PARK NATIONAL CORPORATION Item 2.02 - Results of Operations and Financial Condition.
OnJanuary 24, 2022 ,Park National Corporation ("Park") issued a news release (the "Financial Results News Release") announcing financial results for the three months and year endedDecember 31, 2021 . 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 inthe 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 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 (recovery of) / provision for credit losses (aside from those related to former Vision Bank loan relationships), gains (losses) on equity securities, net, 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 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 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 months and years ended and atDecember 31, 2021 andDecember 31, 2020 , and the three months ended and atSeptember 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. 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 . . .
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 PPP, participation in additional PPP loans authorized under the Consolidated Appropriations Act, 2021, and various other case by case accommodations. Throughout the pandemic, 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. As ofDecember 31, 2021 , all branches had returned to normal operations. During 2021 and 2020, Park provided calamity pay and special one-time bonuses to certain associates related to the COVID-19 pandemic. The cost of the calamity pay and special bonuses amounted to$2.1 million and$3.6 million for the years endedDecember 31, 2021 and 2020, respectively, and is included within salaries expense. Paycheck Protection Program: During 2020, Park approved and funded 4,439 loans totaling$543.1 million under the PPP's first round of loans. These first round PPP loans had an average principal balance of$122,000 . Of the$543.1 million in first round 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 the 4,439 loans, Park has received an aggregate of$20.2 million in fees from the SBA, of which$6.4 million and$13.7 million were recognized within loan interest income during the years endedDecember 31, 2021 and 2020, respectively. Park funded the PPP loans with excess on-balance sheet liquidity. AtDecember 31, 2021 , the remaining balance of the first round PPP loans funded in 2020 was$4.8 million . During 2021, Park offered additional PPP loans as authorized under the Consolidated Appropriations Act, 2021. ThroughDecember 31, 2021 , Park approved and funded 3,262 loans totaling$221.6 million under the second round of PPP loans. These additional second round PPP loans had an average principal balance of$68,000 . None of the$221.6 million in additional 3 -------------------------------------------------------------------------------- second round PPP loans had a principal balance that was greater than$2 million . For its assistance in making and retaining the 3,262 second round of PPP loans, Park has received an aggregate of$12.9 million in fees from the SBA, of which$9.9 million was recognized within loan interest income during the year endedDecember 31, 2021 . Park funded the second round PPP loans with excess on-balance sheet liquidity. AtDecember 31, 2021 , the remaining balance of second round PPP loans funded in 2021 was$72.3 million .
As of
Loan Modifications: During the two years endedDecember 31, 2021 , Park modified a total of 5,138 consumer loans, with an aggregate balance of$72.2 million , and modified a total of 1,406 commercial loans, with an aggregate balance of$488.1 million , in each case related to a hardship caused by the COVID-19 pandemic and responses thereto. 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 are considered current and continue to accrue interest during the deferral period. Of the$560.3 million of COVID-19 modifications during the two years endedDecember 31, 2021 ,$30.9 million , or 0.45% of total loans, remained in deferral as ofDecember 31, 2021 and$7.1 million were greater than or equal to 30 days past due in accordance with the modified terms atDecember 31, 2021 .
Financial Results by Segment
The table below reflects the net income (loss) by segment for each quarter of 2021 and for the years endedDecember 31, 2021 , 2020 and 2019. Park's segments includeThe Park National Bank ("PNB") and "All Other" which primarily consists of Park as the "Parent Company",Guardian Financial Services Company ("GFSC") andSE Property Holdings, LLC ("SEPH"). SEPH is a non-bank subsidiary of Park, holding former Vision Bank other real estate owned ("OREO") property and non-performing loans.
(In thousands) Q4 2021 Q3 2021 Q2 2021 Q1 2021
2021 2020 2019 PNB$ 36,992 $ 36,451 $ 40,896 $ 45,122 $ 159,461 $ 123,730 $ 113,600 All Other (444) (1,017) (1,764) (2,291) (5,516) 4,193 (10,900)
Net income for the year endedDecember 31, 2021 of$153.9 million represented a$26.0 million , or 20.3%, increase compared to$127.9 million for the year endedDecember 31, 2020 . Net income for each of the three months and years endedDecember 31, 2021 and 2020 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. During the first quarter of 2021, Park adopted Financial Accounting Standards Board Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 established the current expected credit loss ("CECL") methodology for estimating the allowance for credit losses. This standard was adopted by Park prospectively onJanuary 1, 2021 , resulting in a$6.1 million increase to the allowance for credit losses and a$3.9 million increase to the allowance for unfunded credit losses. A cumulative effect adjustment, resulting in an$8.0 million decrease to retained earnings and a$2.1 million increase to deferred tax assets, was also recorded as of the date Park adopted ASU 2016-13. Refer to the "Credit Metrics and (Recovery of) Provision for Credit Losses" section for further detail. The following discussion provides additional information regarding the PNB segment, followed by additional information regarding All Other, which consists of the Parent Company, GFSC and SEPH. . . . Item 8.01 - Other Events Declaration of Cash Dividend As reported in the Financial Results News Release, onJanuary 24, 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 onMarch 10, 2022 to common shareholders of record as of the close of business onFebruary 18, 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 byPark National Corporation onJanuary 24, 2022 addressing financial results for the three months and year endedDecember 31, 2021 and declaration of quarterly cash dividend
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