UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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| Date of Report (Date of earliest event reported) | January 27, 2020 |
| | |
| PARK NATIONAL CORPORATION |
| (Exact name of registrant as specified in its charter) |
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| Ohio | 1-13006 | 31-1179518 |
| (State or other jurisdiction | (Commission | (IRS Employer |
| of incorporation) | File Number) | Identification No.) |
| | | | | | | | | | | | | | |
| 50 North Third Street, | P.O. Box 3500, | Newark, | Ohio | 43058-3500 |
| (Address of principal executive offices) (Zip Code) | | | | |
| | | | | |
| (740) | 349-8451 |
| (Registrant’s telephone number, including area code) | |
| | |
| Not Applicable | |
| (Former name or former address, if changed since last report.) | |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common shares, without par value | PRK | NYSE American |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 - Results of Operations and Financial Condition.
On January 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 ended December 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 comparable U.S. GAAP financial measure, as well as the reconciliation to the comparable U.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 at December 31, 2019, September 30, 2019, and December 31, 2018 and the twelve months ended December 31, 2019 and December 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.
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 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 return on average tangible equity, return on average tangible assets, tangible equity to tangible assets and tangible book value per share are substitutes for return on average equity, return on average assets, total shareholders' equity to total assets and book value per share, respectively, as determined in accordance with 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 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 with U.S. GAAP.
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) On January 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 on April 27, 2020. There are no disagreements between Mr. DeRoberts and Park.
Mr. DeRoberts has served as a director of Park and of PNB since 2015. Mr. DeRoberts will be recognized at the 2020 Annual Meeting for his many significant contributions to the Park organization.
(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 ended December 31, 2019, 2018 and 2017. Park's segments include The Park National Bank ("PNB"), Guardian Financial Services Company ("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.
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| 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 | |
Net income for the twelve months ended December 31, 2019 of $102.7 million represented a $7.7 million, or 7.0%, decrease compared to $110.4 million for the twelve months ended December 31, 2018. Net income for both the twelve months ended December 31, 2019 and the twelve months ended December 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.
The Park National Bank (PNB)
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 December 31, 2019, 2018 and 2017.
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| (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.
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 losses on the sale of investment securities, offset by a $2.0 million decrease in other components of net periodic benefit income, a $1.6 million decrease in net gains on the sale of OREO, a $814,000 decrease in net gains on the sale of non-performing loans, a $735,000 decrease in bank owned life insurance income, primarily reflecting that income from death benefits has been paid on policies during 2018, and a $626,000 decrease in service charges on deposit accounts. Other income was impacted by the acquisitions of NewDominion and Carolina Alliance. The NewDominion Bank Division and the Carolina Alliance Bank Division contributed an aggregate of $4.6 million to other income at PNB during the twelve months ended December 31, 2019. The NewDominion Bank Division contributed $429,000 to other income at PNB during the twelve months ended December 31, 2018.
The table below reflects PNB's other expense for the years ended December 31, 2019 and 2018.
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| (In thousands) | 2019 | 2018 | change | % change |
| Other expense: | | | | | |
| Salaries | $ | 109,362 | | $ | 97,155 | | $ | 12,207 | | 12.6 | % |
| Employee benefits | 36,017 | | 29,341 | | 6,676 | | 22.8 | % |
| Occupancy expense | 12,555 | | 11,007 | | 1,548 | | 14.1 | % |
| Furniture and equipment expense | 16,999 | | 16,082 | | 917 | | 5.7 | % |
| Data processing fees | 10,589 | | 8,337 | | 2,252 | | 27.0 | % |
| Professional fees and services | 22,056 | | 19,382 | | 2,674 | | 13.8 | % |
| Marketing | 5,704 | | 5,091 | | 613 | | 12.0 | % |
| Insurance | 2,489 | | 4,749 | | (2,260) | | (47.6) | % |
| Communication | 5,193 | | 4,792 | | 401 | | 8.4 | % |
| State tax expense | 3,016 | | 3,027 | | (11) | | (0.4) | % |
| Amortization of intangible assets | 2,355 | | 578 | | 1,777 | | 307.4 | % |
| Miscellaneous | 11,098 | | 7,302 | | 3,796 | | 52.0 | % |
| Total other expense | $ | 237,433 | | $ | 206,843 | | $ | 30,590 | | 14.8 | % |
Other expense of $237.4 million for the twelve months ended December 31, 2019 represented an increase of $30.6 million, or 14.8%, compared to $206.8 million for the twelve months ended December 31, 2018. The increase in employee benefits expense was primarily related to increased group insurance costs, payroll taxes and an increase in the company match in Park's defined contribution plan. Included in the increase in miscellaneous expense were a $1.3 million increase in operating lease depreciation, a $1.3 million expense related to the write-off of the NewDominion trade name intangible, which was the result of the rebranding initiative, a $611,000 expense related to prepayment penalties on FHLB borrowings and a $471,000 increase in training and travel expenses. The decrease in insurance was primarily related to an assessment credit for FDIC insurance premiums.
Other expense was impacted by the acquisitions of NewDominion and Carolina Alliance. Of the $237.4 million of total other expense for the twelve months ended December 31, 2019, the NewDominion Bank Division and the Carolina Alliance Bank Division's total other expense was $10.7 million and $16.5 million, respectively. The NewDominion Bank Division's total other expense was $5.8 million for the twelve months ended December 31, 2018. Cost savings related to the Carolina Alliance acquisition were not realized until the fourth quarter of 2019, following the conversion of Carolina Alliance's core banking system.
The table below reflects PNB's other expense less the impact of NewDominion Bank Division and the Carolina Alliance Bank Division for the years ended December 31, 2019 and 2018.
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| (In thousands) | 2019 | 2018 | change | % change |
| Other expense: | | | | | |
| Salaries | $ | 97,856 | | $ | 94,558 | | $ | 3,298 | | 3.5 | % |
| Employee benefits | 33,594 | | 28,815 | | 4,779 | | 16.6 | % |
| Occupancy expense | 10,261 | | 10,412 | | (151) | | (1.5) | % |
| Furniture and equipment expense | 15,999 | | 15,917 | | 82 | | 0.5 | % |
| Data processing fees | 9,496 | | 8,015 | | 1,481 | | 18.5 | % |
| Professional fees and services | 20,237 | | 18,921 | | 1,316 | | 7.0 | % |
| Marketing | 5,026 | | 4,878 | | 148 | | 3.0 | % |
| Insurance | 2,153 | | 4,634 | | (2,481) | | (53.5) | % |
| Communication | 4,875 | | 4,700 | | 175 | | 3.7 | % |
| State tax expense | 2,986 | | 2,978 | | 8 | | 0.3 | % |
| Miscellaneous | 7,793 | | 7,203 | | 590 | | 8.2 | % |
| Total other expense | $ | 210,276 | | $ | 201,031 | | $ | 9,245 | | 4.6 | % |
Excluding the impact of the NewDominion Bank Division and the Carolina Alliance Bank Division, other expense of $210.3 million for the twelve months ended December 31, 2019 represented an increase of $9.2 million, or 4.6%, compared to $201.0 million for the twelve months ended December 31, 2018. The increase in employee benefits expense was primarily related to increased group insurance costs, payroll taxes and an increase in the company match in Park's defined contribution plan. The increase in data processing fees was mostly related to an increase in debit card processing expense, resulting from a 6.3% increase in debit card transactions. Included in the increase in miscellaneous expense was a $611,000 expense related to prepayment penalties on FHLB borrowings. The decrease in other insurance was primarily related to an assessment credit utilized for FDIC insurance premiums.
The table below provides certain balance sheet information and financial ratios for PNB as of or for the years ended December 31, 2019 and 2018.
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| (In thousands) | December 31, 2019 | December 31, 2018 | | % change from 12/31/18 |
| Loans | $ | 6,481,644 | | $ | 5,671,173 | | | 14.29 | % |
| Allowance for loan losses | 54,692 | | 49,067 | | | 11.46 | % |
| Net loans | 6,426,952 | | 5,622,106 | | | 14.32 | % |
| Investment securities | 1,271,817 | | 1,418,938 | | | (10.37) | % |
| Total assets | 8,521,537 | | 7,753,848 | | | 9.90 | % |
| Total deposits | 7,125,111 | | 6,334,796 | | | 12.48 | % |
Average assets (1) | 8,425,536 | | 7,573,713 | | | 11.25 | % |
Efficiency ratio (2) | 61.12 | % | 59.03 | % | | 3.54 | % |
| Return on average assets | 1.35 | % | 1.45 | % | | (6.90) | % |
(1) Average assets for the years ended December 31, 2019 and 2018.
(2) Calculated utilizing fully taxable equivalent net interest income which includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustments were $3.0 million and $2.9 million for the years ended December 31, 2019 and 2018.
Loans outstanding at December 31, 2019 were $6.48 billion, compared to $5.67 billion at December 31, 2018, an increase of $810.5 million, or 14.3%. Excluding $560.2 million of loans at the Carolina Alliance Bank Division at December 31, 2019, loans outstanding at December 31, 2019 were $5.92 billion, compared to $5.67 billion at December 31, 2018, an increase of $250.2 million, or 4.4%. The table below breaks out the change in loans outstanding, excluding those at the Carolina Alliance Bank Division, by loan type.
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| PNB less Carolina Alliance Bank Division | | | | | |
| (In thousands) | December 31, 2019 | December 31, 2018 | | change | % change |
| Home equity | $ | 192,044 | | $ | 215,426 | | | $ | (23,382) | | (10.9) | % |
| Installment | 1,426,049 | | 1,279,831 | | | 146,218 | | 11.4 | % |
| Real estate | 1,229,062 | | 1,207,160 | | | 21,902 | | 1.8 | % |
| Commercial | 3,069,344 | | 2,963,339 | | | 106,005 | | 3.6 | % |
| Other | 4,913 | | 5,417 | | | (504) | | (9.3) | % |
| Total loans | $ | 5,921,412 | | $ | 5,671,173 | | | $ | 250,239 | | 4.4 | % |
PNB's allowance for loan losses increased by $5.6 million, or 11.5%, to $54.7 million at December 31, 2019, compared to $49.1 million at December 31, 2018. Net charge offs were $2.7 million, or 0.04% of total average loans, for the twelve months ended December 31, 2019 and were $6.1 million, or 0.11% of total average loans, for the twelve months ended December 31, 2018. Refer to the “Credit Metrics and Provision for (Recovery of) Loan Losses” section for additional information regarding PNB's loan portfolio and the level of provision for (recovery of) loan losses recognized in each period presented.
Total deposits at December 31, 2019 were $7.13 billion, compared to $6.33 billion at December 31, 2018, an increase of $790.3 million, or 12.5%. Excluding $639.8 million of total deposits at the Carolina Alliance Bank Division at December 31, 2019, total deposits at December 31, 2019 were $6.49 billion, compared to $6.33 billion at December 31, 2018, an increase of $150.5 million, or 2.4%. The table below breaks out the change in deposit balances, excluding those at the Carolina Alliance Bank Division, by deposit type.
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| PNB less Carolina Alliance Bank Division | | | | | |
| (In thousands) | December 31, 2019 | December 31, 2018 | | change | % change |
| Non-interest bearing deposits | $ | 1,899,696 | | $ | 1,882,979 | | | $ | 16,717 | | 0.9 | % |
| Transaction accounts | 1,393,709 | | 1,364,743 | | | 28,966 | | 2.1 | % |
| Savings | 2,205,483 | | 2,043,897 | | | 161,586 | | 7.9 | % |
| Certificates of deposits | 986,397 | | 1,043,177 | | | (56,780) | | (5.4) | % |
| Total deposits | $ | 6,485,285 | | $ | 6,334,796 | | | $ | 150,489 | | 2.4 | % |
Guardian Financial Services Company (GFSC)
The table below reflects GFSC's net income for each quarter of 2019 and for the years ended December 31, 2019, 2018 and 2017.
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| (In thousands) | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | 2019 | 2018 | 2017 |
| Net interest income | $ | 1,227 | | $ | 1,244 | | $ | 1,217 | | $ | 1,325 | | $ | 5,013 | | $ | 5,048 | | $ | 5,839 | |
| Provision for loan losses | 296 | | 143 | | 170 | | 145 | | 754 | | 1,328 | | 1,917 | |
| Other income | 28 | | 59 | | 51 | | 32 | | 170 | | 187 | | 103 | |
| Other expense | 840 | | 902 | | 891 | | 845 | | 3,478 | | 3,245 | | 3,099 | |
| Income before income taxes | $ | 119 | | $ | 258 | | $ | 207 | | $ | 367 | | $ | 951 | | $ | 662 | | $ | 926 | |
| Income tax expense | 10 | | 55 | | 44 | | 80 | | 189 | | 141 | | 666 | |
| Net income | $ | 109 | | $ | 203 | | $ | 163 | | $ | 287 | | $ | 762 | | $ | 521 | | $ | 260 | |
The table below provides certain balance sheet information and financial ratios for GFSC as of or for the year ended December 31, 2019 and 2018.
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| (In thousands) | December 31, 2019 | December 31, 2018 | | % change from 12/31/18 |
| Loans | $ | 28,143 | | $ | 32,664 | | | (13.84) | % |
| Allowance for loan losses | 1,987 | | 2,445 | | | (18.73) | % |
| Net loans | 26,156 | | 30,219 | | | (13.45) | % |
| Total assets | 27,593 | | 31,388 | | | (12.09) | % |
Average assets (1) | 29,119 | | 29,741 | | | (2.09) | % |
| Return on average assets | 2.62 | % | 1.75 | % | | 49.71 | % |
(1) Average assets for the years ended December 31, 2019 and 2018.
All Other
The table below reflects All Other net (loss) income for each quarter of 2019 and for the years ended December 31, 2019, 2018 and 2017.
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| (In thousands) | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | 2019 | 2018 | 2017 |
| Net interest income (expense) | $ | 7 | | $ | (323) | | $ | (259) | | $ | 169 | | $ | (406) | | $ | 3,303 | | $ | 2,677 | |
| Recovery of loan losses | (2,302) | | (496) | | (54) | | (87) | | (2,939) | | (952) | | (3,258) | |
| Other income | 28 | | 3,235 | | 83 | | 1,285 | | 4,631 | | 11,933 | | 3,584 | |
| Other expense | 5,889 | | 3,893 | | 9,287 | | 4,008 | | 23,077 | | 18,667 | | 14,172 | |
| Net loss before income tax benefit | $ | (3,552) | | $ | (485) | | $ | (9,409) | | $ | (2,467) | | $ | (15,913) | | $ | (2,479) | | $ | (4,653) | |
| Income tax benefit | (801) | | (480) | | (2,027) | | (943) | | (4,251) | | (2,873) | | (1,320) | |
| Net (loss) income | $ | (2,751) | | $ | (5) | | $ | (7,382) | | $ | (1,524) | | $ | (11,662) | | $ | 394 | | $ | (3,333) | |
The net interest income (expense) for All Other included, for all periods presented, interest income on subordinated debt investments in PNB, which were eliminated in the consolidated Park National Corporation totals, as well as interest income on SEPH impaired loan relationships.
Net interest income (expense) reflected net expense of $406,000 for the twelve months ended December 31, 2019 compared to net income of $3.3 million for the twelve months ended December 31, 2018. The change was the result of a decrease in interest payments received from SEPH impaired loan relationships.
SEPH had net recoveries of $2.9 million for the twelve months ended December 31, 2019, compared to net recoveries of $952,000 for the twelve months ended December 31, 2018.
Other income of $4.6 million for the twelve months ended December 31, 2019 represented a decrease of $7.3 million, compared to $11.9 million for the twelve months ended December 31, 2018. The $7.3 million decrease was largely due to a $2.9 million decrease in gain on the sale of OREO, net, a $2.2 million decrease in net gains on the sale of non-performing loans, a $1.5 million decrease in bank owned life insurance income, primarily reflecting that income from death benefits had been paid on policies in 2018, and a $1.0 million decrease in loan fee income as a result of a reduction in payments received from SEPH impaired loan relationships.
Other expense of $23.1 million for the twelve months ended December 31, 2019 represented an increase of $4.4 million, or 23.6%, compared to $18.7 million for the twelve months ended December 31, 2018. The $4.4 million increase was primarily related to an increase of $2.1 million in salary expense, a $1.6 million increase in professional fees and services and a $777,000 increase in miscellaneous expense (all increases primarily with respect to merger-related expenses). Merger-related expenses were $8.9 million for the twelve months ended December 31, 2019, compared to $5.2 million for the twelve months ended December 31, 2018.
Park National Corporation
The table below reflects Park's consolidated net income for each quarter of 2019 and for the years ended December 31, 2019, 2018 and 2017.
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | 2019 | 2018 | 2017 |
| Net interest income | $ | 77,009 | | $ | 77,101 | | $ | 75,851 | | $ | 67,776 | | $ | 297,737 | | $ | 266,898 | | $ | 243,759 | |
| (Recovery of) provision for loan losses | (213) | | 1,967 | | 1,919 | | 2,498 | | 6,171 | | 7,945 | | 8,557 | |
| Other income | 24,224 | | 28,136 | | 22,808 | | 22,025 | | 97,193 | | 101,101 | | 86,429 | |
| Other expense | 71,231 | | 65,738 | | 70,192 | | 56,827 | | 263,988 | | 228,755 | | 203,162 | |
| Income before income taxes | $ | 30,215 | | $ | 37,532 | | $ | 26,548 | | $ | 30,476 | | $ | 124,771 | | $ | 131,299 | | $ | 118,469 | |
| Income tax expense | 6,279 | | 6,386 | | 4,385 | | 5,021 | | 22,071 | | 20,912 | | 34,227 | |
| Net income | $ | 23,936 | | $ | 31,146 | | $ | 22,163 | | $ | 25,455 | | $ | 102,700 | | $ | 110,387 | | $ | 84,242 | |
Credit Metrics and Provision for (Recovery of) Loan Losses
On a consolidated basis, Park reported a provision for loan losses for the year ended December 31, 2019 of $6.2 million, compared to $7.9 million for the year ended December 31, 2018. The table below shows a breakdown of the provision for (recovery of) loan losses by reportable segment.
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | 2019 | 2018 | 2017 |
| PNB | $ | 1,793 | | $ | 2,320 | | $ | 1,803 | | $ | 2,440 | | $ | 8,356 | | $ | 7,569 | | $ | 9,898 | |
| GFSC | 296 | | 143 | | 170 | | 145 | | $ | 754 | | 1,328 | | 1,917 | |
| All Other | (2,302) | | (496) | | (54) | | (87) | | (2,939) | | (952) | | (3,258) | |
| Total Park | $ | (213) | | $ | 1,967 | | $ | 1,919 | | $ | 2,498 | | $ | 6,171 | | $ | 7,945 | | $ | 8,557 | |
PNB had net charge-offs of $2.7 million, GFSC had net charge-offs of $1.2 million, and All Other had net recoveries of $2.9 million for the twelve months ended December 31, 2019, resulting in net charge-offs of $1.0 million for Park, on a consolidated basis. PNB had net charge-offs of $6.1 million, GFSC had net charge-offs of $1.3 million, and All Other had net recoveries of $1.0 million for the twelve months ended December 31, 2018, resulting in net charge-offs of $6.4 million for Park, on a consolidated basis.
The table below provides additional information related to specific reserves and general reserves for Park as of December 31, 2019, December 31, 2018, and December 31, 2017.
| | | | | | | | | | | |
| (In thousands) | 12/31/2019 | 12/31/2018 | 12/31/2017 |
| Total allowance for loan losses | $ | 56,679 | | $ | 51,512 | | $ | 49,988 | |
| Specific reserve | 5,230 | | 2,273 | | 684 | |
| General reserve | $ | 51,449 | | $ | 49,239 | | $ | 49,304 | |
| | | |
| Total loans | $ | 6,501,404 | | $ | 5,692,132 | | $ | 5,372,483 | |
| Impaired commercial loans | 77,459 | | 48,135 | | 56,545 | |
| Total loans less impaired commercial loans | $ | 6,423,945 | | $ | 5,643,997 | | $ | 5,315,938 | |
| | | |
| General reserve as a % of total loans less impaired commercial loans | 0.80 | % | 0.87 | % | 0.93 | % |
| General reserve as a % of total loans less impaired commercial loans (excluding performing acquired loans) | 0.88 | % | 0.91 | % | N/A | |
The allowance for loan losses of $56.7 million at December 31, 2019 represented a $5.2 million, or 10.0%, increase compared to $51.5 million at December 31, 2018. This increase was the result of a $2.2 million increase in general reserves and a $3.0 million increase in specific reserves. As of December 31, 2019, no allowance had been established for performing acquired loans.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Park cautions that any forward-looking statements contained in this Current Report on Form 8-K or made by management of Park are provided to assist in the understanding of anticipated future financial performance. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, without limitation: Park's ability to execute our business plan successfully and within the expected timeframe as well as Park's ability to manage strategic initiatives; general economic and financial market conditions, specifically in the real estate markets and the credit markets, either nationally or in the states in which Park and our subsidiaries do business, may experience a slowing or reversal of the current economic expansion in addition to continuing residual effects of prior recessionary conditions and an uneven spread of positive impacts of recovery on the economy and our counterparties, resulting in adverse impacts on the demand for loan, deposit and other financial services, delinquencies, defaults and counterparties' inability to meet credit and other obligations and the possible impairment of collectability of loans; changes in interest rates and prices as well as disruption in the liquidity and functioning of U.S. financial markets may adversely impact prepayment penalty income, mortgage banking income, income from fiduciary activities, the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our consolidated balance sheet as well as reduce interest margins and impact loan demand; changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions, legislative and regulatory initiatives, or other factors may be different than anticipated; changes in unemployment may be different than anticipated; changes in customers', suppliers', and other counterparties' performance and creditworthiness may be different than anticipated; the adequacy of our internal controls and risk management program in the event of changes in the market, economic, operational, asset/liability repricing, legal, compliance, strategic, cybersecurity, liquidity, credit and interest rate risks associated with Park's business; disruption in the liquidity and other functioning of U.S. financial markets; our liquidity requirements could be adversely affected by changes to regulations governing bank and bank holding company capital and liquidity standards as well as by changes in our assets and liabilities; competitive pressures among financial services organizations could increase significantly, including product and pricing pressures (which could in turn impact our credit spreads), customer acquisition and retention, changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and our ability to attract, develop and retain qualified banking professionals; customers could pursue alternatives to bank deposits, causing us to lose a relatively inexpensive source of funding; uncertainty regarding the nature, timing, cost and effect of changes in banking regulations or other regulatory or legislative requirements affecting the respective businesses of Park and our subsidiaries, including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry, specifically the reforms provided for in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the Basel III regulatory capital reforms, as well as regulations already adopted and which may be adopted in the future by the relevant regulatory agencies, including the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve Board, to implement the Dodd-Frank Act's provisions, and the Basel III regulatory capital reforms; the effects of easing restrictions on participants in the financial services industry; the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (the "FASB"), the SEC, the Public Company Accounting Oversight Board and other regulatory agencies, including the extent to which the new current expected credit loss accounting standard issued by the FASB in June 2016 and effective for Park as of January 1, 2020, which will require banks to record, at the time of origination, credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities, as opposed to the current practice of recording losses which it is probable that a loss event has occurred, may adversely affect Park's reported financial condition or results of operations; Park's assumptions and estimates used in applying critical accounting policies and modeling, which may prove unreliable, inaccurate or not predictive of actual results; significant changes in the tax laws, which may adversely affect the fair values of net deferred tax assets and obligations of state and political subdivisions held in Park's investment securities portfolio; the impact of our ability to anticipate and respond to technological changes on our ability to respond to customer needs and meet competitive demands; operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Park and our subsidiaries are highly dependent; the ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks; a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors and other service providers, resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems, including as a result of cyber attacks; the existence or exacerbation of general geopolitical instability and uncertainty; the effect of trade policies (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations and changes in the relationship of the U.S. and its global trading partners), monetary and other fiscal policies (including the impact of money supply and interest rate policies to the Federal Reserve Board) and other governmental policies of the U.S. federal government; the impact on financial markets and the economy of any changes in the credit ratings of the U.S. Treasury obligations and other U.S. government - backed debt, as well as issues surrounding the levels of U.S., European and Asian government debt and concerns regarding the creditworthiness of certain sovereign governments, supranationals and financial institutions in Europe and Asia; the uncertainty surrounding the actions to be taken to implement the referendum by United Kingdom voters to exit the European Union; our litigation and regulatory compliance exposure, including the costs and effects of any adverse developments in legal proceedings or other claims and the costs and effects of unfavorable resolution of regulatory and other governmental examinations or other inquiries; continued availability of earnings and excess capital sufficient for the lawful and prudent declaration of dividends; the impact on Park's business, personnel, facilities or systems of losses related to acts of fraud, scams and schemes of third parties; the impact of widespread natural and other disasters, pandemics, dislocations, civil unrest, terrorist activities or international hostilities on the economy and financial markets generally and on us or our counterparties specifically; the effect of healthcare laws in the U.S. and potential changes for such laws which may increase our healthcare and other costs and negatively impact our operations and financial results; Park's ability to
integrate recent acquisitions (including CAB Financial Corporation ("CAB")) as well as to identify, make or integrate any future suitable strategic acquisitions, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected; risk and uncertainties associated with Park's entry into new geographic markets with its recent acquisitions, including expected revenue synergies and cost savings from recent acquisitions not being fully realized or realized within the expected time frame; revenues following the merger of Park and CAB may be lower than expected; customer and employee relationships and business operations may be disrupted by the merger of Park and CAB; Park issued equity securities in the acquisitions of NewDominion Bank and CAB and may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Park's current shareholders; the discontinuation of the London Inter-Bank Offered Rate (LIBOR) and other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies; and other risk factors relating to the banking industry as detailed from time to time in Park's reports filed with the SEC including those described in "Item 1A. Risk Factors" of Part I of Park's Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Park does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions that may be made to update any forward-looking statement to reflect the events or circumstances after the date on which the forward-looking statement was made, or reflect the occurrence of unanticipated events, except to the extent required by law.
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 by Park National Corporation on January 27, 2020 addressing financial results for the three months and twelve months ended December 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)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | PARK NATIONAL CORPORATION | |
| | | |
| Dated: January 27, 2020 | By: | /s/ Brady T. Burt |
| | | Brady T. Burt |
| | | Chief Financial Officer, Secretary and Treasurer |
| | | |
