PARK NATIONAL CORP /OH/ [PRK] Filings

10-Q 1 prk-20220331.htm 10-Q prk-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to __________________________


Commission File Number			1-13006


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


Ohio						31-1179518
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer 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)


N/A
(Former name, former address and former fiscal year, if changed since last report)

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”,

“smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 16,249,306 Common Shares, no par value per share, outstanding at May 2, 2022.

PARK NATIONAL CORPORATION

CONTENTS


			Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Condensed Balance Sheets a t March 31, 2022 and December 31, 20 2 1 (unaudited)			5

Consolidated Condensed Statements of Income for the three months ended March 31, 2022 and 20 2 1 (unaudited)			7

Consolidated Condensed Statements of Comprehensive (Loss) Income for the three months ended March 31, 2022 and 20 2 1 (unaudited)			9

Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2022 and 20 2 1 (unaudited)			10

Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2022 and 20 2 1 (unaudited)			11

Notes to Unaudited Consolidated Condensed Financial Statements			13

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			61

Item 3. Quantitative and Qualitative Disclosures About Market Risk			88

Item 4. Controls and Procedures			88

PART II. OTHER INFORMATION			90

Item 1. Legal Proceedings			90

Item 1A. Risk Factors			90

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			90

Item 3. Defaults Upon Senior Securities			91

Item 4. Mine Safety Disclosures			91

Item 5. Other Information			91

Item 6. Exhibits			91

SIGNATURES			94

Glossary of Abbreviations and Acronyms

Park has identified the following list of abbreviations and acronyms that are used in the Notes to Unaudited Consolidated Condensed Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations.

AFS

Available-for-sale

LIBOR

London Inter-Bank Offered Rate

ACL

Allowance for credit losses

MSRs

Mortgage servicing rights

Allowance

Allowance for credit losses

NAV

Net asset value

AOCI

Accumulated other comprehensive (loss) income

NewDominion

NewDominion Bank

ASC

Accounting Standards Codification

OCI

Other comprehensive (loss) income

ASU

Accounting Standards Update

OREO

Other real estate owned

AUCL

Allowance for unfunded credit losses

OWS

One-way sell

CARES Act

Coronavirus Aid, Relief, and Economic Security Act

Park

Park National Corporation and its subsidiaries

Carolina Alliance

CAB Financial Corporation and its subsidiaries

PBRSUs

Performance-based restricted stock units

CECL

Current expected credit loss

PCD

Purchased credit deteriorated

COVID-19

Novel coronavirus

Probability of default

DCF

Discounted cash flow

PNB

The Park National Bank

FASB

Financial Accounting Standards Board

PPP

CARES Act Paycheck Protection Program

FHLB

Federal Home Loan Bank

ROU

Right-of-use

FRB

Federal Reserve Bank

SARs

Stock appreciation rights

GDP

Gross domestic product

SBA

Small Business Administration

GFSC

Guardian Financial Services Company

SEC

U.S. Securities and Exchange Commission

HPI

Home price index

SEPH

SE Property Holdings, LLC

HTM

Held-to-maturity

TBRSUs

Time-based restricted stock units

IRLC

Interest rate lock commitment

TDRs

Troubled debt restructurings

LDA

Loss driver analysis

U.S. GAAP

United States Generally Accepted Accounting Principles

LGD

Loss given default

U.S.

United States

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (Unaudited)

(in thousands, except share and per share data)


	March 31, 2022		December 31, 2021
Assets:
Cash and due from banks	$	159,858	$	144,507
Money market instruments	87,034		74,673
Cash and cash equivalents	246,892		219,180
Investment securities:
Debt securities available-for-sale, at fair value (amortized cost of $1,800,956 and $1,727,363 at March 31, 2022 and December 31, 2021, respectively, and no allowance for credit losses at March 31, 2022 and December 31, 2021)	1,757,147		1,754,140
Other investment securities	75,127		61,268
Total investment securities	1,832,274		1,815,408

Loans	6,821,606		6,871,122
Allowance for credit losses	(78,861)		(83,197)
Net loans	6,742,745		6,787,925

Bank owned life insurance	224,100		215,792
Prepaid assets	147,486		144,124
Goodwill	159,595		159,595
Other intangible assets	7,060		7,462
Premises and equipment, net	87,423		89,008
Affordable housing tax credit investments	56,731		58,711
OREO	760		775
Accrued interest receivable	23,054		23,413
Operating lease right-of-use asset	12,797		13,446
Mortgage loan servicing rights	15,704		15,264
Other	19,731		10,151
Total assets	$	9,576,352	$	9,560,254

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (Unaudited) (Continued)

(in thousands, except share and per share data)


	March 31, 2022		December 31, 2021
Liabilities and Shareholders' Equity:
Deposits:
Non-interest bearing	$	3,055,614	$	3,066,419
Interest bearing	4,940,704		4,838,109
Total deposits	7,996,318		7,904,528

Short-term borrowings	205,927		238,786
Subordinated notes	188,322		188,210
Unfunded commitments in affordable housing tax credit investments	21,232		28,484
Operating lease liability	13,568		14,339
Allowance for credit losses on off-balance sheet commitments	3,771		4,282
Accrued interest payable	1,147		3,116
Other	69,701		67,750
Total liabilities	$	8,499,986	$	8,449,495

Shareholders' equity:
Preferred shares (200,000 shares authorized; 0 shares issued)	$	—	$	—
Common shares (No par value; 20,000,000 shares authorized; 17,623,106 shares issued at March 31, 2022 and 17,623,118 shares issued at December 31, 2021)	459,271		461,800
Retained earnings	797,033		776,294
Treasury shares (1,373,798 shares at March 31, 2022 and 1,403,555 shares at December 31, 2021)	(139,469)		(142,490)
Accumulated other comprehensive (loss) income, net of taxes	(40,469)		15,155
Total shareholders' equity	1,076,366		1,110,759
Total liabilities and shareholders’ equity	$	9,576,352	$	9,560,254

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Income (Unaudited)

(in thousands, except share and per share data)


	Three Months Ended March 31,
	2022		2021
Interest and dividend income:

Interest and fees on loans	$	72,416	$	78,737

Interest and dividends on:
Debt securities - taxable	6,130		4,256
Debt securities - tax-exempt	2,447		2,037
Other interest income	153		143
Total interest and dividend income	81,146		85,173

Interest expense:

Interest on deposits:
Demand and savings deposits	351		386
Time deposits	720		1,584

Interest on borrowings:
Short-term borrowings	244		183
Long-term debt	2,145		2,286

Total interest expense	3,460		4,439

Net interest income	77,686		80,734

Recovery of credit losses	(4,605)		(4,855)
Net interest income after recovery of credit losses	$	82,291	$	85,589

Other income:
Income from fiduciary activities	$	8,797	$	8,173
Service charges on deposit accounts	2,074		2,054
Other service income	4,819		9,617
Debit card fee income	6,126		6,086
Bank owned life insurance income	1,175		1,165
ATM fees	532		530
Loss on sale of OREO, net	—		(33)
Gain on equity securities, net	2,353		1,810
Other components of net periodic pension benefit income	3,027		2,038
Miscellaneous	2,753		2,649
Total other income	$	31,656	$	34,089

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Income (Unaudited) (Continued)

(in thousands, except share and per share data)


	Three Months Ended March 31,
	2022		2021
Other expense:
Salaries	$	30,521	$	29,896
Employee benefits	10,499		10,201
Occupancy expense	3,214		3,640
Furniture and equipment expense	2,937		2,610
Data processing fees	7,504		7,712
Professional fees and services	5,858		5,664
Marketing	1,317		1,491
Insurance	1,405		1,691
Communication	890		1,122
State tax expense	1,192		1,108
Amortization of intangible assets	402		479
Miscellaneous	1,634		2,251
Total other expense	$	67,373	$	67,865

Income before income taxes	$	46,574	$	51,813

Income taxes	7,699		8,982

Net income	$	38,875	$	42,831

Earnings per common share:
Basic	$	2.40	$	2.63
Diluted	$	2.38	$	2.61

Weighted average common shares outstanding:
Basic	16,219,889		16,314,987
Diluted	16,331,031		16,439,920

Quarterly cash dividends declared per common share	$	1.04	$	1.03
Special cash dividends declared per common share	$	—	$	0.20

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Comprehensive (Loss) Income (Unaudited)

(in thousands)


	Three Months Ended March 31,
	2022		2021
Net income	$	38,875	$	42,831

Other comprehensive (loss) income, net of tax:
Unrealized net holding loss on debt securities available-for-sale, net of income tax effect of $(14,823) and $(3,614) for the three months ended March 31, 2022 and 2021, respectively	(55,763)		(13,597)
Unrealized gain on cash flow hedging derivatives, net of income tax effect of $37 and $33 for the three months ended March 31, 2022 and 2021, respectively	139		125
Other comprehensive loss	$	(55,624)	$	(13,472)

Comprehensive (loss) income	$	(16,749)	$	29,359

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited)

(in thousands, except share and per share data)


	Preferred Shares		Common Shares		Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2021	$	—	$	461,800	$	776,294	$	(142,490)	$	15,155
Net income					38,875
Other comprehensive loss, net of tax									(55,624)
Dividends on common shares at $1.04 per share					(17,172)
Cash payment for fractional common shares in dividend reinvestment plan			(2)
Issuance of 29,757 common shares under share-based compensation awards, net of 18,658 common shares withheld to pay employee income taxes			(4,508)		(964)		3,021
Share-based compensation expense			1,981
Balance at March 31, 2022	$	—	$	459,271	$	797,033	$	(139,469)	$	(40,469)


	Preferred Shares		Common Shares		Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2020	$	—	$	460,687	$	704,764	$	(130,766)	$	5,571
Cumulative change in accounting principle					(7,956)
Balance at January 1, 2021	$	—	$	460,687	$	696,808	$	(130,766)	$	5,571
Net income					42,831
Other comprehensive loss, net of tax									(13,472)
Dividends on common shares at $1.23 per share					(20,365)
Cash payment for fractional common shares in dividend reinvestment plan			(1)
Issuance of 21,764 common shares under share-based compensation awards, net of 14,108 common shares withheld to pay employee income taxes			(3,988)		(44)		2,174
Share-based compensation expense			1,836
Balance at March 31, 2021	$	—	$	458,534	$	719,230	$	(128,592)	$	(7,901)

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows (Unaudited)

(in thousands)


	Three Months Ended March 31,
	2022		2021
Operating activities:
Net income	$	38,875	$	42,831

Adjustments to reconcile net income to net cash provided by operating activities:
Recovery of credit losses	(4,605)		(4,855)
Accretion of loan fees and costs, net	(3,772)		(6,334)
Depreciation of premises and equipment	3,482		3,216
Amortization of investment securities, net	875		354
Net accretion of purchase accounting adjustments	(86)		(655)
Gain on equity securities, net	(2,353)		(1,810)
Loan originations to be sold in secondary market	(73,713)		(192,382)
Proceeds from sale of loans in secondary market	77,189		212,880
Gain on sale of loans in secondary market	(1,941)		(6,598)
Share-based compensation expense	1,981		1,836
Loss on sale of OREO, net	—		33
Bank owned life insurance income	(1,175)		(1,165)
Investment in qualified affordable housing tax credits amortization	1,980		1,856

Changes in assets and liabilities:
Decrease (increase) in prepaid dealer premiums	94		(508)
Decrease (increase) in other assets	1,253		(13,000)
(Decrease) increase in other liabilities	(9,742)		10,166
Net cash provided by operating activities	$	28,342	$	45,865

Investing activities:
Proceeds from the redemption/repurchase of Federal Home Loan Bank stock	$	—	$	4,283
Proceeds from sales of investment securities	—		934
Proceeds from calls and maturities of:
Debt securities AFS	54,263		58,344
Purchases of:
Debt securities AFS	(128,731)		(131,852)
Equity securities	(1,630)		—
Net decrease in other investments	124		1,102
Net loan paydowns (originations), portfolio loans	52,444		(2,922)
Proceeds from the sale of non-mortgage loans	—		3,538
Investment in qualified affordable housing tax credits	(7,252)		(6,094)
Proceeds from the sale of OREO	38		626
Life insurance death benefits	367		674
Purchases of bank owned life insurance	(7,500)		—
Purchases of premises and equipment	(2,127)		(4,114)
Net cash used in investing activities	$	(40,004)	$	(75,481)

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PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued) (in thousands)
	Three Months Ended March 31,
	2022		2021
Financing activities:
Net increase in deposits	$	257,927	$	762,896
Net increase in off-balance sheet deposits	(166,134)		(99,034)
Net decrease in short-term borrowings	(32,859)		(36,845)
Repayment of long-term debt	—		(2,500)
Value of common shares withheld to pay employee income taxes	(2,451)		(1,858)
Cash dividends paid	(17,109)		(20,242)
Net cash provided by financing activities	$	39,374	$	602,417

Increase in cash and cash equivalents	27,712		572,801

Cash and cash equivalents at beginning of year	219,180		370,474

Cash and cash equivalents at end of period	$	246,892	$	943,275

Supplemental disclosures of cash flow information:

Cash paid for:
Interest	$	5,429	$	6,745

Non-cash items:
Loans transferred to OREO	$	55	$	78

New commitments in other investment securities	$	10,000	$	—

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

The accompanying unaudited consolidated condensed financial statements included in this report have been prepared for Park National Corporation (sometimes also referred to as the “Registrant”) and its subsidiaries. Unless the context otherwise requires, references to "Park", the "Corporation" or the "Company" and similar terms mean Park National Corporation and its subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the interim periods included herein have been made. The results of operations for the three-month period ended March 31, 2022 are not necessarily indicative of the operating results to be anticipated for the year ending December 31, 2022.

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of the consolidated condensed balance sheets, consolidated condensed statements of income, consolidated condensed statements of comprehensive (loss) income, consolidated condensed statements of changes in shareholders’ equity and consolidated condensed statements of cash flows in conformity with U.S. GAAP. These financial statements should be read in conjunction with the consolidated financial statements included in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA in the Annual Report on Form 10-K of Park National Corporation for the fiscal year ended December 31, 2021 ("Park's 2021 Form 10-K").

Park’s significant accounting policies are described in Note 1. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 2021 Form 10-K. For interim reporting purposes, Park follows the same basic accounting policies, as updated by the information contained in this report, and considers each interim period an integral part of an annual period.

The COVID-19 pandemic has caused significant, unprecedented disruption around the world that has affected daily living and negatively impacted the global economy. Additionally, geopolitical conflict (including the conflict in Ukraine) has added uncertainty to the overall economic environment. The effects of the COVID-19 pandemic and geopolitical conflict may meaningfully impact significant estimates such as the allowance for credit losses, goodwill, mortgage servicing rights, and pension plan obligations and related expenses. Additionally, the COVID-19 pandemic has particularly impacted certain loan concentrations in the hotels and accommodations, restaurants and food service, and strip shopping centers industries.

Note 2 - Adoption of New Accounting Pronouncements and Issued But Not Yet Effective Accounting Standards

The following is a summary of new accounting pronouncements impacting Park's consolidated financial statements:

Adoption of New Accounting Pronouncements

There were no new accounting pronouncements adopted by Park during the three-month period ended March 31, 2022.

Issued But Not Yet Effective Accounting Standards

ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures: In March 2022, FASB issued ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the amendments in this ASU require that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost.

For entities, like Park, that have adopted the amendments in ASU 2016-13, the amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted, including adoption in an interim period. An entity may elect to adopt the loan modification guidance and related disclosure enhancements separately from the amendments related to vintage disclosures. The amendments in this ASU should be applied prospectively, except for the amendments related to the recognition and measurement of TDRs which may be applied prospectively, or using a

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modified retrospective transition method. Management is currently considering the timing of adoption. The adoption of ASU 2022-02 is not expected to have a material impact on the financial statements but will impact disclosure requirements and reduce individually evaluated loan totals.

Note 3 – Investment Securities

Investment securities at March 31, 2022 and December 31, 2021, were as follows:


Debt securities AFS (In thousands)	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
March 31, 2022:
Obligations of U.S. Treasury and other U.S. Government sponsored entities	$	39,000	$	—	$	438	$	38,562
Obligations of states and political subdivisions	374,101		6,572		9,032		371,641
U.S. Government sponsored entities' asset-backed securities	870,576		1,185		36,959		834,802
Collateralized loan obligations	500,029		—		5,112		494,917
Corporate debt securities	17,250		125		150		17,225
Total	$	1,800,956	$	7,882	$	51,691	$	1,757,147


Debt securities AFS (In thousands)	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
December 31, 2021:
Obligations of states and political subdivisions	$	366,933	$	22,682	$	24	$	389,591
U.S. Government sponsored entities' asset-backed securities	849,114		13,437		8,088		854,463
Collateralized loan obligations	500,066		3		1,395		498,674
Corporate debt securities	11,250		169		7		11,412
Total	$	1,727,363	$	36,291	$	9,514	$	1,754,140

Investment securities in an unrealized loss position at March 31, 2022, were as follows: