Item 2.02 – Results of Operations and Financial Condition
On July 25, 2022, Park National Corporation ("Park") issued a news release (the
"Financial Results News Release") announcing financial results for the three
months and six months ended June 30, 2022. 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 in the
United States or "U.S. GAAP") financial measures where management believes them
to be helpful in understanding Park's results of operations or financial
position. Where non-GAAP financial measures are used, the comparable U.S. GAAP
financial measures, as well as the reconciliation to the comparable U.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 / (recovery of) credit losses (aside from those
related to former Vision Bank loan relationships), gains (losses) on equity
securities, net, and asset valuation adjustments, 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 Park's performance and trends and
allows management to ascertain which of such items, if any, to include or
exclude from an analysis of Park's 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, the tangible book value per share and pre-tax, pre-provision net
income.
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,
the tangible book value per share and pre-tax, pre-provision net income for the
three months ended and at June 30, 2022, March 31, 2022 and June 30, 2021 and
for the six months ended and at June 30, 2022 and June 30, 2021. 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 equal 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. For the purpose of calculating pre-tax,
pre-provision net income, a non-GAAP financial measure, income taxes and the
provision for (recovery of) credit losses are added back to net income, in each
during the applicable period.
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-------------------------------------------------------------------------------- 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, the tangible book value per share and pre-tax, pre-provision net income 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 U.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 the Financial 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, tangible assets to total assets, and pre-tax, pre-provision net income to net income 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, the tangible book value per share and pre-tax, pre-provision net income are substitutes for the annualized return on average equity, the annualized return on average assets, the total shareholders' equity to total assets ratio, the book value per share and net income, respectively, as determined in accordance with U.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. . . .
Item 7.01 – Regulation FD Disclosure
COVID-19 Considerations
During 2022 and 2021, Park provided calamity pay and special bonuses to certain
associates related to the COVID-19 pandemic. The cost of the calamity pay and
special bonuses was $141,000 and $670,000 for the three months ended June 30,
2022 and 2021, respectively, and was $747,000 and $1.5 million for the six
months ended June 30, 2022 and 2021, respectively, and is included within
salaries expense.
Paycheck Protection Program: During 2020 and 2021, Park approved and funded
7,701 loans totaling $764.7 million. For its assistance in making and retaining
these loans, Park received an aggregate of $33.1 million in fees from the SBA,
of which $2.5 million and $9.7 were recognized within loan interest income
during the six months ended June 30, 2022 and 2021, respectively. At June 30,
2022, the remaining balance of PPP loans was $13.4 million.
Loan Modifications: Park has worked with borrowers and provided 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 made
available a second 90-day interest only deferral or principal and interest
deferral bringing the total potential deferral period to six months.
Modifications were structured in a manner to best address each individual
customer's then current situation. A majority of these modifications were
excluded from the troubled debt restructuring ("TDR") classification under
Section 4013 of the CARES Act or under applicable interagency guidance of the
federal banking regulators. The modified loans were considered current and
continued to accrue interest during the deferral period.
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Financial Results by Segment
The table below reflects the net income (loss) by segment for the first and
second quarters of 2022, for the first half of each of 2022 and 2021 (the six
months ended June 30) and for the years ended December 31, 2021 and 2020. Park's
segments include The Park National Bank ("PNB") and "All Other" which primarily
consists of Park as the "Parent Company", Guardian Financial Services Company
("GFSC") and SE Property Holdings, LLC ("SEPH").
Six months Six months
(In thousands) Q2 2022 Q1 2022 YTD 2022 YTD 2021 2021 2020
PNB $ 34,940 $ 41,468 $ 76,408 $ 86,018 $ 159,461 $ 123,730
All Other (616) (2,593) (3,209) (4,055) (5,516) 4,193
Total Park $ 34,324 $ 38,875 $ 73,199 $ 81,963 $ 153,945 $ 127,923
Net income for the six months ended June 30, 2022 of $73.2 million represented a
$8.8 million, or 10.7%, decrease compared to $82.0 million for the six months
ended June 30, 2021. Pre-tax, pre-provision net income for the six months ended
June 30, 2022 of $87.1 million represented a $3.6 million, or 4.0%, decrease
compared to $90.6 million for the six months ended June 30, 2021. Net income for
each of the six months ended June 30, 2022 and 2021 included several items of
income and expense that impacted 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 PNB
segment, followed by additional information regarding All Other.
The Park National Bank (PNB)
The table below reflects PNB's net income for the first and second quarters of
2022, for the first half of each of 2022 and 2021 (the six months ended June 30)
and for the years ended December 31, 2021 and 2020.
Six
months YTD Six months YTD
(In thousands) Q2 2022 Q1 2022 2022 2021 2021 2020
Net interest income $ 83,411 $ 79,372 $ 162,783 $ 164,761 $ 328,398 $ 326,375
Provision for (recovery of) credit losses
(1) 3,357 (4,547) (1,190) (7,946) (8,554) 30,813
Other income 29,255 31,247 60,502 63,926 126,802 124,231
Other expense 66,214 64,216 130,430 130,698 266,678 268,938
Income before income taxes $ 43,095 $ 50,950 $ 94,045 $ 105,935 $ 197,076 $ 150,855
Income tax expense 8,155 9,482 17,637 19,917 37,615 27,125
Net income $ 34,940 $ 41,468 $ 76,408 $ 86,018 $ 159,461 $ 123,730
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit
losses as of June 30, 2022 and 2021, and as of December 31, 2021 and the related
provision for (recovery of) credit losses for the three months and six months
ended June 30, 2022 and 2021 and the year ended December 31, 2021 were
calculated utilizing this new guidance.
Net interest income of $162.8 million for the six months ended June 30, 2022
represented a $2.0 million, or 1.2%, decrease compared to $164.8 million for the
six months ended June 30, 2021. The decrease was a result of a $2.4 million
decrease in interest income, partially offset by a $470,000 decrease in interest
expense.
The $2.4 million decrease in interest income was primarily due to a $8.4 million
decrease in interest income on loans, partially offset by a $6.0 million
increase in investment income. The decrease in interest income on loans was
primarily the result of a $8.3 million decrease in interest income on PPP loans
and a $170,000 decrease in interest income on all other loans. Excluding PPP
loans, there was a $47.3 million increase in average loans from $6.743 billion
for the six months ended June 30, 2021 to $6.790 billion for the six months
ended June 30, 2022. This increase in average loans was offset by a 3 basis
point decline in the yield excluding PPP loans from 4.35% for the six months
ended June 30, 2021 to 4.32% for the six months ended June 30, 2022.
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The $6.0 million increase in investment income was primarily the result of a
$652.8 million increase in average investments, from $1.17 billion for the six
months ended June 30, 2021 to $1.82 billion for the six months ended June 30,
2022. The increase was partially offset by a decrease in the yield on
investments, which decreased 18 basis points to 2.24% for the six months ended
June 30, 2022, compared to 2.42% for the six months ended June 30, 2021.
The $470,000 decrease in interest expense was primarily due to a $538,000
decrease in interest expense on deposits, partially offset by a $68,000 increase
. . .
Item 8.01 - Other Events Declaration of Cash Dividend As reported in the Financial Results News Release, on July 25, 2022, the Park Board of Directors (the "Park Board") declared a $1.04 per common share quarterly cash dividend in respect of Park's common shares. This cash dividend is payable on September 9, 2022 to common shareholders of record as of the close of business on August 19, 2022. 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 by Park National Corporation on July 25, 2022
addressing financial results for the three months and six months ended June 30,
2022 and declaration of quarterly cash dividend
104 Cover Page Interactive Data File (the cover page XBRL tags are embedded
within the Inline XBRL document)
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