PNB $ 30,750 $ 25,908 $ 56,658 $ 56,074 $ 113,600 $ 109,472
GFSC 323 112 435 450 762 521
All Other (1,568) (3,648) (5,216) (8,906) (11,662) 394
Total Park $ 29,505 $ 22,372 $ 51,877 $ 47,618 $ 102,700 $ 110,387 Net income for the six months ended
Item 8.01 - Other Events
Declaration of Cash Dividend
As reported in the Financial Results News Release, onJuly 27, 2020 , the Park Board of Directors (the "Park Board") declared a$1.02 per common share quarterly cash dividend in respect of Park's common shares. These cash dividends are payable onSeptember 10, 2020 to common shareholders of record as of the close of business onAugust 21, 2020 . A copy of theFinancial Results News Release is included as Exhibit 99.1 and the portion thereof addressing the declaration of the cash dividend 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 by
104 Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)
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