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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
Date of Report (Date of earliest event reported) July 27, 2020

PARK NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

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:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
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:
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.  
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Item 2.02 - Results of Operations and Financial Condition.

On July 27, 2020, Park National Corporation (“Park”) issued a news release (the “Financial Results News Release”) announcing financial results for the three and six months ended June 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 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 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 at June 30, 2020, March 31, 2020, and June 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.


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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 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 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 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 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. 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 with U.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: Through June 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 ended June 30, 2020. Park funded the PPP loans with excess on balance sheet liquidity.

Loan Modifications: During the six months ended June 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
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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 ended June 30, 2020 follows:

(Dollars in thousands) June 30, 2020 Total Balance June 30, 2020 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 follows:

(Dollars in thousands) June 30, 2020 Total Balance June 30, 2020 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
(In thousands) Q2 2020 Q1 2020 Six months YTD 2020 Six months 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 June 30, 2020 of $51.9 million represented a $4.3 million, or 8.9%, increase compared to $47.6 million for the six months ended June 30, 2019. Net income for each of the three and six months ended June 30, 2020 and the three and six months ended June 30, 2019 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.
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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)

The table below reflects PNB's net income for the first and second quarters of 2020, for the first half of each 2020 and 2019 and for the years ended December 31, 2019 and 2018.

(In thousands) Q2 2020 Q1 2020 Six months YTD 2020 Six months YTD 2019 2019 2018
Net interest income $ 79,891    $ 75,214    $ 155,105    $ 141,175    $ 293,130    $ 258,547   
Provision for loan losses 12,883    5,534    18,417    4,243    8,356    7,569   
Other income 31,009    23,481    54,490    43,382    92,392    88,981   
Other expense 60,703    61,368    122,071    111,988    237,433    206,843   
Income before income taxes $ 37,314    $ 31,793    $ 69,107    $ 68,326    $ 139,733    $ 133,116   
Income tax expense 6,564    5,885    12,449    12,252    26,133    23,644   
Net income $ 30,750    $ 25,908    $ 56,658    $ 56,074    $ 113,600    $ 109,472   

Net interest income of $155.1 million for the six months ended June 30, 2020 represented a $13.9 million, or 9.9%, increase compared to $141.2 million for the six months ended June 30, 2019. The increase was a result of a $2.3 million increase in interest income, and an $11.6 million decrease in interest expense.
The $2.3 million increase in interest income was primarily due to a $6.4 million increase in interest income on loans, partially offset by a $4.1 million decrease in investment income. The increase in interest income on loans was partially the result of a $721.0 million increase in average loans from $5.99 billion for the six months ended June 30, 2019, to $6.71 billion for the six months ended June 30, 2020. The increase in average loans was partially offset by the decrease in the yield on loans, which decreased 37 basis points to 4.75% for the six months ended June 30, 2020, compared to 5.12% for the six months ended June 30, 2019. Interest income was impacted by the the acquisition of CAB Financial Corporation, the parent of Carolina Alliance Bank ("Carolina Alliance") on April 1, 2019. The Carolina Alliance Bank Division contributed an aggregate of $15.3 million to interest income at PNB during the six months ended June 30, 2020, compared to $8.4 million for the six months ended June 30, 2019. The decrease in investment income was partially the result of a decrease in the yield on investments, which decreased 54 basis points to 2.25% for the six months ended June 30, 2020, compared to 2.79% for the six months ended June 30, 2019. The decrease was also the result of a $14.4 million decrease in average investments from $1.50 billion for the six months ended June 30, 2019 to $1.49 billion for the six months ended June 30, 2020.
The $11.6 million decrease in interest expense was primarily due to an $8.6 million decrease in interest expense on deposits as well as a $3.1 million decrease in interest expense on borrowings. The decrease in interest expense on deposits was the result of a decrease in the cost of deposits of 43 basis points from 1.01% for the six months ended June 30, 2019 to 0.58% for the six months ended June 30, 2020. This was partially offset by a $566.7 million increase in average interest-bearing deposits from $4.80 billion for the six months ended June 30, 2019, to $5.37 billion for the six months ended June 30, 2020. Interest expense was impacted by the acquisition of Carolina Alliance. The Carolina Alliance Bank Division contributed an aggregate of $2.1 million to interest expense at PNB during the six months ended June 30, 2020, compared to $1.2 million for the six months ended June 30, 2019. The decrease in interest expense on borrowings was partially the result of a $237.3 million decrease in average borrowings from $614.0 million for the six months ended June 30, 2019, to $376.7 million for the six months ended June 30, 2020. The cost of borrowings also decreased by 35 basis points, from 2.07% for the six months ended June 30, 2019 to 1.72% for the six months ended June 30, 2020.
The provision for loan losses of $18.4 million for the six months ended June 30, 2020 represented an increase of $14.2 million, compared to $4.2 million for the six months ended June 30, 2019. 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.

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Other income of $54.5 million for the six months ended June 30, 2020 represented an increase of $11.1 million, or 25.6%, compared to $43.4 million for the six months ended June 30, 2019. The $11.1 million increase was primarily related to a $5.6 million increase in other service income, which was primarily related to an increase in fee income related to mortgage loan originations and investor rate locks, partially offset by a decrease in mortgage service rights; a $3.9 million increase in gain on sale of debt securities; a $1.6 million increase in other components of net periodic benefit income; a $924,000 increase in debit card fee income; a $677,000 increase in gain (loss) on sale of OREO, net; a $306,000 increase in miscellaneous income, primarily related to an increase in operating lease income; a $249,000 increase in income from fiduciary activities; and a $248,000 increase in bank owned life insurance income. These increases were partially offset by a $1.3 million decrease in gains (losses) from capital investments, and a $1.0 million decrease in service charges on deposits. Other income was impacted by the acquisition of Carolina Alliance. The Carolina Alliance Bank Division contributed an aggregate of $3.7 million to other income at PNB during the six months ended June 30, 2020 and $1.3 million during the six months ended June 30, 2019.
A summary of mortgage originations for the six months ended June 30, 2020 and 2019 is below. Of total mortgage originations shown below for 2020, refinances comprised 48.5% in the first quarter of 2020, 67.5% in the second quarter of 2020, 61.1% for the six months ended 2020. Of total mortgage originations shown below for 2019, refinances comprised 32.5% in the first quarter of 2019, 29.7% in the second quarter of 2019, and 30.7% for the six months ended 2019.
(In thousands) Q1 2020 Q2 2020 Six months ended
June 30, 2020
Q1 2019 Q2 2019 Six months ended
June 30, 2019
Mortgage Origination Volume
Sold $ 85,030    $ 248,339    $ 333,369    $ 30,011    $ 54,802    $ 84,813   
Portfolio 56,018    64,351    120,369    31,492    59,613    91,105   
Construction 33,109    33,754    66,863    20,481    22,245    42,726   
Service released 3,794    2,362    6,156    4,407    22,818    27,225   
Total mortgage originations $ 177,951    $ 348,806    $ 526,757    $ 86,391    $ 159,478    $ 245,869   

The table below reflects PNB's other expense for the six months ended June 30, 2020 and 2019.

(In thousands) Six months YTD 2020 Six months YTD 2019 change % change
Other expense:
Salaries $ 56,253    $ 52,016    $ 4,237    8.1  %
Employee benefits 18,633    17,082    1,551    9.1  %
Occupancy expense 6,618    6,100    518    8.5  %
Furniture and equipment expense 9,150    8,517    633    7.4  %
Data processing fees 5,062    4,951    111    2.2  %
Professional fees and services 10,670    9,601    1,069    11.1  %
Marketing 2,619    2,659    (40)   (1.5) %
Insurance 2,689    2,237    452    20.2  %
Communication 1,942    2,586    (644)   (24.9) %
State tax expense 1,860    1,625    235    14.5  %
Amortization of intangible assets 1,213    991    222    22.4  %
Miscellaneous 5,362    3,623    1,739    48.0  %
Total other expense $ 122,071    $ 111,988    $ 10,083    9.0  %


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Other expense of $122.1 million for the six months ended June 30, 2020 represented an increase of $10.1 million, or 9.0%, compared to $112.0 million for the six months ended June 30, 2019. The increase in salaries expense was primarily related to increases in base salary expense and additional compensation incentives, partially offset by a decrease in officer incentive compensation. The increase in employee benefits expense was primarily related to increased pension plan expense, payroll tax expense and defined contribution plan expense, partially offset by a decrease in group insurance costs. The increase in occupancy expense was primarily the result of increased depreciation on premises. The increase in furniture and equipment expense was primarily related to increased expenses related to repairs and maintenance on equipment, which also includes software maintenance and costs. The increase in professional fees and services was primarily related to increased title, appraisal and credit costs, increased insured cash sweep (ICS) fees, as well as increases in management and consulting fees, partially offset by a $427,000 decrease in temporary wage expense. The decrease in communications expense is primarily related to a change in statement mailing and production costs, which resulted in lower direct postage expense, but an increase in supply expense which is included in miscellaneous expense. The additional increase in miscellaneous expense was primarily related to a $1.8 million prepayment penalty on FHLB borrowings of $50 million repaid during the six months ended June 30, 2020. Other expense was impacted by the acquisition of Carolina Alliance. Of the $122.1 million of total other expense for the six months ended June 30, 2020, the Carolina Alliance Bank Division's total other expense was $9.5 million. Of the $112.0 million of total other expense for the six months ended June 30, 2019, the Carolina Alliance Bank Division's total other expense was $5.9 million.

The table below reflects PNB's other expense less the impact of Carolina Alliance Bank Division for the six months ended June 30, 2020 and 2019.
(In thousands) Six months YTD 2020 Six months YTD 2019 change % change
Other expense:
Salaries $ 52,011    $ 49,407    $ 2,604    5.3  %
Employee benefits 17,354    16,566    788    4.8  %
Occupancy expense 5,817    5,700    117    2.1  %
Furniture and equipment expense 8,733    8,229    504    6.1  %
Data processing fees 4,925    4,528    397    8.8  %
Professional fees and services 10,149    9,271    878    9.5  %
Marketing 2,501    2,554    (53)   (2.1) %
Insurance 2,385    2,098    287    13.7  %
Communication 1,875    2,539    (664)   (26.2) %
State tax expense 1,857    1,625    232    14.3  %
Amortization of intangible assets 656    578    78    13.5  %
Miscellaneous 4,349    3,037    1,312    43.2  %
Total other expense $ 112,612    $ 106,132    $ 6,480    6.1  %

Excluding the impact of the Carolina Alliance Bank Division, other expense of $112.6 million for the six months ended June 30, 2020 represented an increase of $6.5 million, or 6.1%, compared to $106.1 million for the six months ended June 30, 2019. The increase in salaries expense was primarily related to increases in base salary expense and additional compensation incentives, partially offset by a decrease in officer incentive compensation. The increase in employee benefits expense was primarily related to increased pension plan expense, payroll tax expense and defined contribution plan expense, partially offset by a decrease in group insurance costs. The increase in furniture and equipment expense was primarily related to increased expenses related to repairs and maintenance on equipment, which also includes software maintenance and costs. The increase in professional fees and services was primarily related to increased title, appraisal and credit costs, increased insured cash sweep (ICS) fees, as well as increases in management and consulting fees, partially offset by a $427,000 decrease in temporary wage expense. The decrease in communications expense is primarily related to a change in statement mailing and production costs, which resulted in lower direct postage expense, but an increase in supply expense which is included in miscellaneous expense. The additional increase in miscellaneous expense was primarily related to a $1.8 million prepayment penalty on FHLB borrowings of $50 million repaid during the six months ended June 30, 2020.

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The table below provides certain balance sheet information and financial ratios for PNB as of or for the six months ended June 30, 2020 and 2019 and as of or for the twelve months ended December 31, 2019.
(In thousands) June 30, 2020 December 31, 2019 June 30, 2019 % change from 12/31/19 % change from 06/30/19
Loans $ 7,185,297    $ 6,481,644    $ 6,355,251    10.86  % 13.06  %
Allowance for loan losses 71,606    54,692    51,760    30.93  % 38.34  %
Net loans 7,113,691    6,426,952    6,303,491    10.69  % 12.85  %
Investment securities 1,144,063    1,271,817    1,387,731    (10.04) % (17.56) %
Total assets 9,665,657    8,521,537    8,607,583    13.43  % 12.29  %
Total deposits 8,230,098    7,125,111    7,095,772    15.51  % 15.99  %
Average assets (1)
8,999,888    8,425,536    8,157,472    6.82  % 10.33  %
Efficiency ratio (2)
57.84  % 61.12  % 60.19  % (5.37) % (3.90) %
Return on average assets (3)
1.27  % 1.35  % 1.39  % (5.93) % (8.63) %
(1) Average assets for the six months ended June 30, 2020 and 2019 and for the year ended December 31, 2019.
(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 $1.4 million and $1.5 million for the six months ended June 30, 2020 and 2019, respectively, and $3.0 million for the year ended December 31, 2019.
(3) Annualized for the six months ended June 30, 2020 and 2019.

Loans outstanding at June 30, 2020 were $7.19 billion, compared to $6.48 billion at December 31, 2019, an increase of $703.7 million, or 10.9%. Loans outstanding at June 30, 2020 were $7.19 billion, compared to $6.36 billion at June 30, 2019, an increase of $830.0 million, or 13.1%. Excluding $543.1 million of PPP loans, loans outstanding were $6.64 billion at June 30, 2020, compared to $6.48 billion at December 31, 2019, an increase of $160.6 million, or 2.5%, and reflected an increase of $287.0 million, or 4.5%, compared to $6.36 billion at June 30, 2019. The table below breaks out the change in loans outstanding, by loan type.

(In thousands) June 30, 2020 December 31, 2019 June 30, 2019 change from 12/31/19 % change from 12/31/19 change from 6/30/19 % change from 6/30/19
Home equity $ 204,541    $ 224,857    $ 239,103    $ (20,316)   (9.0) % $ (34,562)   (14.5) %
Installment 1,494,151    1,431,197    1,348,727    62,954    4.4  % 145,424    10.8  %
Real estate 1,341,739    1,275,154    1,259,427    66,585    5.2  % 82,312    6.5  %
Commercial (excluding PPP) 3,596,747    3,545,467    3,503,770    51,280    1.4  % 92,977    2.7  %
PPP loans 543,086    —    —    543,086    N.M. 543,086    N.M.
Other 5,033    4,969    4,224    64    1.3  % 809    19.2  %
Total loans $ 7,185,297    $ 6,481,644    $ 6,355,251    $ 703,653    10.9  % $ 830,046    13.1  %

PNB's allowance for loan losses increased by $16.9 million, or 30.9%, to $71.6 million at June 30, 2020, compared to $54.7 million at December 31, 2019. Net charge-offs were $1.5 million, or 0.05% of total average loans (annualized), for the six months ended June 30, 2020 and were $2.7 million, or 0.04% of total average loans, for the twelve months ended December 31, 2019. 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.


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Total deposits at June 30, 2020 were $8.23 billion, compared to $7.13 billion at December 31, 2019, an increase of $1.10 billion, or 15.5%. Total deposits at June 30, 2020 were $8.23 billion, compared to $7.10 billion at June 30, 2019, an increase of $1.13 billion, or 16.0%. The table below breaks out the change in deposit balances, by deposit type.

(In thousands) June 30, 2020 December 31, 2019 June 30, 2019 change from 12/31/19 % change from 12/31/19 change from 6/30/19 % change from 6/30/19
Non-interest bearing deposits $ 2,589,685    $ 2,036,359    $ 1,974,761    $ 553,326    27.2  % $ 614,924    31.1  %
Transaction accounts 1,931,630    1,628,741    1,659,985    302,889    18.6  % 271,645    16.4  %
Savings 2,726,365    2,320,880    2,329,716    405,485    17.5  % 396,649    17.0  %
Certificates of deposits 982,418    1,139,131    1,131,310    (156,713)   (13.8) % (148,892)   (13.2) %
Total deposits $ 8,230,098    $ 7,125,111    $ 7,095,772    $ 1,104,987    15.5  % $ 1,134,326    16.0  %

Guardian Financial Services Company (GFSC)

The table below reflects GFSC's net income for the first and second quarters of 2020, the first half of each of 2020 and 2019 and for the years ended December 31, 2019 and 2018. During 2020, Park made the decision to no longer seek new loans through the GFSC subsidiary.

(In thousands) Q2 2020 Q1 2020 Six months YTD 2020 Six months YTD 2019 2019 2018
Net interest income $ 1,025    $ 1,152    $ 2,177    $ 2,542    $ 5,013    $ 5,048   
Provision for loan losses 27    277    304    315    754    1,328   
Other income 62    32    94    83    170    187   
Other expense 651    765    1,416    1,736    3,478    3,245   
Income before income taxes $ 409    $ 142    $ 551    $ 574    $ 951    $ 662   
    Income tax expense 86    30    116    124    189    141   
Net income $ 323    $ 112    $ 435    $ 450    $ 762    $ 521   

The table below provides certain balance sheet information and financial ratios for GFSC as of or for the six months ended June 30, 2020 and 2019 and as of or for the twelve months ended December 31, 2019.

(In thousands) June 30, 2020 December 31, 2019 June 30, 2019 % change from 12/31/19 % change from 06/30/19
Loans $ 20,538    $ 28,143    $ 29,981    (27.02) % (31.50) %
Allowance for loan losses 1,869    1,987    2,243    (5.94) % (16.67) %
Net loans 18,669    26,156    27,738    (28.62) % (32.70) %
Total assets 20,125    27,593    29,222    (27.06) % (31.13) %
Average assets (1)
24,774    29,119    30,279    (14.92) % (18.18) %
Return on average assets (2)
3.53  % 2.62  % 3.00  % 34.73  % 17.67  %
(1) Average assets for the six months ended June 30, 2020 and 2019 and for the year ended December 31, 2019.
(2) Annualized for the six months ended June 30, 2020 and 2019.


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All Other

The table below reflects All Other net (loss) income 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.

(In thousands) Q2 2020 Q1 2020 Six month YTD 2020 Six months YTD 2019 2019 2018
Net interest income (expense) $ 270    $ (83)   $ 187    $ (90)   $ (406)   $ 3,303   
Recovery of loan losses (686)   (658)   (1,344)   (141)   (2,939)   (952)  
Other (loss) income (107)   (1,027)   (1,134)   1,368    4,631    11,933   
Other expense 3,445    4,143    7,588    13,295    23,077    18,667   
Net loss before income tax benefit $ (2,596)   $ (4,595)   $ (7,191)   $ (11,876)   $ (15,913)   $ (2,479)  
    Income tax benefit (1,028)   (947)   (1,975)   (2,970)   (4,251)   (2,873)  
Net (loss) income $ (1,568)   $ (3,648)   $ (5,216)   $ (8,906)   $ (11,662)   $ 394   

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 interest income of $187,000 for the six months ended June 30, 2020, compared to net interest expense of $90,000 for the six months ended June 30, 2019. The change was largely the result of an increase in loan interest income related to payment collections at SEPH.

SEPH had net recoveries of $1.3 million for the six months ended June 30, 2020, compared to net recoveries of $141,000 for the six months ended June 30, 2019.

All Other had an other loss of $1.1 million for the six months ended June 30, 2020, compared to other income of $1.4 million for the six months ended June 30, 2019. The change was largely due to a $1.9 million decrease in income related to partnership investments, which went from a $1.1 million gain for the six months ended June 30, 2019 to a $768,000 loss for the six months ended June 30, 2020, and a $699,000 decrease in gain (loss) on equity securities, net, which went from a $143,000 gain for the six months ended June 30, 2019 to a $556,000 loss for the six months ended June 30, 2020.

All Other had other expense of $7.6 million for the six months ended June 30, 2020, compared to $13.3 million for the six months ended June 30, 2019. The decrease was largely due to a $5.9 million decrease in merger related expenses related to the NewDominion and Carolina Alliance acquisitions.

Park National Corporation

The table below reflects Park's consolidated net income 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.
(In thousands) Q2 2020 Q1 2020 Six months YTD 2020 Six months YTD 2019 2019 2018
Net interest income $ 81,186    $ 76,283    $ 157,469    $ 143,627    $ 297,737    $ 266,898   
Provision for loan losses 12,224    5,153    17,377    4,417    6,171    7,945   
Other income 30,964    22,486    53,450    44,833    97,193    101,101   
Other expense 64,799    66,276    131,075    127,019    263,988    228,755   
Income before income taxes $ 35,127    $ 27,340    $ 62,467    $ 57,024    $ 124,771    $ 131,299   
    Income tax expense 5,622    4,968    10,590    9,406    22,071    20,912   
Net income $ 29,505    $ 22,372    $ 51,877    $ 47,618    $ 102,700    $ 110,387   


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Credit Metrics and Provision for (Recovery of) Loan Losses

Section 4014 of the CARES Act provided financial institutions with optional temporary relief from having to comply with the Financial Accounting Standards Board Accounting Standards Update 2016-13 ("Measurement of Credit Losses on Financial Instruments") including the current expected credit loss ("CECL") methodology for estimating the allowance for credit losses. This temporary relief will expire on the earlier of the date on which the national emergency concerning COVID-19 terminates or December 31, 2020, with adoption being effective retrospectively as of January 1, 2020.

Park elected to delay the implementation of CECL following the approval of the CARES Act. The CECL standard requires financial institutions to calculate an allowance utilizing a reasonable and supportable forecast period which Park has established as a one-year period. Much is still unknown about the economic impact of COVID-19 including the duration of the pandemic, the duration and impact of future government programs that may be established as a result of the pandemic, and the resiliency of the U.S. economy, making any forecast subject to large fluctuations in the coming months. In this unprecedented situation, Park believes that adopting the CECL model in the first quarter 2020 would have added an unnecessary level of subjectivity and volatility to the calculation of the allowance for credit losses.

On a consolidated basis, Park reported a provision for loan losses for the six months ended June 30, 2020 of $17.4 million, compared to $4.4 million for the six months ended June 30, 2019. The table below shows a breakdown of the provision for (recovery of) loan losses by reportable segment.
(In thousands) Q2 2020 Q1 2020 Six months YTD 2020 Six months YTD 2019 2019 2018
PNB $ 12,883    $ 5,534    $ 18,417    $ 4,243    $ 8,356    $ 7,569   
GFSC 27    277    304    315    $ 754    1,328   
All Other (686)   (658)   (1,344)   (141)   (2,939)   (952)  
    Total Park $ 12,224    $ 5,153    $ 17,377    $ 4,417    $ 6,171    $ 7,945   

PNB had net charge-offs of $1.5 million, GFSC had net charge-offs of $422,000, and All Other had net recoveries of $1.3 million for the six months ended June 30, 2020, resulting in net charge-offs of $580,000 for Park, on a consolidated basis. PNB had net charge-offs of $1.6 million, GFSC had net charge-offs of $517,000, and All Other had net recoveries of $141,000 for the six months ended June 30, 2019, resulting in net charge-offs of $1.9 million for Park, on a consolidated basis.


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The table below provides additional information related to specific reserves and general reserves for Park as of June 30, 2020, December 31, 2019, and June 30, 2019.


(In thousands) 6/30/2020 12/31/2019 6/30/2019
Total allowance for loan losses $ 73,476    $ 56,679    $ 54,003   
Allowance on purchased credit impaired ("PCI") loans 106    268    —   
Allowance on purchased loans 25    —    —   
Specific reserve 5,808    5,230    2,379   
General reserve on originated loans $ 67,537    $ 51,181    $ 51,624   
Total loans $ 7,204,445    $ 6,501,404    $ 6,376,737   
PCI loans 12,569    14,331    23,027   
Purchased loans 440,803    548,436    671,574   
Impaired commercial loans 91,724    77,459    50,225   
Originated loans excluding impaired commercial loans $ 6,659,349    $ 5,861,178    $ 5,631,911   
General reserve as a % of originated total loans less impaired commercial loans 1.01  % 0.87  % 0.92  %
General reserve as a % of originated total loans less impaired commercial loans (excluding PPP loans) (1)
1.10  % N.A. N.A.
(1) Excludes $543.1 million of PPP loans and $543,000 in related allowance.

The allowance for loan losses of $73.5 million at June 30, 2020 represented a $16.8 million, or 29.6%, increase compared to $56.7 million at December 31, 2019. This increase was largely the result of a $16.4 million increase in general reserves on originated total loans and a $578,000 increase in specific reserves. As of June 30, 2020, a $25,000 allowance had been established for performing acquired loans and a $106,000 allowance had been established for PCI loans. In addition to the established allowance related to acquired loans, as of June 30, 2020, these loans have a remaining purchase accounting discount of $7.8 million. The $16.4 million increase in general reserves was the result of the estimated increase in incurred losses as a result of the impact of the COVID-19 pandemic. This estimate was established based on consideration of Park's existing environmental loss factors, modification programs Park has put in place, and balances of high risk portfolios such as hotels, restaurants and strip shopping centers. Much is still unknown about the long-term economic impact of the COVID-19 pandemic and management will continue to evaluate this estimate of incurred losses as new information becomes available.


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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: the ever-changing effects of the novel coronavirus (COVID-19) pandemic - - the duration, extent and severity of which are impossible to predict - - on economies (local, national and international) and markets, and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including actions directed toward the containment of the COVID-19 pandemic and stimulus packages; 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 in addition to continuing residual effects of prior recessionary conditions, 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; higher default rates on loans made to our customers due to the COVID-19 pandemic and its impact on our customers' operations and financial condition; changes in interest rates and prices as well as disruption in the liquidity and functioning of U.S. financial markets, as a result of the COVID-19 pandemic and reactions thereto, 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 (including as a result of the COVID-19 pandemic and reactions thereto), legislative and regulatory initiatives (including those undertaken in response to the COVID-19 pandemic), or other factors may be different than anticipated; changes in unemployment may be different than anticipated in light of the impacts of the COVID-19 pandemic; changes in customers', suppliers', and other counterparties' performance and creditworthiness may be different than anticipated in light of the impacts of the COVID-19 pandemic; the adequacy of our internal controls and risk management program in the event of changes in the market, economic, operational (including those which may result from more of our associates working remotely), 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 Coronavirus Aid, Relief and Economic Security (CARES) Act, 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 provisions of the CARES Act, the provisions of the Dodd-Frank Act, and the Basel III regulatory capital reforms; 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 ("CECL") accounting standard issued by the FASB in June 2016 and in accordance with the CARES Act, the adoption of which can be deferred by Park (with retrospective application as of January 1, 2020) until the earlier of: (1) the interim reporting period during which the national emergency concerning the COVID-19 outbreak declared by the President on March 15, 2020 terminates; or (2) December 31, 2020, 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, including under the CECL model, when adopted by Park, 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 of the Federal Reserve Board) and other governmental policies of the U.S. federal government, including those implemented in response to the COVID-19 pandemic; unexpected changes in interest rates or disruptions in the financial markets related to COVID-19 or responses to the related health crisis; 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
13


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 (including the COVID-19 pandemic), dislocations, civil unrest, terrorist activities or international hostilities on the economy and financial markets generally and on us or our counterparties specifically; any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially affect our business, including our customers' willingness to conduct banking transactions and their ability to pay on existing obligations; the effect of healthcare laws in the U.S. and potential changes for such laws, especially in light of the COVID-19 pandemic, which may increase our healthcare and other costs and negatively impact our operations and financial results; 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; 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, 2019 and in "Item 1A. Risk Factors" of Part II of Park's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020. 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 July 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 on September 10, 2020 to common shareholders of record as of the close of business on August 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 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 27, 2020 addressing financial results for the three and six months ended June 30, 2020 and declaration of quarterly cash dividend

104 Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)

14






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.
 
  PARK NATIONAL CORPORATION
     
Dated: July 27, 2020 By: /s/ Brady T. Burt
    Brady T. Burt
    Chief Financial Officer, Secretary and Treasurer
     

15
IMAGE1.JPG

July 27, 2020           Exhibit 99.1
Park National Corporation reports financial results
for second quarter and first half of 2020

NEWARK, Ohio - Park National Corporation (Park) (NYSE American: PRK) today reported financial results for the second quarter and first half of 2020 (three and six months ended June 30, 2020). Park's board of directors declared a quarterly cash dividend of $1.02 per common share, payable on September 10, 2020 to common shareholders of record as of August 21, 2020.

Park’s net income for the second quarter of 2020 was $29.5 million, a 33.1 percent increase from $22.2 million for the second quarter of 2019. Second quarter 2020 net income per diluted common share was $1.80, compared to $1.33 in the second quarter of 2019. Park's net income for the first half of 2020 was $51.9 million, an 8.9 percent increase from $47.6 million for the first half of 2019. Net income per diluted common share was $3.16 for the first half of 2020, compared to $2.94 for the first half of 2019.

Park's community-banking subsidiary, The Park National Bank, reported net income of $30.8 million for the second quarter of 2020, a 4.7 percent increase compared to $29.4 million for the same period of 2019. The bank reported net income of $56.7 million for the first half of 2020, compared to $56.1 million for the first half of 2019.

“Many families and businesses took the opportunity this spring to make improvements and investments into their property, through new or renovated homes and buildings or new vehicles and equipment. Our lenders were fully accessible and enjoyed connecting with customers in new ways during these unusual circumstances with physical distancing,” said Park Chairman David Trautman about the bank’s second quarter loan growth. “Despite economic turbulence that may still be ahead for our country as the effects of the pandemic issue continue, we will remain compassionate, creative, and steadfast in service to the communities that rely on us.”

Headquartered in Newark, Ohio, Park National Corporation had $9.7 billion in total assets (as of June 30, 2020). Park's banking operations are conducted through Park subsidiary The Park National Bank. Other Park subsidiaries are Scope Leasing, Inc. (d.b.a. Scope Aircraft Finance), Guardian Financial Services Company (d.b.a. Guardian Finance Company) and SE Property Holdings, LLC.

Complete financial tables are listed below.
Category: Earnings
Media contact: Bethany Lewis, 740.349.0421, bethany.lewis@parknationalbank.com
Investor contact: Brady Burt, 740.322.6844, brady.burt@parknationalbank.com
Park National Corporation, 50 N. Third Street, Newark, Ohio 43055

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Park cautions that any forward-looking statements contained in this News Release 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: the ever-changing effects of the novel coronavirus (COVID-19) pandemic - - the duration, extent and severity of which are impossible to predict - - on economies (local, national and international) and markets, and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including actions directed toward the containment of the COVID-19 pandemic and stimulus packages; 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 in addition to continuing residual effects of prior recessionary conditions, 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;
Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com



higher default rates on loans made to our customers due to the COVID-19 pandemic and its impact on our customers' operations and financial condition; changes in interest rates and prices as well as disruption in the liquidity and functioning of U.S. financial markets, as a result of the COVID-19 pandemic and reactions thereto, 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 (including as a result of the COVID-19 pandemic and reactions thereto), legislative and regulatory initiatives (including those undertaken in response to the COVID-19 pandemic), or other factors may be different than anticipated; changes in unemployment may be different than anticipated in light of the impacts of the COVID-19 pandemic; changes in customers', suppliers', and other counterparties' performance and creditworthiness may be different than anticipated in light of the impacts of the COVID-19 pandemic; the adequacy of our internal controls and risk management program in the event of changes in the market, economic, operational (including those which may result from more of our associates working remotely), 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 Coronavirus Aid, Relief and Economic Security (CARES) Act, 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 provisions of the CARES Act, the provisions of the Dodd-Frank Act, and the Basel III regulatory capital reforms; 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 ("CECL") accounting standard issued by the FASB in June 2016 and in accordance with the CARES Act, the adoption of which can be deferred by Park (with retrospective application as of January 1, 2020) until the earlier of: (1) the interim reporting period during which the national emergency concerning the COVID-19 outbreak declared by the President on March 15, 2020 terminates; or (2) December 31, 2020, 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, including under the CECL model, when adopted by Park, 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 of the Federal Reserve Board) and other governmental policies of the U.S. federal government, including those implemented in response to the COVID-19 pandemic; unexpected changes in interest rates or disruptions in the financial markets related to COVID-19 or responses to the related health crisis; 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 (including the COVID-19 pandemic), dislocations, civil unrest, terrorist activities or international hostilities on the economy and financial markets generally and on us or our counterparties specifically; any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially affect our business, including our customers' willingness to conduct banking transactions and their
Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com



ability to pay on existing obligations; the effect of healthcare laws in the U.S. and potential changes for such laws, especially in light of the COVID-19 pandemic, which may increase our healthcare and other costs and negatively impact our operations and financial results; 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; 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, 2019 and in "Item 1A. Risk Factors" of Part II of Park's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020. 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.
Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com




PARK NATIONAL CORPORATION
Financial Highlights
As of or for the three months ended June 30, 2020, March 31, 2020, and June 30, 2019          
             
  2020 2020 2019   Percent change vs.
(in thousands, except share and per share data) 2nd QTR 1st QTR 2nd QTR   1Q '20 2Q '19
INCOME STATEMENT:          
Net interest income $ 81,186    $ 76,283    $ 75,851      6.4   % 7.0   %
Provision for loan losses 12,224    5,153    1,919      137.2   % 537.0   %
Other income 30,964    22,486    22,808      37.7   % 35.8   %
Other expense 64,799    66,276    70,192      (2.2)  % (7.7)  %
Income before income taxes $ 35,127    $ 27,340    $ 26,548      28.5  % 32.3   %
Income taxes 5,622    4,968    4,385      13.2  % 28.2   %
Net income $ 29,505    $ 22,372    $ 22,163      31.9  % 33.1   %
         
MARKET DATA:          
Earnings per common share - basic (b) $ 1.81    $ 1.37    $ 1.34      32.1  % 35.1  %
Earnings per common share - diluted (b) 1.80    1.36    1.33      32.4  % 35.3  %
Cash dividends declared per common share 1.02    1.22    1.01      (16.4) % 1.0  %
Book value per common share at period end 61.46    60.25    56.92      2.0  % 8.0  %
Market price per common share at period end 70.38    77.64    99.39      (9.4) % (29.2) %
Market capitalization at period end 1,146,942    1,265,180    1,631,741      (9.3) % (29.7) %
       
Weighted average common shares - basic (a) 16,296,427    16,303,602    16,560,545      —  % (1.6) %
Weighted average common shares - diluted (a) 16,375,434    16,425,881    16,642,571      (0.3) % (1.6) %
Common shares outstanding at period end 16,296,425    16,295,461    16,417,562      —  % (0.7) %
       
PERFORMANCE RATIOS: (annualized)      
Return on average assets (a)(b) 1.26  % 1.04  % 1.04   %   21.2   % 21.2   %
Return on average shareholders' equity (a)(b) 11.89  % 9.16  % 9.49   %   29.8   % 25.3   %
Yield on loans 4.63  % 5.02  % 5.23   %   (7.8)  % (11.5)  %
Yield on investment securities 2.76  % 2.72  % 2.78   %   1.5   % (0.7)  %
Yield on money market instruments 0.10  % 1.12  % 2.64   %   (91.1)  % (96.2)  %
Yield on interest earning assets 4.14  % 4.57  % 4.76   %   (9.4)  % (13.0)  %
Cost of interest bearing deposits 0.36  % 0.81  % 1.04   %   (55.6)  % (65.4)  %
Cost of borrowings 1.33  % 2.08  % 2.15   %   (36.1)  % (38.1)  %
Cost of paying interest bearing liabilities 0.43  % 0.90  % 1.16   %   (52.2)  % (62.9)  %
Net interest margin (g) 3.84  % 3.93  % 3.92   %   (2.3)  % (2.0)  %
Efficiency ratio (g) 57.41  % 66.61  % 70.61   %   (13.8)  % (18.7)  %
       
OTHER RATIOS (NON-GAAP):
Tangible book value per share (d) $ 51.04    $ 49.79    $ 46.30    2.5   % 10.2   %
             
Note: Explanations for footnotes (a) - (i) are included at the end of the financial tables in the "Financial Reconciliations" section.            
           
           
Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com


           
PARK NATIONAL CORPORATION
Financial Highlights (continued)
As of or for the three months ended June 30, 2020, March 31, 2020, and June 30, 2019          
        Percent change vs.
(in thousands, except ratios) June 30, 2020 March 31, 2020 June 30, 2019   1Q '20 2Q '19
BALANCE SHEET:        
Investment securities $ 1,153,186    $ 1,253,087    $ 1,396,530      (8.0)  % (17.4)  %
Loans 7,204,445    6,522,519    6,376,737      10.5   % 13.0   %
Allowance for loan losses 73,476    61,503    54,003      19.5   % 36.1   %
Goodwill and other intangible assets 169,905    170,512    174,288      (0.4)  % (2.5)  %
Other real estate owned (OREO) 1,356    3,600    3,839      (62.3)  % (64.7)  %
Total assets 9,712,994    8,719,291    8,657,453      11.4   % 12.2   %
Total deposits 8,161,900    7,290,133    7,032,120      12.0   % 16.1   %
Borrowings 444,410    348,373    595,578      27.6   % (25.4)  %
Total shareholders' equity 1,001,594    981,877    934,432      2.0   % 7.2   %
Tangible equity (d) 831,689    811,365    760,144      2.5   % 9.4   %
Total nonperforming loans 126,044    119,311    86,833      5.6   % 45.2   %
Total nonperforming assets 130,999    126,510    94,168      3.5   % 39.1   %
       
ASSET QUALITY RATIOS:      
Loans as a % of period end total assets 74.17  % 74.81  % 73.66  %   (0.9)  % 0.7   %
Total nonperforming loans as a % of period end loans 1.75  % 1.83  % 1.36  %   (4.4)  % 28.7   %
Total nonperforming assets as a % of period end loans + OREO + other nonperforming assets 1.82  % 1.94  % 1.48  %   (6.2)  % 23.0   %
Allowance for loan losses as a % of period end loans 1.02  % 0.94  % 0.85  %   8.5   % 20.0   %
Net loan charge-offs $ 251    $ 329    $ 1,284      (23.7)  % (80.5)  %
Annualized net loan charge-offs as a % of average loans (a) 0.01   % 0.02   % 0.08   %   (50.0)  % (87.5)  %
       
CAPITAL & LIQUIDITY:      
Total shareholders' equity / Period end total assets 10.31   % 11.26   % 10.79   %   (8.4)  % (4.4)  %
Tangible equity (d) / Tangible assets (f) 8.72   % 9.49   % 8.96   %   (8.1)  % (2.7)  %
Average shareholders' equity / Average assets (a) 10.61   % 11.31   % 10.92   %   (6.2)  % (2.8)  %
Average shareholders' equity / Average loans (a) 14.30   % 15.15   % 14.79   %   (5.6)  % (3.3)  %
Average loans / Average deposits (a) 88.59   % 89.90   % 91.03   %   (1.5)  % (2.7)  %
           


Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com



PARK NATIONAL CORPORATION
Financial Highlights
Six months ended June 30, 2020 and June 30, 2019      
         
  2020 2019  
(in thousands, except share and per share data and ratios) Six months ended June 30 Six months ended June 30   Percent change vs '19
INCOME STATEMENT:        
Net interest income $ 157,469    $ 143,627      9.6   %
Provision for loan losses 17,377    4,417      293.4   %
Other income 53,450    44,833      19.2   %
Other expense 131,075    127,019      3.2   %
Income before income taxes $ 62,467    $ 57,024      9.5   %
Income taxes 10,590    9,406      12.6   %
Net income $ 51,877    $ 47,618      8.9   %
       
MARKET DATA:        
Earnings per common share - basic (b) $ 3.18    $ 2.96      7.4  %
Earnings per common share - diluted (b) 3.16    2.94      7.5  %
Cash dividends declared per common share 2.24    2.22      0.9  %
     
Weighted average common shares - basic (a) 16,300,015    16,106,043      1.2  %
Weighted average common shares - diluted (a) 16,400,657    16,193,643      1.3  %
     
PERFORMANCE RATIOS: (annualized)    
Return on average assets (a)(b) 1.15  % 1.17   %   (1.7)  %
Return on average shareholders' equity (a)(b) 10.54  % 10.81   %   (2.5)  %
Yield on loans 4.81  % 5.19   %   (7.3)  %
Yield on investment securities 2.76  % 2.80   %   (1.4)  %
Yield on money market instruments 0.38  % 2.70   %   (85.9)  %
Yield on interest earning assets 4.35  % 4.71   %   (7.6)  %
Cost of interest bearing deposits 0.58  % 1.01   %   (42.6)  %
Cost of borrowings 1.69  % 2.08   %   (18.8)  %
Cost of paying interest bearing liabilities 0.66  % 1.13   %   (41.6)  %
Net interest margin (g) 3.89  % 3.89   %   —   %
Efficiency ratio (g) 61.72  % 66.87   %   (7.7)  %
     
ASSET QUALITY RATIOS:    
Net loan charge-offs $ 580    $ 1,926    (69.9)  %
Annualized net loan charge-offs as a % of average loans (a) 0.02  % 0.06   % (66.7)  %
 
CAPITAL & LIQUIDITY:
Average shareholders' equity / Average assets (a) 10.95  % 10.82   % 1.2   %
Average shareholders' equity / Average loans (a) 14.71  % 14.77   % (0.4)  %
Average loans / Average deposits (a) 89.21  % 90.91   % (1.9)  %
Note: Explanations for footnotes (a) - (i) are included at the end of the financial tables in the "Financial Reconciliations" section.      

Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com




PARK NATIONAL CORPORATION
Consolidated Statements of Income
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except share and per share data) 2020 2019 2020 2019
Interest income:
   Interest and fees on loans $ 80,155    $ 82,471    $ 160,842    $ 154,474   
   Interest on:
      Obligations of U.S. Government, its agencies
         and other securities - taxable 5,026    6,919    10,557    13,914   
      Obligations of states and political subdivisions - tax-exempt 2,151    2,308    4,351    4,525   
   Other interest income 113    528    604    1,169   
         Total interest income 87,445    92,226    176,354    174,082   
Interest expense:
   Interest on deposits:
      Demand and savings deposits 1,507    8,811    7,849    15,904   
      Time deposits 3,346    4,357    7,631    8,134   
   Interest on borrowings 1,406    3,207    3,405    6,417   
      Total interest expense 6,259    16,375    18,885    30,455   
         Net interest income 81,186    75,851    157,469    143,627   
Provision for loan losses 12,224    1,919    17,377    4,417   
         Net interest income after provision for loan losses 68,962    73,932    140,092    139,210   
Other income 30,964    22,808    53,450    44,833   
Other expense 64,799    70,192    131,075    127,019   
         Income before income taxes 35,127    26,548    62,467    57,024   
Income taxes 5,622    4,385    10,590    9,406   
         Net income $ 29,505    $ 22,163    $ 51,877    $ 47,618   
Per common share:
         Net income - basic $ 1.81    $ 1.34    $ 3.18    $ 2.96   
         Net income - diluted $ 1.80    $ 1.33    $ 3.16    $ 2.94   
         Weighted average shares - basic 16,296,427    16,560,545    16,300,015    16,106,043   
         Weighted average shares - diluted 16,375,434    16,642,571    16,400,657    16,193,643   
        Cash dividends declared $ 1.02    $ 1.01    $ 2.24    $ 2.22   




Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com


 
PARK NATIONAL CORPORATION 
Consolidated Balance Sheets
     
(in thousands, except share data) June 30, 2020 December 31, 2019
   
Assets  
   
Cash and due from banks $ 136,178    $ 135,567   
Money market instruments 597,316    24,389   
Investment securities 1,153,186    1,279,507   
Loans 7,204,445    6,501,404   
Allowance for loan losses (73,476)   (56,679)  
Loans, net 7,130,969    6,444,725   
Bank premises and equipment, net 81,760    73,322   
Goodwill and other intangible assets 169,905    171,118   
Other real estate owned 1,356    4,029   
Other assets 442,324    425,720   
Total assets $ 9,712,994    $ 8,558,377   
   
Liabilities and Shareholders' Equity  
   
Deposits:
Noninterest bearing $ 2,518,437    $ 1,959,935   
Interest bearing 5,643,463    5,092,677   
Total deposits 8,161,900    7,052,612   
Borrowings 444,410    438,157   
Other liabilities 105,090    98,594   
Total liabilities $ 8,711,400    $ 7,589,363   
   
   
Shareholders' Equity:  
Preferred shares (200,000 shares authorized; no shares outstanding at June 30, 2020 and December 31, 2019) $ —    $ —   
Common shares (No par value; 20,000,000 shares authorized; 17,623,185 shares issued at June 30, 2020 and 17,623,199 shares issued at December 31, 2019) 457,966    459,389   
Accumulated other comprehensive income (loss), net of taxes 13,861    (9,589)  
Retained earnings 662,311    646,847   
Treasury shares (1,326,760 shares at June 30, 2020 and 1,276,757 shares at December 31, 2019) (132,544)   (127,633)  
Total shareholders' equity $ 1,001,594    $ 969,014   
Total liabilities and shareholders' equity $ 9,712,994    $ 8,558,377   



Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com


 
PARK NATIONAL CORPORATION 
Consolidated Average Balance Sheets
     
  Three Months Ended Six Months Ended
  June 30, June 30,
(in thousands) 2020 2019 2020 2019
     
Assets    
     
Cash and due from banks $ 134,386    $ 127,115    $ 133,208    $ 122,485   
Money market instruments 461,055    80,239    318,930    87,212   
Investment securities  1,197,445    1,413,309    1,230,948    1,401,641   
Loans 6,981,783    6,332,167    6,731,960    6,012,446   
Allowance for loan losses (62,387)   (53,849)   (60,001)   (53,124)  
Loans, net 6,919,396    6,278,318    6,671,959    5,959,322   
Bank premises and equipment, net 80,096    71,253    77,509    66,079   
Goodwill and other intangible assets 170,303    165,311    170,606    142,587   
Other real estate owned 2,765    4,183    3,282    4,277   
Other assets 442,819    436,767    437,585    422,899   
Total assets $ 9,408,265    $ 8,576,495    $ 9,044,027    $ 8,206,502   
     
     
Liabilities and Shareholders' Equity    
     
Deposits:
Noninterest bearing $ 2,400,809    $ 1,887,335    $ 2,175,400    $ 1,809,213   
Interest bearing 5,480,366    5,068,709    5,370,376    4,804,076   
Total deposits 7,881,175    6,956,044    7,545,776    6,613,289   
Borrowings 425,349    597,448    405,930    622,414   
Other liabilities 103,453    86,377    102,189    82,853   
Total liabilities $ 8,409,977    $ 7,639,869    $ 8,053,895    $ 7,318,556   
     
Shareholders' Equity:    
Preferred shares $ —    $ —    $ —    $ —   
Common shares 456,830    455,895    458,146    407,533   
Accumulated other comprehensive income (loss), net of taxes 10,756    (36,825)   5,331    (41,655)  
Retained earnings 663,290    624,995    658,877    623,291   
Treasury shares (132,588)   (107,439)   (132,222)   (101,223)  
Total shareholders' equity $ 998,288    $ 936,626    $ 990,132    $ 887,946   
Total liabilities and shareholders' equity $ 9,408,265    $ 8,576,495    $ 9,044,027    $ 8,206,502   




Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com


 
PARK NATIONAL CORPORATION 
Consolidated Statements of Income - Linked Quarters
       
  2020 2020 2019 2019 2019
(in thousands, except per share data) 2nd QTR 1st QTR 4th QTR 3rd QTR 2nd QTR
   
Interest income:  
Interest and fees on loans  $ 80,155    $ 80,687    $ 82,698    $ 84,213    $ 82,471   
Interest on:
Obligations of U.S. Government, its agencies and other securities - taxable 5,026    5,531    5,973    6,326    6,919   
Obligations of states and political subdivisions - tax-exempt 2,151    2,200    2,205    2,225    2,308   
Other interest income 113    491    953    1,825    528   
Total interest income 87,445    88,909    91,829    94,589    92,226   
   
Interest expense:  
Interest on deposits:
Demand and savings deposits 1,507    6,342    7,795    9,649    8,811   
Time deposits 3,346    4,285    4,666    4,694    4,357   
Interest on borrowings 1,406    1,999    2,359    3,145    3,207   
Total interest expense 6,259    12,626    14,820    17,488    16,375   
   
Net interest income 81,186    76,283    77,009    77,101    75,851   
   
Provision for (recovery of) loan losses 12,224    5,153    (213)   1,967    1,919   
   
Net interest income after provision for (recovery of) loan losses 68,962    71,130    77,222    75,134    73,932   
   
Other income 30,964    22,486    24,224    28,136    22,808   
Other expense 64,799    66,276    71,231    65,738    70,192   
   
Income before income taxes 35,127    27,340    30,215    37,532    26,548   
   
Income taxes 5,622    4,968    6,279    6,386    4,385   
 
Net income  $ 29,505    $ 22,372    $ 23,936    $ 31,146    $ 22,163   
   
Per common share:
Net income - basic $ 1.81    $ 1.37    $ 1.46    $ 1.90    $ 1.34   
Net income - diluted $ 1.80    $ 1.36    $ 1.45    $ 1.89    $ 1.33   





Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com


 
PARK NATIONAL CORPORATION 
Detail of other income and other expense - Linked Quarters
       
  2020 2020 2019 2019 2019
(in thousands) 2nd QTR 1st QTR 4th QTR 3rd QTR 2nd QTR
 
Other income:
Income from fiduciary activities $ 6,793    $ 7,113    $ 7,268    $ 6,842    $ 6,935   
Service charges on deposit accounts 1,676    2,528    2,757    2,864    2,655   
Other service income 8,758    3,766    4,382    4,260    4,040   
Debit card fee income 5,560    4,960    5,341    5,313    5,227   
Bank owned life insurance income 1,179    1,248    1,158    1,107    1,286   
ATM fees 438    412    446    482    460   
Gain (loss) on the sale of OREO, net 841    (196)     (53)   (159)  
Net gain (loss) on the sale of investment securities 3,313    —    —    186    (607)  
(Loss) gain on equity securities, net (977)   (973)   (191)   3,335    232   
Other components of net periodic benefit income 1,988    1,988    1,183    1,183    1,183   
Miscellaneous 1,395    1,640    1,878    2,617    1,556   
Total other income $ 30,964    $ 22,486    $ 24,224    $ 28,136    $ 22,808   
 
Other expense:
Salaries $ 30,699    $ 28,429    $ 30,903    $ 30,713    $ 32,093   
Employee benefits 9,080    10,043    8,973    10,389    9,014   
Occupancy expense 3,256    3,480    3,355    3,226    3,223   
Furniture and equipment expense 4,850    4,319    4,319    4,177    4,386   
Data processing fees 2,577    2,492    2,777    2,935    2,905   
Professional fees and services 6,901    7,066    10,503    6,702    10,106   
Marketing 1,136    1,486    1,468    1,604    1,455   
Insurance 1,477    1,550    317    276    1,381   
Communication 874    1,155    1,256    1,387    1,375   
State tax expense 1,116    1,145    1,024    746    1,054   
Amortization of intangible assets 607    606    623    741    702   
Miscellaneous 2,226    4,505    5,713    2,842    2,498   
Total other expense $ 64,799    $ 66,276    $ 71,231    $ 65,738    $ 70,192   



Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com




PARK NATIONAL CORPORATION 
Asset Quality Information
 
  Year ended December 31,
(in thousands, except ratios) June 30, 2020 March 31, 2020 2019 2018 2017 2016
 
Allowance for loan losses:
Allowance for loan losses, beginning of period $ 61,503    $ 56,679    $ 51,512    $ 49,988    $ 50,624    $ 56,494   
Charge-offs 2,130    2,685    11,177    13,552    19,403    20,799   
Recoveries 1,879    2,356    10,173    7,131    10,210    20,030   
Net charge-offs 251    329    1,004    6,421    9,193    769   
Provision for (recovery of) loan losses 12,224    5,153    6,171    7,945    8,557    (5,101)  
Allowance for loan losses, end of period $ 73,476    $ 61,503    $ 56,679    $ 51,512    $ 49,988    $ 50,624   
General reserve trends:
Allowance for loan losses, end of period $ 73,476    $ 61,503    $ 56,679    $ 51,512    $ 49,988    $ 50,624   
Allowance on purchased credit impaired ("PCI") loans 106    119    268    —    —    —   
Allowance on purchased loans 25    —    —    —    —    —   
Specific reserves 5,808    5,531    5,230    2,273    684    548   
General reserves on originated loans $ 67,537    $ 55,853    $ 51,181    $ 49,239    $ 49,304    $ 50,076   
 
Total loans $ 7,204,445    $ 6,522,519    $ 6,501,404    $ 5,692,132    $ 5,372,483    $ 5,271,857   
PCI loans 12,569    13,765    14,331    3,943    —    —   
Purchased loans 440,803    489,843    548,436    225,029    —    —   
Impaired commercial loans 91,724    85,646    77,459    48,135    56,545    70,415   
Originated loans excluding impaired commercial loans $ 6,659,349    $ 5,933,265    $ 5,861,178    $ 5,415,025    $ 5,315,938    $ 5,201,442   
 
 
Asset Quality Ratios:
Net charge-offs as a % of average loans (annualized) 0.01   % 0.02   % 0.02   % 0.12   % 0.17   % 0.02   %
Allowance for loan losses as a % of period end loans 1.02   % 0.94   % 0.87   % 0.90   % 0.93   % 0.96   %
General reserve as a % of originated total loans less impaired commercial loans 1.01   % 0.94   % 0.87   % 0.91   % 0.93   % 0.96   %
General reserves as a % of originated total loans less impaired commercial loans (excluding PPP loans) 1.10  % N.A. N.A. N.A. N.A. N.A.
 
Nonperforming assets:
Nonaccrual loans $ 100,406    $ 90,354    $ 90,080    $ 67,954    $ 72,056    $ 87,822   
Accruing troubled debt restructurings 23,948    27,168    21,215    15,173    20,111    18,175   
Loans past due 90 days or more 1,690    1,789    2,658    2,243    1,792    2,086   
Total nonperforming loans $ 126,044    $ 119,311    $ 113,953    $ 85,370    $ 93,959    $ 108,083   
Other real estate owned - Park National Bank 427    2,671    3,100    2,788    6,524    6,025   
Other real estate owned - SEPH 929    929    929    1,515    7,666    7,901   
Other nonperforming assets - Park National Bank 3,599    3,599    3,599    3,464    4,849    —   
Total nonperforming assets $ 130,999    $ 126,510    $ 121,581    $ 93,137    $ 112,998    $ 122,009   
Percentage of nonaccrual loans to period end loans 1.39   % 1.39   % 1.39   % 1.19   % 1.34   % 1.67   %
Percentage of nonperforming loans to period end loans 1.75   % 1.83   % 1.75   % 1.50   % 1.75   % 2.05   %
Percentage of nonperforming assets to period end loans 1.82   % 1.94   % 1.87   % 1.64   % 2.10   % 2.31   %
Percentage of nonperforming assets to period end total assets 1.35   % 1.45   % 1.42   % 1.19   % 1.50   % 1.63   %
Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com


PARK NATIONAL CORPORATION 
Asset Quality Information (continued)
 
  Year ended December 31,
(in thousands, except ratios) June 30, 2020 March 31, 2020 2019 2018 2017 2016
 
New nonaccrual loan information:
Nonaccrual loans, beginning of period $ 90,354    $ 90,080    $ 67,954    $ 72,056    $ 87,822    $ 95,887   
New nonaccrual loans 21,995    21,651    81,009    76,611    58,753    74,786   
Resolved nonaccrual loans 11,943    21,377    58,883    80,713    74,519    82,851   
Nonaccrual loans, end of period $ 100,406    $ 90,354    $ 90,080    $ 67,954    $ 72,056    $ 87,822   
 
Impaired commercial loan portfolio information (period end):
Unpaid principal balance $ 92,374    $ 86,379    $ 78,178    $ 59,381    $ 66,585    $ 95,358   
Prior charge-offs 650    733    719    11,246    10,040    24,943   
Remaining principal balance 91,724    85,646    77,459    48,135    56,545    70,415   
Specific reserves 5,808    5,531    5,230    2,273    684    548   
Book value, after specific reserves $ 85,916    $ 80,115    $ 72,229    $ 45,862    $ 55,861    $ 69,867   

Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com



PARK NATIONAL CORPORATION
Financial Reconciliations
NON-GAAP RECONCILIATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
(in thousands, except share and per share data) June 30, 2020 March 31, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Net interest income $ 81,186    $ 76,283    $ 75,851    $ 157,469    $ 143,627   
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions 1,301    1,378    1,606    2,679    1,872   
less interest income on former Vision Bank relationships 266    77    —    343     
Net interest income - adjusted $ 79,619    $ 74,828    $ 74,245    $ 154,447    $ 141,748   
Provision for loan losses $ 12,224    $ 5,153    $ 1,919    $ 17,377    $ 4,417   
less recoveries on former Vision Bank relationships (685)   (764)   (65)   (1,449)   (165)  
Provision for loan losses - adjusted $ 12,909    $ 5,917    $ 1,984    $ 18,826    $ 4,582   
Other income $ 30,964    $ 22,486    $ 22,808    $ 53,450    $ 44,833   
less net gain (loss) on sale of former Vision Bank OREO properties 837    —    (139)   837    (139)  
less rebranding initiative related expenses (274)   —    —    (274)   —   
less net gain (loss) on the sale of debt securities in the ordinary course of business 3,313    —    (607)   3,313    (607)  
Other income - adjusted $ 27,088    $ 22,486    $ 23,554    $ 49,574    $ 45,579   
Other expense $ 64,799    $ 66,276    $ 70,192    $ 131,075    $ 127,019   
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions 214    243    6,058    457    6,334   
less core deposit intangible amortization related to NewDominion and Carolina Alliance acquisitions 607    606    702    1,213    991   
less FHLB prepayment penalty —    1,793    —    1,793    —   
less rebranding initiative related expenses 138    270    162    408    202   
less COVID-19 related expenses 1,919    262    —    2,181    —   
Other expense - adjusted $ 61,921    $ 63,102    $ 63,270    $ 125,023    $ 119,492   
Tax effect of adjustments to net income identified above (i) $ (683)   $ 201    $ 1,259    $ (482)   $ 1,308   
Net income - reported $ 29,505    $ 22,372    $ 22,163    $ 51,877    $ 47,618   
Net income - adjusted $ 26,938    $ 23,126    $ 26,901    $ 50,064    $ 52,539   
Diluted EPS $ 1.80    $ 1.36    $ 1.33    $ 3.16    $ 2.94   
Diluted EPS, adjusted (h) $ 1.65    $ 1.41    $ 1.62    $ 3.05    $ 3.24   
Annualized return on average assets (a)(b) 1.26  % 1.04  % 1.04  % 1.15  % 1.17  %
Annualized return on average assets, adjusted (a)(b)(h)
1.15  % 1.07  % 1.26  % 1.11  % 1.29  %
Annualized return on average tangible assets (a)(b)(e) 1.28  % 1.06  % 1.06  % 1.18  % 1.19  %
Annualized return on average tangible assets, adjusted (a)(b)(e)(h) 1.17  % 1.09  % 1.28  % 1.13  % 1.31  %
Annualized return on average shareholders' equity (a)(b) 11.89  % 9.16  % 9.49  % 10.54  % 10.81  %
Annualized return on average shareholders' equity, adjusted (a)(b)(h) 10.85  % 9.47  % 11.52  % 10.17  % 11.93  %
Annualized return on average tangible equity (a)(b)(c) 14.33  % 11.09  % 11.53  % 12.73  % 12.88  %
Annualized return on average tangible equity, adjusted (a)(b)(c)(h) 13.09  % 11.47  % 13.99  % 12.28  % 14.21  %
Efficiency ratio (g) 57.41  % 66.61  % 70.61  % 61.72  % 66.87  %
Efficiency ratio, adjusted (g)(h) 57.64  % 64.36  % 64.20  % 60.85  % 63.29  %
Annualized net interest margin (g) 3.84  % 3.93  % 3.92  % 3.89  % 3.89  %
Annualized net interest margin, adjusted (g)(h) 3.77  % 3.86  % 3.84  % 3.81  % 3.84  %
Note: Explanations for footnotes (a) - (i) are included at the end of the financial tables in this "Financial Reconciliations" section.


Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com


PARK NATIONAL CORPORATION
Financial Reconciliations (continued)
(a) Averages are for the three months ended June 30, 2020, March 31, 2020, and June 30, 2019 and the six months ended June 30, 2020 and June 30, 2019.
(b) Reported measure uses net income.
(c) Net income for each period 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.
RECONCILIATION OF AVERAGE SHAREHOLDERS' EQUITY TO AVERAGE TANGIBLE EQUITY:
  THREE MONTHS ENDED SIX MONTHS ENDED
  June 30, 2020 March 31, 2020 June 30, 2019 June 30, 2020 June 30, 2019
AVERAGE SHAREHOLDERS' EQUITY $ 998,288    $ 981,976    $ 936,626    $ 990,132    $ 887,946   
Less: Average goodwill and other intangible assets 170,303    170,909    165,311    170,606    142,587   
AVERAGE TANGIBLE EQUITY $ 827,985    $ 811,067    $ 771,315    $ 819,526    $ 745,359   
(d) Tangible equity divided by common shares outstanding at period end. Tangible equity equals total shareholders' equity less goodwill and other intangible assets, in each case at the end of the period.
RECONCILIATION OF TOTAL SHAREHOLDERS' EQUITY TO TANGIBLE EQUITY:
  June 30, 2020 March 31, 2020 June 30, 2019
TOTAL SHAREHOLDERS' EQUITY $ 1,001,594    $ 981,877    $ 934,432   
Less: Goodwill and other intangible assets 169,905    170,512    174,288   
TANGIBLE EQUITY $ 831,689    $ 811,365    $ 760,144   
       
(e) Net income for each period divided by average tangible assets during the period. Average tangible assets equals average assets less average goodwill and other intangible assets, in each case during the applicable period.
RECONCILIATION OF AVERAGE ASSETS TO AVERAGE TANGIBLE ASSETS
  THREE MONTHS ENDED SIX MONTHS ENDED
  June 30, 2020 March 31, 2020 June 30, 2019 June 30, 2020 June 30, 2019
AVERAGE ASSETS $ 9,408,265    $ 8,679,789    $ 8,576,495    $ 9,044,027    $ 8,206,502   
Less: Average goodwill and other intangible assets 170,303    170,909    165,311    170,606    142,587   
AVERAGE TANGIBLE ASSETS $ 9,237,962    $ 8,508,880    $ 8,411,184    $ 8,873,421    $ 8,063,915   
(f) Tangible equity divided by tangible assets. Tangible assets equals total assets less goodwill and other intangible assets, in each case at the end of the period.
RECONCILIATION OF TOTAL ASSETS TO TANGIBLE ASSETS:
  June 30, 2020 March 31, 2020 June 30, 2019
TOTAL ASSETS $ 9,712,994    $ 8,719,291    $ 8,657,453   
Less: Goodwill and other intangible assets 169,905    170,512    174,288   
TANGIBLE ASSETS $ 9,543,089    $ 8,548,779    $ 8,483,165   
       
(g) Efficiency ratio is calculated by dividing total other expense by the sum of fully taxable equivalent net interest income and other income. Fully taxable equivalent net interest income reconciliation is shown assuming a 21% corporate federal income tax rate. Additionally, net interest margin is calculated on a fully taxable equivalent basis by dividing fully taxable equivalent net interest income by average interest earning assets.
RECONCILIATION OF FULLY TAXABLE EQUIVALENT NET INTEREST INCOME TO NET INTEREST INCOME
  THREE MONTHS ENDED SIX MONTHS ENDED
  June 30, 2020 March 31, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Interest income $ 87,445    $ 88,909    $ 92,226    $ 176,354    $ 174,082   
Fully taxable equivalent adjustment 723    725    752    1,448    1,486   
Fully taxable equivalent interest income $ 88,168    $ 89,634    $ 92,978    $ 177,802    $ 175,568   
Interest expense 6,259    12,626    16,375    18,885    30,455   
Fully taxable equivalent net interest income $ 81,909    $ 77,008    $ 76,603    $ 158,917    $ 145,113   
(h) Adjustments to net income for each period presented are detailed in the non-GAAP reconciliations of net interest income, provision for (recovery of) loan losses, other income and other expense above.
(i) The tax effect of adjustments to net income was calculated assuming a 21% corporate federal income tax rate.

Park National Corporation
50 N. Third Street, Newark, Ohio 43055
www.parknationalcorp.com