PARK NATIONAL CORP /OH/ [PRK] Filings

10-Q 1 prk-20230630.htm 10-Q prk-20230630

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 June 30, 2023


☐			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: 16,153,425 Common Shares, no par value per share, outstanding at July 31, 2023.

PARK NATIONAL CORPORATION

CONTENTS


			Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Condensed Balance Sheets a t June 30 , 2023 and December 31, 20 22 (unaudited)			5

Consolidated Condensed Statements of Income for the three months and the six months ended June 30 , 2023 and 20 22 (unaudited)			7

Consolidated Condensed Statements of Comprehensive Income (Loss) for the three months and the six months ended June 30 , 2023 and 20 22 (unaudited)			9

Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three and the six months ended June 30 , 2023 and 20 22 (unaudited)			10

Consolidated Condensed Statements of Cash Flows for the six months ended June 30 , 2023 and 20 22 (unaudited)			12

Notes to Unaudited Consolidated Condensed Financial Statements			14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			69

Item 3. Quantitative and Qualitative Disclosures About Market Risk			102

Item 4. Controls and Procedures			102

PART II. OTHER INFORMATION			103

Item 1. Legal Proceedings			103

Item 1A. Risk Factors			103

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			104

Item 3. Defaults Upon Senior Securities			105

Item 4. Mine Safety Disclosures			105

Item 5. Other Information			105

Item 6. Exhibits			105

SIGNATURES			108

Glossary of Abbreviations and Acronyms

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

ACL

Allowance for credit losses

MSRs

Mortgage servicing rights

AFS

Available-for-sale

NAV

Net asset value

Allowance

Allowance for credit losses

NewDominion

NewDominion Bank

ASC

Accounting Standards Codification

OREO

Other real estate owned

ASU

Accounting Standards Update

OWS

One-way sell

ATM

Automated teller machine

Park

Park National Corporation and its subsidiaries

CARES Act

Coronavirus Aid, Relief, and Economic Security Act

Park National Bank

The Park National Bank

Carolina Alliance

CAB Financial Corporation and its subsidiaries

PBRSUs

Performance-based restricted stock units

CECL

Current expected credit loss

PCD

Purchased credit deteriorated

Company

Park National Corporation and its subsidiaries

Probability of default

Corporation

Park National Corporation and its subsidiaries

PNB

The Park National Bank

COVID

Novel coronavirus

PPP

CARES Act Paycheck Protection Program

DCF

Discounted cash flow

PTPP

Pre-tax, pre-provision

EPS

Earnings per common share

Registrant

Park National Corporation

FASB

Financial Accounting Standards Board

ROU

Right-of-use

FHLB

Federal Home Loan Bank

SARs

Stock appreciation rights

FRB

Federal Reserve Bank

SBA

Small Business Administration

FTE

Fully taxable equivalent

SEC

U.S. Securities and Exchange Commission

GDP

Gross domestic product

SEPH

SE Property Holdings, LLC

GFSC

Guardian Financial Services Company

TBRSUs

Time-based restricted stock units

HELOC

Home equity line of credit

TDRs

Troubled debt restructurings

HPI

Home price index

U.S.

United States of America

IRLC

Interest rate lock commitment

U.S. GAAP

United States Generally Accepted Accounting Principles

KSOP

Park's qualified retirement plan that combines an employee stock ownership plan (ESOP) with a 401(k) plan

United States

United States of America

LDA

Loss driver analysis

Vision

Vision Bancshares, Inc.

LGD

Loss given default

VOV

Verification of value

LIBOR

London Inter-Bank Offered Rate

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (Unaudited)

(in thousands, except common share and per common share data)


	June 30, 2023		December 31, 2022
Assets:
Cash and due from banks	$	159,552	$	156,750
Money market instruments	70,845		32,978
Cash and cash equivalents	230,397		189,728

Investment securities:
Debt securities available-for-sale, at fair value (amortized cost of $1,782,922 and $1,854,852 at June 30, 2023 and December 31, 2022, respectively, and no allowance for credit losses at June 30, 2023 or at December 31, 2022)	1,668,864		1,733,696
Other investment securities	88,089		87,091
Total investment securities	1,756,953		1,820,787

Loans	7,208,109		7,141,891
Allowance for credit losses	(87,206)		(85,379)
Net loans	7,120,903		7,056,512

Bank owned life insurance	224,248		220,072
Prepaid assets	158,482		153,579
Goodwill	159,595		159,595
Other intangible assets	5,320		5,975
Premises and equipment, net	78,933		82,126
Affordable housing tax credit investments	56,774		60,968
OREO	2,267		1,354
Accrued interest receivable	36,416		34,704
Operating lease ROU asset	16,609		17,600
Mortgage loan servicing rights	15,237		15,792
Other	37,417		36,201
Total assets	$	9,899,551	$	9,854,993

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (Unaudited) (Continued)

(in thousands, except common share and per common share data)


	June 30, 2023		December 31, 2022
Liabilities and Shareholders' Equity:
Deposits:
Non-interest bearing	$	2,796,009	$	3,074,276
Interest bearing	5,562,967		5,160,439
Total deposits	8,358,976		8,234,715

Short-term borrowings	143,914		227,342
Subordinated notes	188,904		188,667
Unfunded commitments in affordable housing tax credit investments	22,556		28,132
Operating lease liability	17,917		19,291
Allowance for credit losses on off-balance sheet commitments	5,452		5,214
Accrued interest payable	4,048		3,486
Other	69,027		78,920
Total liabilities	$	8,810,794	$	8,785,767

Shareholders' equity:
Preferred shares (No par value; 200,000 shares authorized; No shares issued)	$	—	$	—
Common shares (No par value; 20,000,000 shares authorized; 17,623,104 common shares issued at June 30, 2023 and at December 31, 2022)	460,578		462,404
Retained earnings	876,830		847,235
Treasury shares (1,469,679 common shares at June 30, 2023 and 1,359,521 common shares at December 31, 2022)	(151,865)		(138,019)
Accumulated other comprehensive loss, net of taxes	(96,786)		(102,394)
Total shareholders' equity	1,088,757		1,069,226
Total liabilities and shareholders’ equity	$	9,899,551	$	9,854,993

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 common share and per common share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Interest and dividend income:

Interest and fees on loans	$	96,428	$	77,787	$	188,042	$	150,203

Interest and dividends on:
Debt securities - taxable	13,431		7,624		26,410		13,754
Debt securities - tax-exempt	2,906		2,676		5,818		5,123
Other interest income	1,909		260		5,305		413
Total interest and dividend income	114,674		88,347		225,575		169,493

Interest expense:

Interest on deposits:
Demand and savings deposits	18,068		1,333		32,280		1,684
Time deposits	1,966		708		3,313		1,428

Interest on borrowings:
Short-term borrowings	728		190		1,552		434
Subordinated notes and long-term debt	2,340		2,177		4,660		4,322

Total interest expense	23,102		4,408		41,805		7,868

Net interest income	91,572		83,939		183,770		161,625

Provision for (recovery of) credit losses	2,492		2,991		2,675		(1,614)
Net interest income after provision for (recovery of) credit losses	$	89,080	$	80,948	$	181,095	$	163,239

Other income:
Income from fiduciary activities	$	8,816	$	8,859	$	17,431	$	17,656
Service charges on deposit accounts	2,041		2,563		4,282		4,637
Other service income	2,639		4,940		5,336		9,759
Debit card fee income	6,830		6,731		13,287		12,857
Bank owned life insurance income	1,332		2,374		2,517		3,549
ATM fees	553		583		1,086		1,115
Gain on the sale of OREO, net	12		4		3		4
OREO valuation markup	—		—		15		30
Gain (loss) on equity securities, net	25		709		(380)		3,062
Other components of net periodic pension benefit income	1,893		3,027		3,786		6,054
Miscellaneous	874		1,403		2,039		4,126
Total other income	$	25,015	$	31,193	$	49,402	$	62,849

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Income (Unaudited) (Continued)

(in thousands, except common share and per common share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Other expense:
Salaries	$	33,649	$	31,052	$	68,520	$	61,573
Employee benefits	10,538		10,199		21,354		20,698
Occupancy expense	3,214		3,040		6,567		6,254
Furniture and equipment expense	3,103		2,934		6,349		5,871
Data processing fees	9,582		8,416		18,332		15,920
Professional fees and services	7,365		6,775		14,586		12,633
Marketing	1,239		1,019		2,558		2,336
Insurance	1,960		1,245		3,774		2,650
Communication	1,045		935		2,082		1,825
State tax expense	1,096		1,167		2,374		2,359
Amortization of intangible assets	328		403		655		805
Miscellaneous	2,766		2,863		5,237		4,497
Total other expense	$	75,885	$	70,048	$	152,388	$	137,421

Income before income taxes	$	38,210	$	42,093	78,109		88,667

Income taxes	6,626		7,769		12,792		15,468

Net income	$	31,584	$	34,324	$	65,317	$	73,199

Earnings per common share:
Basic	$	1.95	$	2.11	$	4.03	$	4.51
Diluted	$	1.94	$	2.10	$	4.01	$	4.48

Weighted average common shares outstanding:
Basic	16,165,119		16,249,307		16,203,736		16,234,598
Diluted	16,240,600		16,361,246		16,282,693		16,346,141

Regular cash dividends declared per common share	$	1.05	$	1.04	$	2.10	$	2.08

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

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

(in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	31,584	$	34,324	$	65,317	$	73,199

Other comprehensive (loss) income, net of tax:
Unrealized net holding (loss) gain on debt securities available-for-sale, net of income tax effect of $(1,795) and $(11,963) for the three months ended June 30, 2023 and 2022, respectively, and $1,490 and $(26,786) for the six months ended June 30, 2023 and 2022, respectively.	(6,753)		(45,002)		5,608		(100,765)
Reclassification adjustment for losses included in net income on cash flow hedging derivatives, net of income tax effect of $14 for both the three months and six months ended June 30, 2022.	—		52		—		52
Unrealized gain on cash flow hedging derivatives, net of income tax effect of $4 for the three months ended June 30, 2022 and $41 for the six months ended June 30, 2022.	—		15		—		154
Other comprehensive (loss) income	$	(6,753)	$	(44,935)	$	5,608	$	(100,559)

Comprehensive income (loss)	$	24,831	$	(10,611)	$	70,925	$	(27,360)

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 common share and per common share data)


	Preferred Shares		Common Shares		Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Loss
Balance at December 31, 2022	$	—	$	462,404	$	847,235	$	(138,019)	$	(102,394)
Cumulative effect of a change in accounting principle					(303)
Balance at January 1, 2023	$	—	$	462,404	$	846,932	$	(138,019)	$	(102,394)
Net income					33,733
Other comprehensive income, net of tax									12,361
Dividends on common shares at $1.05 per common share					(17,285)
Issuance of 34,484 common shares under share-based compensation awards, net of 21,981 common shares withheld to pay employee income taxes			(5,309)		(862)		3,564
Share-based compensation expense			2,336
Repurchase of 124,000 common shares to be held as treasury shares							(15,308)
Balance at March 31, 2023	$	—	$	459,431	$	862,518	$	(149,763)	$	(90,033)
Net income					31,584
Other comprehensive loss net of tax									(6,753)
Dividends on common shares at $1.05 per common share					(17,187)
Issuance of 4,358 common shares under share-based compensation awards, net of 1,992 common shares withheld to pay employee income taxes			(602)		(85)		$	450
Share-based compensation expense			1,749
Repurchase of 25,000 common shares to be held as treasury shares							(2,552)
Balance at June 30, 2023	$	—	$	460,578	$	876,830	$	(151,865)	$	(96,786)

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

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

(in thousands, except common share and per common 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 common 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)
Net income					34,324
Other comprehensive loss, net of tax									(44,935)
Dividends on common shares at $1.04 per common share					(17,116)
Share-based compensation expense			1,374
Balance at June 30, 2022	$	—	$	460,645	$	814,241	$	(139,469)	$	(85,404)

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)


	Six Months Ended June 30,
	2023		2022
Operating activities:
Net income	$	65,317	$	73,199

Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (recovery of) credit losses	2,675		(1,614)
Accretion of loan fees and costs, net	(4,400)		(7,132)
Depreciation of premises and equipment	7,122		6,943
Amortization of investment securities, net	1,722		1,704
Net amortization (accretion) of purchase accounting adjustments	263		(241)
Loss (gain) on equity securities, net	380		(3,062)
Loan originations to be sold in secondary market	(32,720)		(128,306)
Proceeds from sale of loans in secondary market	32,008		135,241
Gain on sale of loans in secondary market	(625)		(3,227)
Share-based compensation expense	4,085		3,355
Gain on sale of OREO, net	(3)		(4)
OREO valuation markup	(15)		(30)
Bank owned life insurance income	(2,517)		(3,549)
Investment in qualified affordable housing tax credits amortization	4,194		3,960

Changes in assets and liabilities:
Increase in prepaid dealer premiums	(244)		(4,795)
Increase in other assets	(7,312)		(2,178)
Decrease in other liabilities	(12,261)		(13,802)
Net cash provided by operating activities	$	57,669	$	56,462

Investing activities:
Proceeds from the redemption/repurchase of Federal Home Loan Bank stock	$	3,605	$	—
Proceeds from calls and maturities of:
Debt securities AFS	71,116		102,660
Purchases of:
Debt securities AFS	(908)		(316,878)
Equity securities	(2,195)		(2,630)
FHLB stock	(1,407)		—
Net decrease in other investments	1,114		339
Net loan originations, portfolio loans	(62,384)		(90,952)
Investment in qualified affordable housing tax credits	(5,576)		(7,252)
Proceeds from the sale of OREO	57		67
Bank owned life insurance death benefits	1,104		7,525
Purchases of bank owned life insurance	(2,500)		(7,500)
Purchases of premises and equipment	(4,047)		(3,740)
Net cash used in investing activities	$	(2,021)	$	(318,361)

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PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued) (in thousands)
	Six Months Ended June 30,
	2023		2022
Financing activities:
Net (decrease) increase in deposits	$	(70,909)	$	219,870
Net decrease in off-balance sheet deposits	195,170		173,261
Net decrease in short-term borrowings	(83,428)		(66,987)
Value of common shares withheld to pay employee income taxes	(2,844)		(2,451)
Repurchase of common shares to be held as treasury shares	(17,860)		—
Cash dividends paid	(35,108)		(34,533)
Net cash (used in) provided by financing activities	$	(14,979)	$	289,160

Increase in cash and cash equivalents	40,669		27,261

Cash and cash equivalents at beginning of year	189,728		219,180

Cash and cash equivalents at end of period	$	230,397	$	246,441

Supplemental disclosures of cash flow information:

Cash paid for:
Interest	$	41,243	$	7,904

Federal income tax	7,350		10,500

Non-cash items:
Loans transferred to OREO	$	1,051	$	1,409

Transfers from loans to commercial loans held for sale	—		6,321

ROU assets obtained in exchange for lease obligations	179		4,182

New commitments in other investment securities	2,495		15,000

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 and the six-month periods ended June 30, 2023 are not necessarily indicative of the operating results to be anticipated for the year ending December 31, 2023.

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Quarterly Reports on 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 income (loss), 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, 2022 ("Park's 2022 Form 10-K"). Certain prior period amounts have been reclassified to conform to the current period presentation.

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 2022 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.

Recent bank failures have called into question the stability of the financial services industry. While Park is well capitalized and has significant available liquidity, the effects of these failures and potential future failures may meaningfully impact significant estimates such as the allowance for credit losses, goodwill, and pension plan obligations and related expenses.

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

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) Tr