PARK NATIONAL CORPORATION Item 2.02 - Results of Operations and Financial Condition.
OnOctober 26, 2020 ,Park National Corporation ("Park") issued a news release (the "Financial Results News Release") announcing financial results for the three and nine months endedSeptember 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 the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio and the 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 nine months ended and atSeptember 30, 2020 ,June 30, 2020 , andSeptember 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 has offered 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 physical
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 nine months of 2020, Park provided calamity pay and special
one-time bonuses to certain associates. The cost of the calamity pay and special
bonuses amounted to $0.8 million and $2.9 million for the three month and nine
month periods ended September 30, 2020 , respectively, and is included within
salaries expense.
Paycheck Protection Program: Through September 30, 2020 , Park had approved and
funded 4,439 loans totaling $543.1 million under the PPP. These PPP loans had an
average principal balance of $122,000 . Of the $543.1 million in PPP loans, 21
loans totaling $68.2 million had a principal balance that was 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 $6.6
million were recognized during the nine months ended September 30, 2020 . Park
funded the PPP loans with excess on-balance sheet liquidity.
As of October 23, 2020 , Park has submitted approximately 927 repayment requests
on behalf of borrowers under the PPP to the SBA and has received $10.0 million
in payments from the SBA.
Loan Modifications: During the nine months ended September 30, 2020 , Park had
modified 4,810 consumer loans, with an aggregate balance of $111 million , and
modified 1,386 commercial loans, with an aggregate balance of $584 million , in
each case related to a hardship caused by the COVID-19 pandemic and responses
thereto. Park is working with borrowers and
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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 six 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 current and will continue to
accrue interest during the deferral period.
Detail of COVID-19 modifications on Park's loan portfolios during the nine
months ended
September 30, September 30,
2020 Total 2020 Balance
(Dollars in thousands) Balance Modified Percent Modified
Commercial $ 4,197,427 $ 583,701 13.9 %
Home equity 194,445 3,594 1.8 %
Installment 1,633,730 47,760 2.9 %
Real estate 1,232,196 57,388 4.7 %
Guardian Financial Service Company ("GFSC") 14,843 2,267 15.3 %
Other 5,905 - - %
Total Loans $ 7,278,546 $ 694,710 9.5 %
Of the $694.7 million of COVID-19 modifications during the nine months ended
September 30, 2020 , $3.9 million were currently greater than 30 days past due in
accordance with the modified terms.
Detail of COVID-19 modifications on selected commercial loan portfolios during
the nine months ended
September 30, September 30,
2020 Total 2020 Balance
(Dollars in thousands) Balance Modified Percent Modified
Non-bank consumer finance companies $ 266,187 $ - - %
Hotel and accommodations 211,888 160,677 75.8 %
Restaurants and food service 48,347 11,028 22.8 %
Arts and recreation 46,648 16,963 36.4 %
Healthcare and social assistance 250,402 37,282 14.9 %
Strip shopping centers 236,575 71,613 30.3 %
Other real estate rental and leasing 1,139,821 163,711 14.4 %
PPP loans 542,761 - - %
Other loans 1,454,798 122,427 8.4 %
Total commercial loans $ 4,197,427 $ 583,701 13.9 %
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Many of the initial interest only deferrals or principal and interest deferrals
were for an initial period of three months. Park has received requests for
additional deferrals. Loans which have had multiple COVID-19 modifications
through
September 30, 2020
Balance - Multiple Weighted Average Risk
(Dollars in thousands) Modifications Grade
Hotel and accommodations $ 62,676 4.97
Restaurants and food service 1,140 4.20
. . .
Item 8.01 - Other Events
Declaration of Cash Dividend
As reported in the Financial Results News Release, on October 26, 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 on December 10, 2020 to common shareholders of record as of the
close of business on November 20, 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 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 byPark National Corporation onOctober 26, 2020 addressing financial results for the three and nine months endedSeptember 30, 2020 and declaration of quarterly cash dividend
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