EDGAR 10-K Filing

Company CIK: 805676
Filing Year: 2025
Filename: 805676_10-K_2025_0000805676-25-000014.json

---

ITEM 1. BUSINESS
ITEM 1. BUSINESS.
The disclosures set forth in this Item are qualified by "ITEM 1A. RISK FACTORS" and the section captioned "FORWARD-LOOKING STATEMENTS" of this Annual Report on Form 10-K and other cautionary statements set forth elsewhere in this Annual Report on Form 10-K.
General
Park National Corporation (“Park”) is a financial holding company regulated under the Bank Holding Company Act of 1956 (the “Bank Holding Company Act”). Founded as Park National Bank of Ohio, in Newark, Ohio, Park’s legacy dates to 1908. As a bank holding company, Park was established in 1987. Park is headquartered at 51 North Third Street, Newark, Ohio 43055, and can be reached at (740) 349-8451. Its common shares trade on NYSE American under the symbol “PRK.” Park's internet site http://www.parknationalcorp.com provides access to annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments, and definitive proxy statements filed under the Securities Exchange Act of 1934 (the “Exchange Act”). These documents are available as soon as practicable after Park files them electronically with the SEC. Park's primary business is to own and oversee its subsidiaries, engaged primarily in the business of banking. While Park sets overall policies, including lending and financial strategies, the officers of its subsidiaries handle day-to-day operations.
Human Capital
At Park, banking is about more than money, and jobs are about more than work. Park provides a work experience that ignites associate passion to serve, unlocks potential to grow, and fuels the life of associates who want to build for themselves and those they love. Park provides opportunities for growth and advancement by empowering associates and offering ongoing training to develop knowledge and skills. Park strives to provide a safe, fair, caring and courteous work environment.
Associate Profile
Park associates are driven by purpose, a theme associates refer to as "Serving More." The organization prioritizes doing the right thing, whether that means listening attentively, empathizing with others, or prioritizing the best interests of others. This commitment makes the work deeply meaningful.
Park operates 87 financial service offices in Ohio, northern Kentucky, and the Carolinas. As of December 31, 2024, Park had 1,771 active associates, comprising 1,620 full-time and 151 part-time, which equates to 1,725 full-time equivalent associates. Of these, 68% are female and 32% are male, with an average tenure of 9 years. The branch delivery channels employ 32.8% of those associates.
Talent
Park is committed to equal employment opportunities, hiring, and promoting individuals who meet position requirements and show strong potential for growth. Park’s performance management emphasizes rewarding associates based on performance. Through annual goal-setting and quarterly updates, supervisors and associates collaboratively track progress. The annual evaluation process influences pay and salary reviews, fostering a culture of continuous improvement. Park values associates' experience and knowledge to identify enhancement areas.
Career Pathways and Professional Development
Park fosters professional growth with a culture that prioritizes compassion over competition. Associates take ownership of their journey with genuine support from leaders and access to development opportunities that enhance performance, engagement, and competitiveness. Comprehensive training and professional development align with Park's mission to promote long-term prosperity for its stakeholders.
The Learning and Development team bolsters Park's objectives by streamlining training, improving onboarding, overseeing associate development, and implementing learning solutions that foster belonging and connection. Launching in 2025, Park will continue to solidify its commitment to grow with its associates through its new Leadership Pathways program that will implement learning solutions that promote a sense of belonging and connection through culture building. Through
these efforts, we are committed to ensuring that our associates have the tools and resources they need to thrive and contribute to the success of our organization.
Compensation & Benefits
Park's benefits package is designed to support what matters most to associates, including by investment in family, life/work balance, health and wellbeing, and financial security. Park’s compensation program includes market-aligned salary grades, an annual incentive compensation program for eligible associates, referral and rewards incentive programs available to associates based on job function, a long-term incentive plan ("LTIP") for select associates, and premium pay for associates working extended hours. Available benefits also include an employee stock ownership plan ("KSOP") with a company matching contribution, defined benefit pension plan, health and life insurance, dependent care assistance, health flexible spending plan, long-term disability plan, paid time off, tuition reimbursement for qualified schooling, and an employee assistance program.
Employee Culture & Retention
Park associates are driven by empathy, compassion, and a genuine desire to serve customers, communities, and colleagues. They value an environment for personal and professional growth, which is why many choose long-term careers with Park. In 2024, Park's voluntary turnover was 14.3%. By the end of the year, 89% of Park associates were shareholders through the organization’s KSOP, which includes a discretionary 50% match for each associate’s regular contribution. Park fosters a listening culture by regularly conducting employee engagement surveys to understand associate perspectives and address concerns. In 2024, 81.7% of our associates participated. Park’s commitment to associate retention is evident in the organization’s tenure statistics: 34% of our associates had been with our organization 10 years or more.
Banking Operations
Park’s banking operations are conducted through Park National Bank, a national banking association. Park National Bank engages in the commercial banking, consumer banking, and wealth management, including trust and investment services. Geographically, Park is focused on small and medium population areas in Ohio, North Carolina, South Carolina, and the metropolitan areas of Columbus, Cincinnati, Charlotte, and Louisville. As of December 31, 2024, Park National Bank operated 87 financial service offices, including 82 branches, in Ohio, Kentucky, North Carolina and South Carolina. Park National Bank delivers financial products and services through its 87 financial service offices and a network of 107 automated teller machines, as well as telephone and internet-based banking by computer or mobile device, including with ParkDirect, a Park National Bank-tailored mobile banking application for Park customers.
There is one reportable segment for the Corporation.
Consumer Finance Subsidiary
Guardian Finance Service Company (“Guardian Finance”), an Ohio corporation and subsidiary of Park, provided consumer finance services in central Ohio, and is currently engaged solely in servicing the entity’s outstanding loans. In 2019, Guardian Finance ceased issuing new loans. As of December 31, 2024, Guardian Finance had $88,000 in outstanding loans and one administrative office in Licking County, Ohio.
SE Property Holdings, LLC ("SEPH")
SEPH, an Ohio limited liability company and Park subsidiary, was organized in 2011 to purchase and sell OREO from Vision Bank. Based on authorization from the Federal Reserve Board, SEPH is permitted to engage in lending activities and succeeded to the lending rights and obligations of Vision Bank when Vision Bank merged into SEPH on February 16, 2012 (the "Vision Bank-SEPH Merger"). SEPH operates in Ohio and other states in which Vision Bank originated loans, focused on selling OREO and resolving problem loans.
Scope Leasing, Inc.
Scope Leasing, Inc. (doing business as “Scope Aircraft Finance”), an Ohio corporation, is a subsidiary of Park National Bank specializing in aircraft financing. Customers of Scope Aircraft Finance include primarily small businesses and entrepreneurs who utilize aircraft for business or pleasure. Scope Aircraft Finance serves customers throughout the U.S. and Canada.
Vision Bancshares Trust I
In connection with the merger of Vision Bancshares, Inc. (“Vision”) into Park in March of 2007 (the “Vision Merger”), Park became the successor to Vision under the Junior Subordinated Indenture, dated as of December 5, 2005 (the “Indenture”), pursuant to which Vision issued $15.5 million of junior subordinated notes to Vision Bancshares Trust I, a Delaware statutory trust (the “Vision Trust”). The junior subordinated notes were issued by Vision in connection with the sale by the Vision Trust of $15.0 million of floating rate preferred securities to institutional investors on December 5, 2005. Park also became the successor to Vision in (i) the Amended and Restated Trust Agreement of the Vision Trust, dated as of December 5, 2005 (the “Trust Agreement”), and (ii) the Guarantee Agreement, dated as of December 5, 2005 (the “Guarantee Agreement”). Through these contractual obligations, Park has fully and unconditionally guaranteed all the Vision Trust’s obligations with respect to the floating rate preferred securities.
Both the junior subordinated notes and the floating rate preferred securities mature on December 30, 2035 (which maturity may be shortened), and, since July 1, 2023, carry a floating rate based on three-month CME Term SOFR plus 174 basis points. Payment of interest on the junior subordinated notes, and payment of cash distributions on the floating rate preferred securities, may be deferred at any time or from time to time for a period not to exceed 20 consecutive quarters, subject to specified conditions.
Under the terms of the Indenture and Guarantee Agreement, Park, as successor to Vision, is prohibited, subject to limited exceptions, from declaring or paying dividends or distributions on, or redeeming, repurchasing, acquiring or making any liquidation payments with respect to, any shares of Park’s capital stock: (i) if an event of default under the Indenture has occurred and continues; (ii) if Park is in default with respect to the payment of any obligations under the Guarantee Agreement; or (iii) during any period in which the payment of interest on the junior subordinated notes by Park (and the payment of cash distributions on the floating rate preferred securities by the Vision Trust) is being deferred. The floating rate preferred securities are considered Tier 1 Capital under regulatory capital standards.
Other Subsidiaries
Park Investments, Inc. ("PII"), a subsidiary of Park National Bank, operates as an asset management company. Commencing in 2015, Park began purchasing and holding municipal bonds within PII. As of December 31, 2024, PII held municipal securities with an amortized cost of $203.4 million.
NSCB 2, LLC; X Holdings, LLC; and X Holdings Nevada, LLC are subsidiaries of Park National Bank that hold certain OREO properties or other nonperforming assets. The operations of these subsidiaries are not significant to the consolidated Park entity. River Park Properties, LLC and Park ABQ, LLC, former subsidiaries of Park National Bank that held certain OREO properties or other nonperforming assets, were dissolved in 2024, as the entities were no longer engaged in business.
87A Orange Beach, LLC; Swindall Holdings, LLC; Swindall Partnership Holdings, LLC; Farm Holdings, LLC; Marina Holding WE, LLC; Alabama Apartment Holdings, LLC; and Vision-Park Properties, L.L.C. are subsidiaries of SEPH that hold certain OREO properties. The operations of these subsidiaries are not significant to the consolidated Park entity. Morningside Holding, LLC and Marina Holdings Z, LLC, former subsidiaries of SEPH that held certain OREO properties or other nonperforming assets, were dissolved in 2024, as the entities were no longer engaged in business.
Services Provided by Park’s Subsidiaries
Park National Bank provides the following principal services:
•the acceptance of deposits for demand, savings, and time accounts, and the servicing of those accounts;
•commercial, industrial, consumer and real estate lending, including installment loans, credit cards (which are offered through a third party), home equity lines of credit, and commercial leasing;
•a national portfolio of loans to non-bank consumer finance companies;
•wealth management, including trust and investment services;
•aircraft financing;
•commercial cash management;
•safe deposit operations;
•electronic funds transfers;
•internet and mobile banking solutions with bill pay service; and
•ParkDirect, a personal banking app.
Park believes that Park National Bank's current deposit mix is diverse enough that the loss of any single customer would not significantly impact Park National Bank's business.
Lending Activities
Park National Bank deals with consumers and businesses primarily in the 24 Ohio counties, one Kentucky county, five North Carolina counties and four South Carolina counties where Park National Bank has office locations. SEPH, through the Vision Bank-SEPH Merger, manages loans formerly serviced by Vision Bank, with minimal new origination expected. Such origination (or modification) volume has been and is expected to continue to be insignificant to the consolidated Park entity.
To maintain acceptable loan quality, loan decisions are made to align with Park’s written policies and procedures. Park National Bank retains commercial and commercial real estate loans, commercial leases, residential real estate loans, home equity lines of credit, and installment loans for its portfolio, and also sells fixed-rate residential real estate loans to the secondary market. Park National Bank acknowledges there are certain risks inherent in making loans. These risks include borrower credit changes, interest rate fluctuations, economic shifts, borrower reliability, and potential changes in collateral value.
Commercial Loans
At December 31, 2024, Park’s subsidiaries (including Scope Aircraft Finance) had approximately $3,294 million in commercial loans (commercial, financial and agricultural loans and commercial real estate loans) and commercial leases outstanding, representing approximately 42.1% of their total aggregate loan portfolio as of that date. Of this amount, approximately $1,270 million represented commercial, financial and agricultural loans, $1,994 million represented commercial real estate loans, and $30 million represented commercial leases.
Commercial loans are made for a wide variety of general corporate purposes, including financing for industrial and commercial properties, financing for equipment, inventory and accounts receivable, acquisition financing, commercial leasing, and loans originated by consumer finance companies. The term of each commercial loan varies by its purpose. Repayment terms are structured such that commercial loans will be repaid within the economic useful life of the underlying asset. Information concerning the loan maturity distribution within the commercial loan portfolio is provided in "Table 8 - Loan Maturity Distribution" included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K.
The commercial loan portfolio of Park’s current subsidiaries includes loans to a wide variety of corporations and businesses across many industrial classifications in the counties where Park National Bank operates, with the exception of nationwide aircraft loans and nationwide asset-based lending to consumer finance companies. The primary industries represented by these customers include real estate rental and leasing; construction; finance and insurance; accommodation and food services; other services (except public administration); health care and social assistance; manufacturing; retail trade; agriculture, forestry, fishing and hunting; and professional, scientific, and technical services.
Commercial loans are evaluated for the adequacy of repayment sources at the time of approval and are regularly reviewed for any possible deterioration in the ability of the borrower to repay the loan. The credit information required generally includes, depending on the amount of money lent, financial statements, two years of federal income tax returns and a current credit report. Loan terms include amortization schedules commensurate with the purpose of each loan, identification of the source of each repayment and the risk involved. In most instances, collateral is required to provide an additional source of repayment in the event of default by a commercial borrower. The structure of the collateral package, including the type and amount of the collateral, varies from loan to loan depending on the financial strength of the borrower, the amount and terms of the loan and the collateral available to be pledged by the borrower. Most often, the collateral is inventory, machinery, accounts receivable and/or real estate. The guarantee of the business owners/principals is generally required on loans made to closely-held business entities.
Commercial real estate loans (“CRE loans”) include mortgage loans to developers and owners of commercial real estate. The lending policy for CRE loans is designed to address the unique risk attributes of CRE lending. The collateral for CRE loans is the underlying commercial real estate. Park National Bank generally requires that the CRE loan amount be no more than 85% of the purchase price or the appraised value of the commercial real estate securing the CRE loan, whichever is less. CRE loans made for Park National Bank’s portfolio generally have a variable interest rate. For more information concerning the loan maturity distribution in the CRE loan portfolio, please see "Table 8 - Loan Maturity Distribution" included
in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K.
The regulatory limit for loans made to one borrower by Park National Bank was $161.4 million at December 31, 2024. Participations in a loan by Park National Bank in an amount larger than $53.0 million are generally sold to third-party banks or financial institutions. While Park National Bank has a loan limit of $161.4 million, the total exposure of the largest single borrower within the commercial portfolio was $75.0 million at December 31, 2024.
Park has an independent, internal loan review program which annually evaluates all commercial loan relationships equal to or greater than $1.0 million, all new commercial loans equal to or greater than $1.0 million in its metropolitan markets of Columbus, Ohio; Cincinnati, Ohio; Louisville, Kentucky; Charlotte, North Carolina; and within its loans to non-bank consumer finance companies and aircraft financing sectors, all new commercial loans equal to or greater than $500,000 in all other markets, and a risk-based sample of commercial relationships less than $1.0 million. If a loan has deteriorated, Park takes prompt action designed to increase the likelihood that it will be repaid. Upon detection of the reduced ability of a borrower to service interest and/or principal on a loan, Park may downgrade the loan and, under certain circumstances, place the loan on nonaccrual status. Park then works with the borrower to develop a payment schedule which it anticipates will permit service of the principal and interest on the loan by the borrower. Loans which deteriorate and show the inability of a borrower to repay principal are charged down to the net realizable value of collateral. A collection specialist/work-out officer is available to assist when a credit deteriorates. Information about Park’s policy for placing loans on nonaccrual status is included under the caption “Loans” in "Note 1 - Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements found in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
Commercial loans are generally viewed as having a higher credit risk than consumer loans because commercial loans typically involve larger loan balances to a single borrower and are more susceptible to a risk of default during an economic downturn. Commercial loans also generally have variable interest rates. Park uses several indices for commercial loans that help determine loan interest rates, but the national prime rate and short-term FHLB of Cincinnati advance rates are the most common indices used. Credit risk for commercial loans arises from borrowers lacking the ability or willingness to pay principal or interest and, in the case of secured loans, by a shortfall in the collateral value in relation to the outstanding loan balance in the event of a default and subsequent liquidation of collateral. The underwriting of generally all commercial loans, regardless of type, includes cash flow analyses with rates shocked by 300 basis points. In the case of commercial loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of each borrower to collect amounts due from the borrower's customers. In the case of Park's commercial loans to non-bank consumer finance companies, the underlying cash flows are supported at times by sub-prime individual borrowers and present a higher level of risk compared to a more typical commercial loan to a business. Other collateral securing commercial loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the borrower’s business. Information concerning the loan loss experience and the allocation of the allowance for credit losses related to the commercial, financial and agricultural loan portfolio, the commercial real estate portfolio and the commercial lease portfolio is provided in "Table 24 - Summary of Loan Credit Loss Experience" and "Table 26 - Allocation of Allowance for Credit Losses", respectively, included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" found in Annual Report on Form 10-K.
Loans to Non-Bank Consumer Finance Companies
At December 31, 2024, Park National Bank had $325 million in loans outstanding to non-bank consumer finance companies. This is a national lending unit of Park National Bank. These asset-based loans are collateralized by cash flows from individuals, typically auto loans issued by a consumer finance company that is, in turn, a borrower from Park National Bank. These loans typically present a higher level of risk due to the underlying collateral and such risks are mitigated by more conservative underwriting and an intensive loan monitoring regimen commensurate with asset-based lending.
Aircraft Financing
Scope Aircraft Finance specializes in aircraft financing. The customers of Scope Aircraft Finance include small businesses and entrepreneurs intending to use the aircraft for business or pleasure. The customers of Scope Aircraft Finance are located throughout the United States. The lending officers of Scope Aircraft Finance are experienced in the aircraft financing industry and rely upon such experience and certain industry guides in determining whether to grant an aircraft loan or lease. At December 31, 2024, Scope Aircraft Finance had $314 million in loans outstanding, primarily secured by aircraft (which are included in the commercial loan portfolio).
Consumer Loans
At December 31, 2024, Park's subsidiaries had outstanding consumer loans (including automobile loans) in an aggregate amount of $1,910 million, constituting approximately 24.4% of their aggregate total loan portfolio. Park makes installment credit available to customers and prospective customers in their primary market areas through direct and indirect loans. Indirect loans are facilitated through an automobile and other vehicle dealer; whereas, direct loans are originated through direct customer interaction within Park's regions. For both direct and indirect loans, the final credit decisions are made by Park with the assistance of an automated underwriting platform (system). At December 31, 2024, of the $1,910 million in consumer loans, $1,719 million were originated through indirect lending, while the remaining $191 million were considered direct loans.
Credit approval for direct and indirect consumer loans requires income sufficient to repay principal and interest due, stability of employment, an established credit record and sufficient collateral for secured loans. It is the policy of Park to adhere strictly to all laws and regulations governing consumer lending. A compliance officer, along with the appropriate line of business leaders, is responsible for monitoring performance and advising and updating loan personnel in this area. Loans are charged off in accordance with Park's policy. Information about Park’s policy for placing loans on nonaccrual status and charging off loans is included under the caption “Loans” in "Note 1 - Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements found in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
Consumer loans typically have shorter terms and lower balances with higher yields as compared to real estate mortgage loans, but generally carry higher risks of default. Consumer loan collections are dependent on borrowers' continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on these loans. Information concerning the loan credit loss experience and the allocation of the allowance for credit losses related to the consumer loan portfolio is provided in "Table 24 - Summary of Loan Credit Loss Experience" and "Table 26 - Allocation of Allowance for Credit Losses", respectively, included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K.
Residential Real Estate and Construction Loans
At December 31, 2024, Park's subsidiaries had outstanding approximately $2,613 million in construction real estate loans and residential real estate loans, representing approximately 33.4% of total loans outstanding. Of the $2,613 million, approximately $2,200 million was included within the residential real estate loan segment, which included $644 million of commercial loans secured by residential real estate, $1,347 million of mortgage loans, $203 million of home equity lines of credit and $6 million of installment loans. The remaining $413 million was included within the construction real estate loan segment, which included $311 million of commercial land and development loans and $102 million of 1-4 family residential construction loans. The market area for real estate lending by Park National Bank is concentrated in Ohio, Kentucky, North Carolina and South Carolina.
Credit approval for residential real estate loans requires demonstration of sufficient income to repay the principal and interest and the real estate taxes and insurance, stability of employment, an established credit record and a current independent third-party appraisal providing the market value of the real estate securing the loan. Residential real estate loans are generally analyzed through an automated underwriting platform (system) to determine a risk classification. All loans receiving a risk classification of caution require review by a senior lender and generally require additional documentation if the loan is approved.
Park National Bank generally requires that the residential real estate loan amount be no more than 80% of the purchase price or the appraised value of the real estate securing the loan, whichever is less, unless private mortgage insurance is obtained by the borrower. Loans in this lending category that are made to be held in Park National Bank's portfolio are both fixed-rate and adjustable-rate, fully amortized mortgages. The rates used are generally fully-indexed rates. From time to time, Park may offer a limited-time promotional rate on funds advanced on newly-originated home equity lines of credit. Park National Bank also originates fixed-rate real estate loans for sale to the secondary market. Park’s management may decide to retain certain 15-year, fixed-rate residential mortgage loans, rather than sell in the secondary market. At December 31, 2024 and 2023, Park reported $586 million and $551 million, respectively, of 15-year, fixed-rate residential mortgage loans on Park's Consolidated Balance Sheets. Real estate loans are typically secured by first mortgages with evidence of title in favor of the lender in the form of an attorney’s opinion of title or a title insurance policy. Park National Bank has also required proof of hazard insurance with the lender named as the mortgagee and as the loss payee. Independent third-party appraisals are generally obtained for consumer real estate loans.
Home equity lines of credit are generally secured by second mortgages in favor of Park National Bank. The maximum amount of a home equity line of credit is generally limited to 85% of the appraised value of the property less the balance of the first mortgage. The home equity lines of credit are written with ten-year terms. A variable interest rate is generally charged on the home equity lines of credit.
Information concerning the loan credit loss experience and the allocation of the allowance for credit losses related to the residential real estate portfolio is provided in "Table 24 - Summary of Loan Credit Loss Experience" and "Table 26 - Allocation of Allowance for Credit Losses", respectively, included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K.
Construction loans include commercial construction loans as well as residential construction loans. Construction loans may be in the form of a permanent loan or a short-term construction loan, depending on the needs of the individual borrower. Generally, the permanent construction loans have a variable interest rate although a permanent construction loan may be made with a fixed interest rate for a term generally not exceeding five years. Short-term construction loans are generally made with variable interest rates. Information concerning the loan maturity distribution within the construction financing portfolio is provided in "Table 8 - Loan Maturity Distribution" included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS of this Annual Report on Form 10-K.
Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost (including interest) of construction. If the estimate of construction cost proves to be inaccurate, Park National Bank may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves inaccurate, Park National Bank may be confronted, at or prior to the maturity of the loan, with a project having a value insufficient to assure full repayment, should the borrower default. In the event a default on a construction loan occurs and foreclosure follows, Park National Bank must take control of the project and attempt either to arrange for completion of construction or to dispose of the unfinished project. Additional risk exists with respect to a loan made to a developer who does not have a buyer for the property, as the developer may lack funds to pay the loan if the property is not sold upon completion. Park National Bank attempts to reduce such risks on loans to developers by requiring personal guarantees and reviewing current personal financial statements and tax returns as well as other projects undertaken by the developer. For additional information concerning the loan credit loss experience, please see “ITEM 1A. RISK FACTORS - Economic, Political and Market Risks - Changes in economic and political conditions could adversely affect our earnings and capital through declines in deposits, quality of investment securities, loan demand, our borrowers’ ability to repay loans, and the value of the collateral securing our loans.” and “- Business Operations Risks - Our allowance for credit losses may prove to be insufficient to absorb the expected, lifetime losses in our loan portfolio.” in this Annual Report on Form 10-K. Information concerning the loan credit loss experience and the allocation of the allowance for credit losses related to the construction financing portfolio is provided in "Table 24 - Summary of Loan Credit Loss Experience" and "Table 26 - Allocation of Allowance for Credit Losses", respectively, included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K.
SEPH
SEPH is a non-bank subsidiary of Park that holds OREO property and non-performing loans. In addition to approximately $938,000 in OREO property, SEPH also held non-performing loans that were fully charged off as of December 31, 2024, all of which were on nonaccrual status. SEPH has one office in Licking County, Ohio. The SEPH employees work with a third-party work-out specialist to ensure effective and efficient resolution to the non-performing loans and OREO, while working closely with the borrowers of the loans to maximize collection efforts.
Competition
The financial services industry is highly competitive. Park’s subsidiaries compete with other local, regional and national service providers, including banks, savings associations, credit unions and other types of financial institutions and finance companies. Other competitors include securities dealers, brokers, mortgage bankers, investment advisors and financial services subsidiaries of commercial and manufacturing companies. Competition for quality customers has intensified as a result of changes in regulations, mergers and acquisitions, advances in technology and product delivery systems, consolidation among financial service providers, bank failures and the conversion of former investment banks to bank holding companies.
The primary factors in competing for loans are the terms of the loan, interest rates charged and overall services provided to borrowers. The primary factors in competing for deposits are interest rates paid on deposits, account liquidity,
convenience and hours of office locations, convenience and availability of mobile banking options, and accessibility to trained and competent staff. Competitors of Park may have greater resources and, as such, additional technology offerings and higher lending limits, which may adversely affect the ability of Park to compete. In addition, certain nonfinancial institutions with which Park competes enjoy the benefits of fewer regulatory constraints, broader geographic service areas, greater capital and lower cost structures. Financial technology companies, or "fintechs," are also providing nontraditional, but increasingly strong competition for our borrowers, depositors and other customers.
Associates
At December 31, 2024, Park and its subsidiaries had 1,771 active associates, consisting of 1,620 full-time and 151 part-time, resulting in 1,725 full-time equivalent associates.
Supervision and Regulation of Park and Park's Subsidiaries
Park, Park National Bank and Park’s other subsidiaries are subject to extensive regulation by federal and state agencies. The regulation of financial holding companies and their subsidiaries is intended primarily for the protection of consumers, depositors, borrowers, the Deposit Insurance Fund (the "DIF") of the Federal Deposit Insurance Corporation (the "FDIC") and the banking system as a whole and not for the protection of shareholders. Applicable laws and regulations restrict permissible activities and investments and require actions to protect loan, deposit, brokerage, fiduciary and other customers, as well as the DIF. Such laws and regulations may also restrict Park’s ability to repurchase its common shares or to receive dividends from Park National Bank and may impose capital adequacy and liquidity requirements.
As a financial holding company, Park is subject to regulation by the Federal Reserve Board under the Bank Holding Company Act and to inspection, examination and supervision by the Federal Reserve Board. Park is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act, as administered by the SEC. Park’s common shares are listed on NYSE American under the trading symbol “PRK,” which subjects Park to the requirements under the applicable sections of the NYSE American Company Guide for listed companies.
Park National Bank, as a national banking association, is subject to regulation, supervision and examination primarily by the Office of the Comptroller of the Currency (the "OCC") and secondarily by the FDIC.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended (the "Dodd-Frank Act"), established the Consumer Financial Protection Bureau (the "CFPB"), which regulates consumer financial products and services and certain financial services providers. The CFPB is authorized to prevent unfair, deceptive or abusive acts or practices and ensures consistent enforcement of laws so that consumers have access to fair, transparent and competitive markets for consumer financial products and services. Since its establishment, the CFPB has extensively exercised its rulemaking and interpretative authority.
Guardian Finance, a subsidiary of Park and an Ohio state-chartered consumer finance company, is subject to regulation, supervision and examination by the Ohio Division of Financial Institutions (the "ODFI") and the Federal Reserve Board.
As a subsidiary of Park, SEPH is also subject to inspection, examination and supervision by the Federal Reserve Board.
The following information describes selected federal and state statutory and regulatory provisions and is qualified in its entirety by reference to the full text of such provisions. These statutes and regulations are continually under review by the U.S. Congress and state legislatures and federal and state regulatory agencies. A change in statutes, regulations or regulatory policies applicable to Park and Park's subsidiaries could have a material effect on their respective businesses.
Regulation of Financial Holding Companies
As a financial holding company, Park’s activities are subject to regulation by the Federal Reserve Board. Park is subject to regular examinations by the Federal Reserve Board and is required to file reports and such additional information as the Federal Reserve Board may require.
The Federal Reserve Board also has enforcement authority over financial holding companies, including, but not limited to, the ability to:
•assess civil money penalties;
•issue cease and desist or removal orders; and
•require that a financial holding company divest subsidiaries (including a subsidiary bank).
In general, the Federal Reserve Board may initiate enforcement actions for violations of laws and regulations and unsafe or unsound practices.
A financial holding company is required by law and Federal Reserve Board policy to act as a source of financial and managerial strength to each subsidiary bank and to commit resources to support each such subsidiary bank. The Federal Reserve Board may require a financial holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound practice.
The Bank Holding Company Act requires the prior approval of the Federal Reserve Board in any case where a financial holding company proposes to:
•acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that is not already majority-owned by the financial holding company;
•acquire all or substantially all of the assets of another bank or another financial or bank holding company; or
•merge or consolidate with any other financial or bank holding company.
A qualifying bank holding company may elect to become a financial holding company and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature and not otherwise permissible for a bank holding company, if: (i) the holding company is "well managed" and "well capitalized" and (ii) each of its subsidiary banks (a) is well capitalized under the Federal Deposit Insurance Corporation Act of 1991 prompt corrective action provisions, (b) is well managed, and (c) has at least a "satisfactory" rating under the Community Reinvestment Act (the “CRA”). Park became a financial holding company in 2014. No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.
The Financial Services Modernization Act defines “financial in nature” to include:
•securities underwriting, dealing and market making;
•sponsoring mutual funds and investment companies;
•insurance underwriting and agency;
•merchant banking; and
•activities that the Federal Reserve Board has determined to be closely related to banking.
A national bank also may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real estate development and real estate investment, through a financial subsidiary of the bank if the bank is well capitalized and well managed and has at least a satisfactory CRA rating. If a financial holding company or a subsidiary bank fails to maintain all requirements for the holding company to maintain financial holding company status, material restrictions may be placed on the activities of the holding company and its subsidiaries and on the ability of the holding company to enter into certain transactions and obtain regulatory approvals for new activities and transactions. The holding company could also be required to divest itself of subsidiaries that engage in activities that are not permitted for bank holding companies that are not financial holding companies. If restrictions are imposed on the activities of a financial holding company, the existence of such restrictions may not be made publicly available pursuant to confidentiality regulations of the bank regulatory agencies.
Each subsidiary bank of a financial holding company is subject to certain restrictions on the maintenance of reserves against deposits, extensions of credit to the financial holding company and its subsidiaries, investments in the stock and other securities of the financial holding company and its subsidiaries and the taking of such stock and securities as collateral for loans to borrowers. Further, a financial holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property or furnishing of any services. Various consumer laws and regulations also affect the operations of these subsidiaries.
In April 2020, the Federal Reserve Board adopted a final rule to revise its regulations related to determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the Bank Holding Company Act. The final rule expands and codifies the presumptions for use in such determinations. By codifying the presumptions, the final rule provides greater transparency on the types of relationships that the Federal Reserve Board generally views as supporting a facts-and-circumstances determination that one company controls another company. The Federal Reserve Board’s final rule applies to questions of control under the Bank Holding Company Act, but does not extend to the Change in Bank Control Act.
Economic Growth, Regulatory Relief and Consumer Protection Act
On May 25, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the "Regulatory Relief Act") was enacted, which repealed or modified certain provisions of the Dodd-Frank Act and eased restrictions on all but the largest banks (those with consolidated assets in excess of $250 billion). Bank holding companies with consolidated assets of less than $100 billion, including Park, are no longer subject to enhanced prudential standards. The Regulatory Relief Act also relieves bank holding companies and banks with consolidated assets of less than $100 billion, including Park, from certain record-keeping, reporting and disclosure requirements. Certain other regulatory requirements applied only to banks with consolidated assets in excess of $50 billion and so did not apply to Park even before the enactment of the Regulatory Relief Act.
Transactions with Affiliates, Directors, Executive Officers and Shareholders
Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Board Regulation W generally:
•limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of the bank's capital stock and surplus;
•limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with all affiliates to an amount equal to 20.0% of the bank's capital stock and surplus; and
•require that all such transactions be on terms substantially the same, or at least as favorable to the bank or subsidiary, as those provided to a non-affiliate.
An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. The term “covered transaction” includes the making of loans to the affiliate, the purchase of assets from the affiliate, the issuance of a guarantee on behalf of the affiliate, the purchase of securities issued by the affiliate and other similar types of transactions.
A bank’s authority to extend credit to executive officers, directors and greater than 10.0% shareholders, as well as entities such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder by the Federal Reserve Board. Among other things, these loans must be made on terms (including interest rates charged and collateral required) substantially similar to those offered to unaffiliated individuals or be made as part of a benefit or compensation program on terms widely available to employees and must not involve a greater than normal risk of repayment. In addition, the amount of loans a bank may make to these persons is based, in part, on the bank’s capital position, and specified approval procedures must be followed in making loans which exceed specified amounts.
Regulation of Nationally-Chartered Banks
As a national banking association, Park National Bank is subject to regulation under the National Bank Act and is periodically examined by the OCC. OCC regulations govern permissible activities, capital requirements, dividend limitations, investments, loans and other matters. Furthermore, Park National Bank is subject, as a member bank, to certain rules and regulations of the Federal Reserve Board, many of which restrict activities and prescribe documentation to protect consumers. Park National Bank is an insured depository institution and a member of the DIF. As a result, it is subject to regulation and deposit insurance assessments by the FDIC. In addition, the establishment of branches by Park National Bank is subject to prior approval of the OCC. The OCC has broad enforcement powers over national banks, including the power to impose fines and other civil and criminal penalties and to appoint a conservator or receiver if any of a number of conditions are met.
The CFPB regulates consumer financial products and services provided by Park National Bank through regulations designed to protect consumers. Currently, the OCC is primarily responsible for examining Park National Bank’s compliance with the CFPB regulations and federal consumer financial protection laws.
Federal Deposit Insurance
The FDIC is an independent federal agency which insures the deposits, up to prescribed statutory limits, of federally-insured banks and savings associations and safeguards the safety and soundness of the financial institution industry. The general insurance limit is $250,000 per separately insured depositor. This insurance is backed by the full faith and credit of the U.S. government.
As insurer, the FDIC is authorized to conduct examinations of and to require reporting by insured institutions, including Park National Bank, to prohibit any insured institution from engaging in any activity the FDIC determines by regulation or order to pose a threat to the DIF, and to take enforcement actions against insured institutions. The FDIC may terminate insurance of deposits of any insured institution if the FDIC finds that the insured institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or any other regulatory agency.
The FDIC assesses a quarterly deposit insurance premium on each insured institution based on perceived risk characteristics of the insured institution to the DIF, with institutions deemed less risky paying lower rates. Currently, assessments for institutions of less than $10.0 billion of total assets are based on financial measures and supervisory ratings derived from statistical models estimating the probability of failure within three years. The FDIC may increase or decrease the range of assessments uniformly, except that no adjustment can deviate more than two basis points from the base assessment rate without notice and comment rulemaking. The FDIC may also impose special assessments in emergency situations. The premiums fund the DIF.
The FDIC has established 2.0% as the designated reserve ratio ("DRR"), which is the amount in the DIF as a percentage of all DIF insured deposits. In March 2016, the FDIC adopted final rules designed to meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act. The Dodd-Frank Act required the FDIC to offset the effect on insured institutions with assets of less than $10.0 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%. Although the FDIC's rules reduced assessment rates on all banks, they imposed a surcharge on banks with assets of $10.0 billion or more to be paid until the DRR reached 1.35%. The DRR reached 1.35% on September 30, 2018. As a result, the previous surcharge imposed on banks with assets of $10.0 billion or more was lifted. In addition, preliminary assessment credits were determined by the FDIC for banks with assets of less than $10 billion for the portion of their assessments that contributed to the increase of the DRR to 1.35%. On June 30, 2019, the DRR reached 1.40%, and the FDIC applied credits for banks with assets of less than $10.0 billion ("small bank credits") beginning September 30, 2019. As of June 30, 2020, the DRR fell below the minimum DRR to 1.30%. As a result, the FDIC adopted a restoration plan requiring the restoration of the DRR to 1.35% within eight years of the plan establishment, by September 30, 2028. The DRR was 1.26% as of September 30, 2022. Since the DRR remained below the statutory minimum, the FDIC adopted a final rule in October 2022 increasing the assessment rate from three basis points to five basis points beginning with the first quarterly assessment period of 2023 (i.e., January 1 through March 31, 2023). The revised rate schedules are intended to increase the likelihood that the DRR reaches the statutory minimum level of 1.35% by September 30, 2028. As of December 31, 2024, the DRR remained below the statutory minimum of 1.35%.
The FDIC rules further changed the method of determining risk-based assessment rates for established banks with less than $10.0 billion in assets to better ensure that banks taking on greater risks pay more for deposit insurance than banks that take on less risk. In the event Park’s total consolidated assets exceed $10.0 billion for four consecutive quarters, Park National
Bank will become subject to the FDIC’s large bank pricing methodology, which may result in a different, and potentially higher, assessment rate.
Federal Home Loan Bank
The Federal Home Loan Banks (“FHLB”) provide credit to their members in the form of advances. Park National Bank is a member of the FHLB of Cincinnati. As an FHLB member, Park National Bank must maintain an investment in the capital stock of the FHLB of Cincinnati.
Upon the origination or renewal of a loan or advance, each FHLB is required by law to obtain and maintain a security interest in certain types of collateral. Each FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLB. The standards take into account a member’s performance under the CRA, and the member’s record of lending to first-time home buyers.
Regulatory Capital
The Federal Reserve Board has adopted risk-based capital guidelines for financial holding companies and other bank holding companies as well as state member banks. The OCC and the FDIC have adopted risk-based capital guidelines for national banks and state non-member banks, respectively. The guidelines provide a systematic analytical framework which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy, and minimizes disincentives to holding liquid, low-risk assets. Capital levels, as measured by these standards, are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.
In July 2013, the U.S. banking regulators issued capital rules applicable to smaller banking organizations which also implement certain of the provisions of the Dodd-Frank Act (the “Basel III Capital Rules”). Community banking organizations, including Park and Park National Bank, began transitioning to the new rules on January 1, 2015. The minimum capital requirements became effective on January 1, 2015; whereas, the capital conservation buffer and deductions from common equity capital phased in from January 1, 2016 through January 1, 2019, and most deductions from common equity tier 1 capital phased in from January 1, 2015 through January 1, 2019.
The Basel III Capital Rules include: (i) a minimum common equity tier 1 capital ratio of 4.5%; (ii) a minimum tier 1 capital ratio of 6.0%; (iii) a minimum total capital ratio of 8.0%; and (iv) a minimum leverage ratio of 4.0%.
Common equity for the common equity tier 1 capital ratio generally consists of common stock (plus related surplus), retained earnings, accumulated other comprehensive income (unless an institution elects to exclude such income from regulatory capital), and limited amounts of minority interests in the form of common stock, subject to applicable regulatory adjustments and deductions.
Tier 1 capital generally consists of common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus, trust preferred securities that have been grandfathered (but which are not otherwise permitted), and limited amounts of minority interests in the form of additional tier 1 capital instruments, less certain deductions.
Tier 2 capital, which can be included in the total capital ratio, generally consists of other preferred stock and subordinated debt meeting certain conditions plus limited amounts of the allowance for credit losses, subject to specified eligibility criteria, less applicable deductions.
The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels).
Under the guidelines, capital is compared to the relative risk included in the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
The Basel III Capital Rules also place restrictions on the payment of capital distributions, including dividends and stock repurchases, and certain discretionary bonus payments to executive officers if the banking organization does not hold a capital conservation buffer of greater than 2.5% composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter.
In December 2018, the federal banking agencies issued a final rule to address regulatory treatment of credit loss allowances under CECL. The rule revised the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day-one adverse effects on regulatory capital that may result from the adoption of the CECL model. Concurrent with the enactment of the CARES Act, in March 2020, federal banking agencies issued an interim final rule that delayed the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provided banking organizations that implemented CECL prior to the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. On August 26, 2020, the federal banking agencies issued a final rule that made certain technical changes to the interim final rule, including expanding the pool of eligible institutions. The changes in the final rule applied only to those banking organizations that elected the CECL transition relief provided for under the rule. Under the Consolidated Appropriations Act, 2021, bank holding companies and their affiliates had the option of postponing implementation of CECL until the earlier of (i) the first day of the fiscal year that begins after the date on which the national emergency concerning COVID-19 terminates or (ii) January 1, 2022. Congress provided this reprieve for a variety of reasons, including the fact that COVID-19 had created a volatile, uncertain lending environment that may result in significant credit losses for banks. Park adopted CECL on January 1, 2021.
In September 2019, consistent with Section 201 of the Regulatory Relief Act, the Federal Reserve Board, along with the other federal bank regulatory agencies, issued a final rule, effective January 1, 2020, that gave community banks, including Park National Bank, the option to calculate a simple leverage ratio to measure capital adequacy, if the community banks met certain requirements. Under the rule, a community bank was eligible to elect the Community Bank Leverage Ratio (“CBLR”) framework if it had less than $10.0 billion in total consolidated assets, limited amounts of certain trading assets and liabilities, limited amounts of off-balance sheet exposures and a leverage ratio greater than 9.0%. Pursuant to the CARES Act, on August 26, 2020, the federal banking agencies adopted a final rule, effective on October 1, 2020, that temporarily lowered the CBLR threshold and provided a gradual transition back to the prior level. Specifically, the CBLR threshold was reduced to 8.0% for the remainder of 2020, increased to 8.5% for 2021, and returned to 9.0% on January 1, 2022. Park did not utilize the CBLR in assessing capital adequacy.
In October 2021, effective in November 2021, the FDIC issued a final rule to incorporate the CBLR rule into the Real Estate Lending Standards. This rule calculates the ratio of loans in excess of the supervisory loan-to-value limits (“LTV Limits”) using tier 1 capital plus the appropriate allowance for credit losses in the denominator. This rule was adopted to allow a consistent approach for calculating the ratio of loans in excess of the supervisory LTV Limits at all FDIC supervised institutions, and to avoid any regulatory burden that could arise if an FDIC supervised institution subsequently decides to switch between different capital frameworks.
The federal banking agencies have established a system of prompt corrective action to resolve certain of the problems of undercapitalized depository institutions. This system is based on five capital level categories for insured depository institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.”
The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a bank’s capital level. For example, the federal banking agencies must appoint a receiver or conservator for a bank within 90 days after the bank becomes “critically undercapitalized” unless the bank’s primary regulator determines, with the concurrence of the FDIC, that other action would better achieve regulatory purposes. Banking operations otherwise may be significantly affected depending on a bank’s capital category. For example, a bank that is not “well capitalized” generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market, and the holding company of any undercapitalized depository institution must guarantee, in part, specific aspects of the bank’s capital plan for the plan to be acceptable.
In order to be “well-capitalized,” a bank must have a common equity tier 1 capital ratio of at least 6.5%, a total risk-based capital of at least 10.0%, a tier 1 risk-based capital ratio of at least 8.0% and a leverage ratio of at least 5.0%, and the bank must not be subject to any written agreement, order, capital directive or prompt corrective action directive to meet and
maintain a specific capital level for any capital measure. Park’s management believes that Park National Bank meets the ratio requirements to be deemed “well-capitalized” according to the guidelines described above. See "Note 27 - Capital Ratios" of the Notes to Consolidated Financial Statements found in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
Fiscal and Monetary Policies
The business and earnings of Park and Park's subsidiaries are affected significantly by the fiscal policies of the U.S. government and its agencies. Park National Bank is particularly affected by the monetary policies of the Federal Reserve Board, which regulates the supply of money and credit in the U.S. primarily through open market operations in U.S. government securities, changes in the discount rate on bank borrowings, and changes in the reserve requirements against deposits of depository institutions. These policies are used in varying degrees and combinations to directly affect the overall growth and distribution of bank loans, investments and deposits, as well as the interest rates charged on loans and paid on deposits. In light of the changing conditions in the U.S. economy, including with respect to inflation, the money markets and the activities of fiscal and monetary authorities, Park can make no definitive predictions as to future changes in interest rates, credit availability or deposit levels.
Limits on Dividends and Other Payments
There are various legal limitations on the extent to which a subsidiary bank may finance or otherwise supply funds to its parent holding company. Under applicable federal and state laws, a subsidiary bank may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its parent holding company. A subsidiary bank is also subject to collateral security requirements for any loan or extension of credit permitted by such exceptions.
The ability of Park to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by Park National Bank. The Federal Reserve Board also expects Park to serve as a source of strength to Park National Bank, which may require Park to retain capital for further investment in Park National Bank, rather than pay dividends to the Park shareholders.
Park National Bank may not pay dividends out of its surplus if, after paying these dividends, Park National Bank would fail to satisfy all of the capital adequacy regulations and guidelines established by the OCC, including having a capital conservation buffer that is greater than 2.5%. In addition, Park National Bank must have the approval of the OCC if a dividend in any year would cause the total dividends for that year to exceed the sum of Park National Bank’s net income for the current year and the retained net income for the preceding two years, less required transfers to surplus. Payment of dividends by Park National Bank may be restricted at any time at the discretion of its regulatory authorities, if such regulatory authorities deem such dividends to constitute unsafe and/or unsound banking practices or if necessary to maintain adequate capital. These provisions could have the effect of limiting Park’s ability to pay dividends on Park's common shares.
At December 31, 2024, approximately $133.8 million of the total shareholders’ equity of Park National Bank was available for payment to Park without the approval of the OCC. See "Note 24 - Dividend Restrictions" of the Notes to Consolidated Financial Statements found in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
The Federal Reserve Board has also issued a policy statement with regard to the payment of cash dividends by financial holding companies and other bank holding companies. The policy statement provides that, as a matter of prudent banking, a financial holding company or bank holding company should not maintain a rate of cash dividends unless its net income available to common shareholders over the past year has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears to be consistent with the financial holding company's or bank holding company’s capital needs, asset quality, and overall financial condition. Accordingly, a financial holding company or a bank holding company should not pay cash dividends that exceed its net income or that can only be funded in ways that weaken the financial holding company's or bank holding company’s financial health, such as by borrowing. In addition, Park may not pay dividends that would cause Park to fail to satisfy the capital adequacy regulations applicable to bank holding companies which qualify as financial holding companies, including having a capital conservation buffer that is greater than 2.5%.
Park is subject to contractual restrictions on the declaration and payment of dividends under the terms of certain of Park's debt instruments.
Under the terms of the Indenture governing the $15.5 million of junior subordinated notes issued by Vision to the Vision Trust and the related Guarantee Agreement, Park, as successor to Vision in accordance with the First Supplemental
Indenture, is prohibited, subject to limited exceptions, from declaring or paying any dividends or distributions on any shares of its capital stock: (i) if an event of default under the Indenture has occurred and continues; (ii) if Park is in default with respect to the payment of any obligations under the Guarantee Agreement; or (iii) during any period in which the payment of interest on the junior subordinated notes by Park (and the payment of cash distributions on the floating rate preferred securities of the Vision Trust) is being deferred.
The Federal Reserve Board requires all depository institutions to maintain reserves at specified levels against their transaction accounts, primarily checking accounts. In response to the COVID-19 pandemic, the Federal Reserve reduced reserve requirement ratios to zero percent effective on March 26, 2020, to support lending to households and businesses. At December 31, 2024, the reserve requirement ratio remains at zero percent.
Volcker Rule
In December 2013, five federal agencies adopted a final regulation implementing the Volcker Rule provision of the Dodd-Frank Act (the "Volcker Rule"). The Volcker Rule placed limits on the trading activity of insured depository institutions and entities affiliated with depository institutions, subject to certain exceptions. Such trading activity included the purchase or sale as principal of a security, derivative, commodity future, option or similar instrument in order to benefit from short-term price movements or to realize short-term profits. The Volcker Rule exempted trading in specified U.S. government, agency, state and/or municipal obligations. The Volcker Rule also excepted (i) trading conducted in certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a fiduciary on behalf of customers; (ii) trading to satisfy a debt previously contracted; (iii) trading under certain repurchase and securities lending agreements; and (iv) trading in connection with risk-mitigating hedging activities. In addition, the Volcker Rule prohibited a banking entity from having an ownership interest in, or certain relationships with, a hedge fund or private equity fund, also known as “covered funds,” subject to a number of exceptions.
Community banks with $10.0 billion or less in total consolidated assets and total trading assets and liabilities of 5.0% or less of total consolidated assets were excluded from the restrictions of the Volcker Rule. However, in the event Park’s total consolidated assets exceed $10.0 billion for four consecutive quarters, Park National Bank will become subject to the Volcker Rule. On June 25, 2020, the federal bank regulatory agencies also finalized a rule modifying the Volcker Rule’s prohibition on banking entities investing in or sponsoring covered funds. Such rule permits certain banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was originally intended to address.
To the extent that Park National Bank engages in any of the trading activities or has any ownership interest in or relationship with any of the types of funds regulated by the Volcker Rule, Park National Bank believes that its activities and relationships comply with such rule, as amended.
Financial Privacy Provisions
Federal and state regulations limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and is conveyed to outside vendors.
Park National Bank is also subject to regulatory guidelines establishing standards for safeguarding customer information. These guidelines describe the federal bank regulatory agencies' expectations for the creation, implementation and maintenance of an information security program, which is to include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.
Cybersecurity
In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish several lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the
rapid recovery, resumption and maintenance of the financial institution’s operations after a cybersecurity attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the financial institution or its critical service providers fall victim to this type of cybersecurity attack. If Park National Bank fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.
In November 2021, the OCC, the Federal Reserve Board and the FDIC issued a final rule that became effective in May 2022, requiring banking organizations that experience a computer-security incident to notify certain entities. A computer-security incident occurs when actual or potential harm to the confidentiality, integrity or availability of an information system or the information occurs, or there is a violation or imminent threat of a violation to banking security policies and procedures. The affected bank must notify its respective federal regulator of the computer-security incident as soon as possible and no later than 36 hours after the bank determines a computer-security incident that rises to the level of a notification incident has occurred. These notifications are intended to promote early awareness of threats to banking organizations and will help banks react to those threats before they manifest into larger incidents. This rule also requires bank service providers to notify their bank organization customers of a computer-security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.
On July 26, 2023, the SEC adopted final rules that require public companies to promptly disclose material cybersecurity incidents in a Current Report on Form 8-K and detailed information regarding their cybersecurity risk management, strategy, and governance on an annual basis in an Annual Report on Form 10-K. Companies are required to report on Form 8-K any cybersecurity incident they determine to be material within four business days of making that determination. See “ITEM 1C CYBERSECURITY”. These SEC rules, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations
Furthermore, once final rules are adopted, the Cyber Incident Reporting for Critical Infrastructure Act, enacted in March 2022, will require certain covered entities to report a covered cyber incident to the U.S. Department of Homeland Security’s Cybersecurity & Infrastructure Security Agency (“CISA”) within 72 hours after a covered entity reasonably believes an incident has occurred. Separate reporting to CISA will also be required within 24 hours if a ransom payment is made as a result of a ransomware attack.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. Park expects this trend of state-level activity in those areas to continue, and continues to monitor developments in the states in which our customers are located.
In the ordinary course of business, Park relies on electronic communications and information systems to conduct its operations and to store sensitive data. Park employs an in-depth, layered, defensive approach that leverages people, processes, encryption and multi-factor authentication technology to manage and maintain cybersecurity controls. Park employs a variety of preventative and detective tools to monitor, block and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of Park’s defensive measures, the threat from cybersecurity attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date, Park has not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, Park’s systems and those of its customers and third-party service providers are under constant threat and it is possible that Park could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking and other technology-based products and services by us and our customers. See “ITEM 1A. RISK FACTORS” for a further discussion of risks related to cybersecurity.
Anti-Money Laundering and the Patriot Act
A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended (the “Patriot Act”), substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the U.S. The Patriot Act gives the U.S. government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased
information sharing and broadened anti-money laundering requirements. Title III of the Patriot Act encourages information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions. Among other requirements, Title III and related regulations require regulated financial institutions to establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity. Park National Bank has established policies and procedures that Park National Bank believes comply with the requirements of the Patriot Act.
The Anti-Money Laundering Act of 2020 (the "AMLA"), which amends the Bank Secrecy Act of 1970 (the "BSA"), was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; and expands enforcement-related and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower initiatives and protections.
Office of Foreign Assets Control Regulation
The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. Park is responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.
Community Reinvestment Act
The CRA requires Park National Bank's primary federal regulatory agency, the OCC, to assess Park National Bank's record in meeting the credit needs of the communities served by Park National Bank consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market area by, among other things, providing credit to low-income and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings that must be publically disclosed. The OCC assigns one of four ratings: outstanding, satisfactory, needs to improve or substantial noncompliance. The rating assigned to a financial institution is considered in connection with various applications submitted by the financial institution or its holding company to its banking regulators, including applications to acquire another financial institution or to open or close a branch office. In addition, all subsidiary banks of a financial holding company must maintain a satisfactory or outstanding rating in order for the financial holding company to avoid limitations on its activities. Park National Bank received a rating of "satisfactory" in its latest CRA examination.
On October 24, 2023, the federal banking agencies, including the OCC, issued a final rule designed to strengthen and modernize the regulations implementing the CRA. The changes are designed to encourage banks to expand access to credit, investment and banking services in low- and moderate-income communities, adapt to changes in the banking industry, including mobile and internet banking, provide greater clarity and consistency in the application of the CRA regulations and tailor CRA evaluations and data collection to bank size and type. The applicability date for the majority of the changes to the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027. The impact the changes to the CRA will have on Park National Bank’s operations cannot be predicted at this time, but is being evaluated.
Corporate Governance
As mandated by the Sarbanes-Oxley Act of 2002, as amended, the SEC has adopted rules and regulations governing, among other issues, corporate governance, auditing and accounting, executive compensation and enhanced and timely disclosure of corporate information. NYSE American has also adopted corporate governance rules. The Board of Directors of Park has taken a series of actions to strengthen and improve Park’s already strong corporate governance practices in light of the rules of the SEC and NYSE American. The Board of Directors has adopted and annually reviews charters for the Audit Committee, the Compensation Committee, the Executive Committee, the Nominating and Corporate Governance Committee (including as Exhibit A thereto, Corporate Governance Guidelines) and the Risk Committee, as well as a Code of Business Conduct and Ethics governing the directors, officers and associates of Park and Park's subsidiaries.
Executive and Incentive Compensation
The Dodd-Frank Act requires that the federal bank regulatory agencies, including the Federal Reserve Board and the OCC, establish joint regulations or guidelines related to incentive-based compensation. No final rule implementing this provision of the Dodd-Frank Act has, as of the date of the filing of this Annual Report on Form 10-K, been adopted, but a proposed rule was published in 2016, and again in 2024, that expanded upon a prior proposed rule published in 2011. The proposed rule is intended to: (i) prohibit incentive-based payment arrangements that the bank regulatory agencies determine could encourage certain financial institutions to take inappropriate risks by providing excessive compensation or that could lead to material financial loss; (ii) require the board of directors of those financial institutions to take certain oversight actions related to incentive-based compensation; and (iii) require those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate federal regulator. Although a final rule has not been issued, Park and Park National Bank have undertaken efforts to ensure that their incentive compensation plans do not encourage inappropriate risks, consistent with the principles identified above.
In June 2010, the Federal Reserve Board, the OCC and the FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization's incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization's ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management and (iii) be supported by strong corporate governance, including active and effective oversight by the organization's board of directors. These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank Act, described above.
The Federal Reserve Board and the OCC review, as part of their respective regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as Park and Park National Bank, that are not "large, complex banking organizations." These reviews are tailored to each organization based on the scope and complexity of the organization's activities and the prevalence of incentive compensation arrangements. Deficiencies will be incorporated into the organization's supervisory ratings, which can affect the organization's ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization's safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
Public company compensation committee members must meet heightened independence requirements and consider the independence of compensation consultants, legal counsel and other advisors to the compensation committee. A compensation committee must have the authority to hire advisors and the public company must fund the reasonable compensation of such advisors.
SEC regulations require public companies to provide various disclosures about executive compensation in annual reports and proxy statements and to present to their shareholders a non-binding vote on the approval of executive compensation.
Public companies are required to adopt and implement "clawback" policies for incentive compensation payments and to disclose the details of the procedures which allow recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating an accounting restatement due to material noncompliance with financial reporting requirements. This clawback policy is intended to apply to compensation paid within the three completed fiscal years immediately preceding the date the issuer is required to prepare a restatement and would cover all executives (including former executives) who received incentive awards. Park has adopted and implemented a clawback policy.
Consumer Protection Laws and Regulations
Banks are subject to regular examination to ensure compliance with federal consumer protection statutes and regulations, including, but not limited to, the following:
•Equal Credit Opportunity Act (prohibiting discrimination in any credit transaction on the basis of any of various criteria)
•Truth in Lending Act (requiring that credit terms be disclosed in a manner that permits a consumer to understand and compare credit terms more readily and knowledgeably)
•Fair Housing Act (making it unlawful for a lender to discriminate in its housing-related lending activities against any person on the basis of certain criteria)
•Home Mortgage Disclosure Act (requiring financial institutions to collect data that enables regulatory agencies to determine whether financial institutions are serving the housing credit needs of the communities in which they are located)
•Real Estate Settlement Procedures Act (requiring that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits abusive practices that increase borrowers' costs)
•Fair Credit Reporting Act (governing the provision of consumer information to credit reporting agencies and the use of consumer information)
•Fair Debt Collection Practices Act (governing the manner in which consumer debts may be collected by collection agencies)
•Truth in Savings Act (requiring disclosure of deposit terms to consumers)
•Electronic Funds Transfer Act (governing automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of ATMs and other electronic banking services)
The bank regulators also use their authority under the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices by banks that may not necessarily fall within the scope of a specific banking or consumer finance law.
As a consumer finance company incorporated under Ohio law, Guardian Finance is subject to regulation and supervision by the ODFI. ODFI regulation and supervision are designed to protect consumers and can affect the lending activities of Guardian Finance, including interest rates, loan terms, advertising and record retention. If grounds provided by law exist, the ODFI may suspend or revoke an Ohio consumer finance company’s ability to make loans.
Legislative and Regulatory Initiatives
From time to time, various legislative and regulatory initiatives are introduced in the U.S. Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of Park and Park National Bank in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions and other financial institutions. Park cannot predict whether any such legislation will be enacted, and, if enacted, the effect that such legislation, or any implementing regulations, would have on the financial condition or results of operations of Park. A change in statutes, regulations or regulatory policies applicable to Park or any of Park's subsidiaries could have a material effect on Park's business, financial condition and results of operations.
Effect of Environmental Regulation
Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position of Park and Park's subsidiaries. Park believes the nature of the operations of Park's subsidiaries has little, if any, environmental impact. As a result, Park, anticipates no material capital expenditures for environmental control facilities for Park's current fiscal year or for the foreseeable future.
Park believes its primary exposure to environmental risk is through the lending activities of Park's subsidiaries. In cases where management believes environmental risk potentially exists, Park’s subsidiaries mitigate their environmental risk exposures by requiring environmental site assessments at the time of loan origination to confirm collateral quality as to commercial real estate parcels posing higher than normal potential for environmental impact, as determined by reference to present and past uses of the subject property and adjacent sites. In addition, environmental assessments are typically required prior to any foreclosure activity involving non-residential real estate collateral.

---

ITEM 1A. RISK FACTORS
ITEM 1A.RISK FACTORS.
Economic, Political and Market Risks
Inflation may have an adverse impact on our business and on our customers.
Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. In addition, inflation generally increases the cost of goods and services we use in our business operations which increases our noninterest expenses. Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.
Changes in economic and political conditions could adversely affect our earnings and capital through declines in deposits, quality of investment securities, loan demand, our borrowers’ ability to repay loans, and the value of the collateral securing our loans.
Our success depends, to a certain extent, upon local and national economic and political conditions, as well as governmental fiscal and monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy, an increasing U.S. federal government budget deficit, the failure of the U.S federal government to raise the federal debt ceiling, slowing gross domestic product, tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars, and other factors beyond our control may adversely affect our deposit levels and composition, the quality of our assets including investment securities available for purchase and the demand for loans, which, in turn, may adversely affect our earnings and capital. Recent political developments, such as military conflicts in Ukraine and the Middle East, have resulted in substantial changes in economic and political conditions for the U.S. and the remainder of the world. In addition, disruptions in U.S. and global financial markets and changes in oil production in the Middle East affect the economy and stock prices in the U.S., which can affect our earnings and our capital, as well as the ability of our customers to repay loans. Because we have a significant number of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral and our ability to sell the collateral upon foreclosure. Adverse changes in the economy, including those resulting from pandemics, rising inflation, and increases in interest rates, may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings and cash flows.
Changes in interest rates could have a material adverse effect on our financial condition, results of operations and cash flows.
Our earnings and cash flows depend substantially on our interest rate spread, which is the difference between: (i) the rates we earn on loans, investment securities and other interest earning assets; and (ii) the interest rates we pay on deposits and our borrowings. These rates are highly sensitive to many factors beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities and, in particular, the Federal Reserve Board. Changes in monetary policy influence the origination of loans, the prepayment speed of loans, the purchase of investments, the generation of deposits and rates of interest received and paid. If market interest rates rise, Park will have competitive pressure to increase the rates that Park pays on deposits, which could result in a decrease of Park's net interest income. If market rates decline, Park could experience fixed-rate loan prepayments and higher investment portfolio cash flows, resulting in a lower yield on earning assets. Park's earnings can also be impacted by the spread between short-term and long-term market interest rates.
While we have taken measures intended to manage the risks of operating in a changing interest rate environment, there can be no assurance that such measures will be effective in avoiding undue interest rate risk, especially in light of the continued economic effects of sustained inflation. Information pertaining to the impact changes in interest rates could have on our net income is included in "Table 31 - Interest Rate Sensitivity" in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K, and is incorporated herein by reference.
Changes in the general economic conditions and real estate valuations in our primary market areas could adversely impact results of operations, financial condition and cash flows.
Our lending and deposit gathering activities are concentrated primarily in Ohio, Kentucky, North Carolina and South Carolina. Our success depends on the general economic conditions of our primary market areas, particularly given that a significant portion of our lending relates to real estate located in these regions. Adverse changes in the regional and general economic conditions could reduce our growth rate, impair our ability to collect payments on loans, increase loan delinquencies, increase problem assets and foreclosures, increase claims and lawsuits, increase devaluations recognized within our OREO
portfolio, decrease the demand for our products and services and decrease the value of collateral for loans, especially real estate values, which could have a material adverse effect on our financial condition, results of operations and cash flows.
Business Operations Risks
We are exposed to operational risk.
Similar to any large organization, we are exposed to many types of operational risk, including those discussed in more detail elsewhere in this Item, such as reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems.
We may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control, which may include, for example, computer viruses, cybersecurity attacks including cybersecurity attacks on third-party vendors, spikes in transaction volume and/or customer activity, electrical or telecommunications outages, or natural disasters. We could be adversely affected by operating systems disruptions if new or upgraded business management systems are defective, not installed properly or not properly integrated into existing operating systems. Although we have programs in place related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity and availability of our operating systems, business applications and customer information, such disruptions may give rise to interruptions in service to customers, loss of data privacy, and loss or liability to us.
Any failure or interruption in our operating or information systems, or any security or data breach, could cause reputational damage, jeopardize the confidentiality of customer information, result in a loss of customer business, subject us to regulatory intervention or expose us to civil litigation and financial loss or liability, any of which could have a material adverse effect on us.
Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, social media and other marketing activities, and the implementation of environmental, social, and governance practices, and from actions taken by governmental regulators and community organizations in response to any of the foregoing. Negative public opinion could adversely affect our ability to attract and keep customers, could expose us to potential litigation or regulatory action, and could have a material adverse effect on the price of our common shares or result in heightened volatility.
Given the volume of transactions we process, certain errors may be repeated or compounded before they are discovered and successfully rectified. Our necessary dependence upon automated systems to record and process our transaction volume may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect, which may give rise to disruption of service to customers and to financial loss or liability. We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as we are) or that our (or our vendors’) consumer compliance, business continuity, and data security systems will prove to be inadequate.
Our business could be adversely affected by third-party service providers, data breaches and cyber-attacks.
We face the risk of operational disruption, failure or capacity constraints due to our dependency on third-party vendors for components of our business infrastructure. While we have selected these third-party vendors through our vendor management process, we do not control their operations. As such, our business and operations could be adversely affected in the event these third-party vendors are unable to perform their various responsibilities and we are unable to timely and cost-effectively identify acceptable substitute providers.
Regulatory guidance adopted by federal bank regulatory agencies addressing how banks select, engage and manage their third-party relationships could affect the circumstances and conditions under which we work with third-party service providers and the costs of managing such relationships.
Our assets at risk for cybersecurity attacks include financial assets and non-public information belonging to customers. We use several third-party vendors who have access to our assets via electronic media. Certain cybersecurity risks arise due to this access, including cybersecurity espionage, blackmail, ransom, malware, and theft. We employ many preventive and detective controls to protect our assets, and we provide mandatory recurring information security training to all employees. To date, we have not experienced any material losses relating to cybersecurity attacks or other information security breaches, but there can be no assurance that we will not suffer such attacks or attempted breaches, or incur resulting losses in the future. Our
risk and exposure to these matters remains heightened due to, among other factors, the evolving nature of these threats, our plans to continue to implement or expand Internet and mobile banking to meet customer demand, and the current economic and political environment. As cybersecurity and other data security threats continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate and remediate any security vulnerabilities.
Failures or material breaches in security of our systems, or those of third-party service providers, may have a material adverse effect on our results of operations and financial condition and the price of our common shares.
We collect, process and store sensitive consumer data by utilizing computer systems and telecommunications networks operated by both us and third-party service providers. Our dependence upon automated systems to record and process our transactions poses the risk that technical system flaws, employee errors, tampering or manipulation of those systems, or attacks by third parties will result in losses and may be difficult to detect. We have security and backup and recovery systems in place, as well as a business continuity plan, to ensure the computer systems will not become inoperable, to the extent possible. We also routinely review documentation of such controls and backups related to third-party service providers. Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. In recent years, several banks have experienced denial of service attacks in which individuals or organizations flood the bank's website with extraordinarily high volumes of traffic, with the goal and effect of disrupting the ability of the bank to process transactions. Other businesses have been victims of ransomware attacks in which the business becomes unable to access its own information and is presented with a demand to pay a ransom in order to once again have access to its information. We could be adversely affected if one of our employees or a third-party service provider causes a significant operational break-down or failure, either as a result of human error or where the individual purposefully sabotages or fraudulently manipulates our operations or systems. We may not be able to prevent employee or third-party errors or misconduct, and the precautions we take to detect this type of activity might prove ineffective. We are further exposed to the risk that the third-party service providers may be unable to fulfill their contractual obligations (or will be subject to the same risks that we are). These disruptions may interfere with service to our customers, cause additional regulatory scrutiny and result in a financial loss or liability. We are also at risk of the impact of natural disasters, terrorism and international hostilities on our systems or for the effects of outages or other failures involving power or communications systems operated by others.
In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. Although we have policies and procedures in place to verify the authenticity of our customers, we cannot assure that such policies and procedures will prevent all fraudulent transfers.
We have implemented security controls to prevent unauthorized access to our computer systems, and we require that our third-party service providers maintain similar controls. However, Park's management cannot be certain that these measures will be successful. A security breach of the computer systems and loss of confidential information, such as customer account numbers and related information, could result in a loss of customers’ confidence and, thus, loss of business. We could also lose revenue if competitors gain access to confidential information about our business operations and use it to compete with us. While we maintain specific "cybersecurity" insurance coverage, which would apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case. Furthermore, because cybersecurity threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cybersecurity insurance coverage.
Further, we may be affected by data breaches at retailers and other third parties who participate in data interchanges with us and our customers that involve the theft of customer credit and debit card data, which may include the theft of our debit card PIN numbers and commercial card information used to make purchases at such retailers and other third parties. Such data breaches could result in us incurring significant expenses to reissue debit cards and cover losses, which could result in a material adverse effect on our results of operations.
All of the types of cybersecurity incidents discussed above could result in damage to our reputation, loss of customer business, increased costs of incentives to customers or business partners in order to maintain their relationships, litigation, increased regulatory scrutiny and potential enforcement actions, repairs of system damage, increased investments in cybersecurity (such as obtaining additional technology, making organizational changes, deploying additional personnel, training personnel and engaging consultants), increased insurance premiums, and loss of investor confidence and a reduction in the price of our common shares, all of which could result in financial loss and material adverse effects on our results of operations and financial condition.
We extend credit to a variety of customers based on certain internal standards and the judgment of our loan officers. Our credit standards and on-going process of credit assessment might not protect us from significant credit losses.
We take credit risk by virtue of making loans and leases, extending loan commitments and letters of credit and, to a lesser degree, purchasing municipal bonds and purchasing collateralized loan obligations. Our exposure to credit risk is managed through the use of consistent underwriting standards that emphasize “in-market” lending while avoiding highly leveraged transactions as well as excessive industry and other concentrations. Our loans to non-bank consumer finance companies are made nationally and present different risks than our "in-market" lending due to the variability of cash flows that support the asset-based loans. Our credit administration function employs risk management techniques to ensure that loans and leases adhere to corporate policy and problem loans and leases are promptly identified. While these procedures are designed to provide us with the information needed to implement policy adjustments where necessary, and to take proactive corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk.
Our business and financial results are subject to risks associated with the creditworthiness of our customers and counterparties.
Credit risk is inherent in the financial services business and results from, among other factors, extending credit to customers, purchasing non-governmental securities, and entering into certain guarantee contracts. Credit risk is one of the most significant risks to our business, particularly given the high percentage of our assets represented directly and indirectly by loans and the importance of lending to our overall business. As discussed in the immediately preceding risk factor, many factors impact credit risk, and we manage this by periodically assessing and monitoring the creditworthiness of our customers and by diversifying our loan portfolio.
A borrower's ability to repay a loan can be adversely affected by individual factors, such as business performance, job losses or health issues. A weak or deteriorating economy and changes in the U.S. or global markets and changes in interest rates also could adversely impact the ability of our borrowers to repay outstanding loans. Any decrease in our borrowers' ability to repay loans would result in higher levels of nonperforming loans, net charge-offs and provision for credit losses.
Financial services institutions are interrelated as a result of trading, clearing and other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry. Many of these transactions expose us to credit risk in the event of default of our counterparty or client.
Despite maintaining a diversified portfolio, our operations may result in concentrated credit exposure to a particular person, entity, industry or counterparty. Events adversely affecting specific customers, industries, or markets, a decrease in the credit quality of a customer base, or an adverse change in the risk profile of a market, industry, or group of customers could adversely affect our results of operations.
Our credit risk may be exacerbated when collateral held by us to secure obligations to us cannot be realized upon by us or is liquidated at prices that are not sufficient to recover the full amount of the loan.
Up until 2020, Park's provision for credit losses had declined since the end of the most recent recession, which ended in June 2009, primarily due to improvement in general economic conditions, as well as actions taken by us to better manage our loan portfolio. During 2020, Park experienced elevated provision for credit losses primarily due to the impact of COVID-19. During 2021-2024, the provision fluctuated as a result of changes in economic forecasts and other assumptions. If we were to experience higher levels of provision for credit losses, it could result in lower levels of net income.
Our expansion into Kentucky, South Carolina and North Carolina may also expose Park to additional geographic risk.
Our allowance for credit losses may prove to be insufficient to absorb the expected, lifetime losses in our loan portfolio.
We maintain an allowance for credit losses that we believe is a reasonable estimate of the expected losses within the CECL model, based on management’s quarterly analysis of our loan portfolio. The determination of the allowance for credit losses requires management to make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of real estate and other assets serving as collateral for the repayment of loans. Additional information regarding our allowance for credit losses methodology and the sensitivity of the estimates can be found in the discussion of “CRITICAL ACCOUNTING POLICIES” included in “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” of this Annual Report on Form 10-K.
Our estimation of future credit losses is susceptible to changes in economic, operating and other conditions, including changes in regulations and interest rates, which may be beyond our control, and the losses may exceed current estimates. We cannot be assured of the amount or timing of losses, nor whether the allowance for credit losses will be adequate in the future.
If our assumptions prove to be incorrect, our allowance for credit losses may not be sufficient to cover the expected losses from our loan portfolio, resulting in the need for additions to the allowance for credit losses which could have a material adverse impact on our financial condition and results of operations. In addition, bank regulators periodically review our allowance for credit losses as part of their examination process and may require management to increase the allowance or recognize further loan charge-offs based on judgments different than those of management.
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13 “Financial Instruments - Credit Losses,” which replaced the incurred loss model with the CECL model, an expected loss model. The accounting guidance was to have been adopted by Park as of January 1, 2020. However, Section 4014 of the CARES Act provided financial institutions with optional temporary relief from having to comply with the CECL methodology which would have expired on December 31, 2020, and Section 540 of the Consolidated Appropriations Act, 2021 (the "CAA"), further extended the relief period to the earlier of the first day of the fiscal year that begins after the date on which the national emergency concerning COVID-19 terminates or January 1, 2022. Park elected to delay the implementation of CECL following the approval of the CARES Act and the CAA, and adopted CECL as of January 1, 2021.
The accounting guidance under the CECL model requires banks to record, at the time of origination, credit losses expected throughout the life of financial assets measured at amortized cost, including loan receivables, HTM debt securities and reinsurance receivables, and off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees and other similar instruments) and net investments in leases recognized by a lessor. Under the CECL model, we are required to use historical information, current conditions and reasonable and supportable forecasts to estimate the expected credit losses. If the methodologies and assumptions we use in the CECL model prove to be incorrect, or inadequate, the allowance for credit losses may not be sufficient, resulting in the need for additional provisions for credit losses to be recorded, which could have a material adverse impact on our financial condition and results of operations.
As a result of the implementation of the CECL model, the time horizon over which we are required to estimate future credit losses expanded, which could result in increased volatility in future provisions for credit losses. We may also experience a higher or more volatile provision for credit losses due to higher levels of nonperforming loans and net charge-offs if commercial and consumer customers are unable to make scheduled loan payments.
We depend upon the accuracy and completeness of information about customers and counterparties.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information provided to us by customers and counterparties, including financial statements and other financial information. We may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a business, we may assume that the customer’s audited financial statements conform with U.S. GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We may also rely on the audit report covering those financial statements. Our financial condition, results of operations and cash flows could be negatively impacted to the extent that we rely on financial statements that do not comply with U.S. GAAP or on financial statements and other financial information that are materially misleading.
We may be required to repurchase loans we have sold or to indemnify loan purchasers under the terms of the sale agreements, which could adversely affect our liquidity, results of operations and financial condition.
When we sell a mortgage loan, we may agree to repurchase or substitute a mortgage loan if we are later found to have breached any representation or warranty we made about the loan or if the borrower is later found to have committed fraud in connection with the origination of the loan. While we have underwriting policies and procedures designed to avoid breaches of representations and warranties we have made and borrower fraud, there can be no assurance that no breach or fraud will ever occur. Required repurchases, substitutions or indemnifications could have an adverse effect on our liquidity, results of operations and financial condition.
We are subject to environmental liability risk associated with lending activities.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances
could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws and evolving regulation may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws and regulations or more stringent interpretations or enforcement policies with respect to existing laws or regulations may increase our exposure to environmental liability. Environmental reviews of real property before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, financial condition and results of operations.
Noncompliance with the BSA and other anti-money laundering statutes and regulations could cause us to experience a material financial loss.
The BSA and the Patriot Act contain anti-money laundering and financial transparency provisions intended to detect and prevent the use of the U.S. financial system for money laundering and terrorist financing activities. The BSA, as amended by the Patriot Act and the AMLA, requires depository institutions and their holding companies to undertake activities including maintaining an anti-money laundering program, verifying the identity of clients, monitoring for and reporting suspicious transactions, reporting on cash transactions exceeding specified thresholds, and responding to requests for information by regulatory authorities and law enforcement agencies. Financial Crimes Enforcement Network (also known as FinCEN), a unit of the U.S. Treasury Department that administers the BSA, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the federal bank regulatory agencies, as well as the U.S. Department of Justice, the U.S. Drug Enforcement Administration, and the U.S. Internal Revenue Service. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; and expands enforcement-related and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections.
There is also increased scrutiny of compliance with the rules enforced by OFAC. If our policies, procedures and systems are deemed deficient, or if the policies, procedures and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we may be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain planned business activities, including acquisition plans, which could negatively impact our business, financial condition and results of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.
For a more complete discussion of the BSA, the Patriot Act and the AMLA as well as OFAC, see the section captioned "Supervision and Regulation of Park and Park's Subsidiaries" in "ITEM 1. BUSINESS" of this Annual Report on Form 10-K.
We operate in a highly competitive environment, in terms of the products and services we offer and the geographic markets in which we conduct business, as well as in our labor markets where we compete for talented employees. Competition could adversely impact our customer acquisition, growth and retention, as well as our credit spreads and product pricing, causing us to lose market share and deposits and revenues.
We are subject to intense competition from various financial institutions as well as from non-bank entities that engage in many similar activities without being subject to bank regulatory supervision and restrictions. This competition is described in "ITEM 1. BUSINESS" of this Annual Report on Form 10-K under the caption "Competition." Competition in our industry could intensify as a result of the increasing consolidation of financial services companies, in connection with current market conditions, or otherwise. Consumers may also move money out of bank deposits in favor of other investments, including digital or cryptocurrency. Customers have increasingly used bill payment services that do not utilize banks, and these trends may result in losses of deposits and fee income.
The principal bases for competition are pricing (including the interest rates charged on loans or paid on interest bearing deposits), product structure, the range of products and services offered, and the quality of customer service (including convenience and responsiveness to customer needs and concerns). Digital or cryptocurrencies, blockchain, and other “fintech” technologies are designed to enhance transactional security and have the potential to disrupt the financial industry, change the way banks do business, and reduce the need for banks as financial deposit-keepers and intermediaries. The ability to access and use technology is an increasingly important competitive factor in the financial services industry, and it is a critically important component to customer satisfaction as it affects our ability to deliver the right products and services.
Another increasingly competitive factor in the financial services industry is the competition to attract and retain talented associates across many of our business and support areas. This competition leads to increased expenses in many business areas and can also cause us to not pursue certain business opportunities.
A failure to adequately address the competitive pressures we face could make it harder for us to attract and retain customers across our businesses. On the other hand, meeting these competitive pressures could require us to incur significant additional expense, to reevaluate the number of branches through which we serve our customers, or to accept risk beyond what we would otherwise view as desirable under the circumstances. In addition, in our interest rate sensitive businesses, pressures to increase rates on deposits or decrease rates on loans could reduce our net interest margin with a resulting negative impact on our net interest income.
We may not be able to adapt to technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers while reducing costs. Our future success depends, in part, upon our ability to address customer needs by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. This could include the development, implementation, and adaptation of digital or cryptocurrency, blockchain, and other “fintech” technology. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological changes affecting the financial services industry could negatively affect our growth, revenue and net income.
We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. Federal bank regulatory agencies have adopted extensive changes to their capital requirements, including raising required amounts and eliminating the inclusion of certain instruments from the calculation of capital. If we experience significant loan losses, additional capital may need to be infused. In addition, we may elect to raise additional capital to support our business or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital. Our ability to raise additional capital, if needed, will depend on our financial performance, conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control. Accordingly, there can be no assurance that we will be able to raise additional capital if needed or that the terms of available capital will be acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.
In addition, prior debt offerings could potentially have important consequences to us and our debt and equity investors, including:
•requiring a substantial portion of our cash flow from operations to make interest payments;
•making it more difficult to satisfy debt service and other obligations;
•increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing;
•increasing our vulnerability to general adverse economic and industry conditions;
•reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business;
•limiting our flexibility in planning for, or reacting to, changes in our business and the industry;
•placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged with debt; and
•limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase securities.
We continue to evaluate these risks on an ongoing basis.
Our ability to pay dividends on our common shares is limited.
Although we have paid a dividend on our common shares every quarter since becoming a public company, our Board of Directors reviews the dividend on a quarterly basis and establishes the dividend rate based on our financial condition, results of operations, capital and other regulatory requirements, and other factors that our Board of Directors deems relevant. As a financial holding company, we are a legal entity separate and distinct from our subsidiaries and affiliates. Our principal source of funds to pay dividends on our common shares and service our debt is dividends from our subsidiaries. In the event our
subsidiaries become unable to pay dividends to us, we may not be able to service our debt, pay our other obligations or pay dividends on our common shares. Accordingly, our inability to receive dividends from our subsidiaries could also have a material adverse effect on our business, financial condition and results of operations.
Various federal and state statutory provisions and regulations limit the amount of dividends that Park National Bank and our other subsidiaries may pay to us without regulatory approval. In addition, the Federal Reserve Board and the OCC have issued policy statements that provide that insured banks as well as financial holding companies and other bank holding companies should generally only pay dividends out of current operating earnings. Thus, the ability of Park National Bank to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines and may restrict our ability to declare and pay dividends to our shareholders.
Payment of dividends could also be subject to regulatory limitations if Park National Bank were to become “undercapitalized” for purposes of the applicable “prompt corrective action” regulations. Throughout 2024 and 2025 to date, Park National Bank has been in compliance with all regulatory capital requirements and had sufficient capital under the “prompt corrective action” regulations to be deemed “well-capitalized.” There are also restrictions on the ability of Park National Bank to pay dividends if it does not hold the applicable capital conservation buffer.
If any of our subsidiaries becomes insolvent, the direct creditors of that subsidiary will have a prior claim on that subsidiary’s assets. Our rights and the rights of our creditors will be subject to that prior claim, unless we are also a direct creditor of that subsidiary.
Derivative transactions may expose us to unexpected risk and potential losses.
We are party to a number of derivative transactions. Many of these derivative instruments are individually negotiated and non-standardized, which can make exiting, transferring or settling the position difficult. We carry borrowings which contain embedded derivatives. These borrowing arrangements require that we deliver underlying securities to the counterparty as collateral. We are dependent on the creditworthiness of the counterparties and are therefore susceptible to credit and operational risk in these situations.
Derivative instruments and other transactions entered into with third parties are not always confirmed by the counterparties on a timely basis. While the transaction remains unconfirmed, we are subject to heightened credit and operational risk and, in the event of a default, we may find it more difficult to enforce the underlying derivative instrument. In addition, as new and more complex derivative products are created, covering a wider array of underlying credit and other instruments, disputes about the terms of the underlying derivative instruments could arise, which could impair our ability to effectively manage our risk exposures from these products and subject us to increased costs. Any regulatory effort to create an exchange or trading platform for credit derivatives and other over-the-counter derivative instruments, or a market shift toward standardized derivative instruments, could reduce the risk associated with such transactions, but under certain circumstances could also limit our ability to develop derivative instruments that best suit our needs and those of our clients and adversely affect our profitability.
Legislative, Regulatory and Accounting Change Risks
Legislative or regulatory changes or actions could adversely impact us or the businesses in which we are engaged.
The financial services industry is extensively regulated. We are subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of our operations. Laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors, borrowers, the DIF and the banking system as a whole, and not to benefit our shareholders. Regulations affecting banks and financial services businesses are undergoing continuous change and management cannot predict the effect of these changes. While such changes are generally intended to lessen the regulatory burden on financial institutions, the impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact us or our ability to increase the value of our business. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a financial institution, the classification of assets held by a financial institution, the adequacy of a financial institution’s allowance for credit losses and the ability to complete acquisitions. Additionally, actions by regulatory agencies against us could cause us to devote significant time and resources to defending our business and may lead to penalties that materially affect us and our shareholders. Even the reduction of regulatory restrictions could have an adverse effect on us and our shareholders if such lessening of restrictions increases competition within our industry or our market area.
In light of conditions in the global financial markets and the global economy that occurred in the last two decades, regulators have increased their focus on the regulation of the financial services industry. Most recently, the U.S. Congress and the federal agencies regulating the financial services industry have acted on an unprecedented scale in responding to the stresses experienced in the global financial markets. Some of the laws enacted by the U.S. Congress and regulations promulgated by federal bank regulatory agencies subject us, and other financial institutions to which such laws and regulations apply, to additional restrictions, oversight and costs that may have an impact on our business, results of operations or the trading price of our common shares. In addition to laws, regulations and supervisory and enforcement actions directed at the operations of financial institutions, proposals to reform the housing finance market consider significant changes to Fannie Mae and Freddie Mac, which could negatively affect our sales of loans.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
Financial institutions are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance ("ESG") practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights. Increased ESG-related compliance costs for us as well as among our third-party suppliers, vendors and various other parties within our supply chain could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and the price of our Common Shares.
Deposit insurance premiums assessed on Park National Bank may increase and have a negative effect on Park’s results of operations.
We have limited ability to control the amount of premiums we are required to pay for FDIC insurance. The DIF is funded by fees assessed on insured depository institutions. If the costs of future bank failures increase, deposit insurance premiums may also increase. The FDIC has adopted rules revising the FDIC's assessments in a manner benefiting banks with assets totaling less than $10 billion. There can be no assurance, however, that assessments will not be changed in the future. Federal deposit insurance is described in more detail in the section captioned "Supervision and Regulation of Park and Park's Subsidiaries - Federal Deposit Insurance" in "ITEM 1. BUSINESS" of this Annual Report on Form 10-K.
Changes in accounting standards, policies, estimates or procedures could impact our reported financial condition or results of operations.
The entities responsible for setting accounting standards, including the FASB, the SEC and other regulatory bodies, periodically change the financial accounting and reporting guidance that governs the preparation of our consolidated financial statements. Changes in accounting standards can be hard to predict and could materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply new or revised guidance retroactively, resulting in the restatement of prior period financial statements. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make significant estimates that affect the financial statements. Due to the inherent nature of these estimates, actual results may vary materially from management’s estimates.
Additional information regarding Park’s critical accounting policies and the sensitivity of estimates can be found in our discussion of “CRITICAL ACCOUNTING POLICIES” in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K.
Our accounting estimates and risk management processes rely on analytical and forecasting models.
The processes we use to estimate our credit losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical and, in some cases, forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the model we use for determining our expected credit losses is inadequate, the allowance for credit losses may not be sufficient to support charge-offs. If the models we use to measure the fair value of financial instruments are inadequate, the fair value of such financial
instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments. Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.
Strategic Risks
Future expansion may adversely affect our financial condition and results of operations as well as dilute the interests of our shareholders and negatively affect the price of our common shares.
We may acquire other financial institutions, or branches or assets of other financial institutions, in the future. We may also open new branches and enter into new lines of business or offer new products or services. Any such expansion of our business will involve a number of expenses and risks, which may include:
•the time and expense associated with identifying and evaluating potential expansions;
•the potential inaccuracy of estimates and judgments used to evaluate credit, operations, management and market risk with respect to target financial institutions;
•potential exposure to unknown or contingent liabilities of the target financial institution;
•exposure to potential asset quality issues of the target financial institution;
•the time and costs of evaluating new markets, hiring local management and opening new offices, and the delay between commencing these activities and the generation of profits from the expansion;
•our financing of the expansion;
•the diversion of management’s attention to the negotiation of a transaction and the integration of the operations and personnel of the combining businesses;
•risks associated with entry into unfamiliar markets;
•the introduction of new products and services into our existing business;
•the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations;
•the risk of loss of key employees and customers;
•the risk associated with differing company cultures; and
•difficulty in receiving appropriate regulatory approval for any proposed transaction.
We may incur substantial costs to expand, and such expansion may not result in the levels of profits we expect. Integration efforts for any future acquisitions may not be successful. We may issue equity securities in connection with acquisitions, which could dilute the economic and voting interests of our existing shareholders.
Any merger or acquisition opportunity that we decide to pursue will ultimately be subject to regulatory approval or other closing conditions. We may expend substantial time and resources pursing potential acquisitions which may not be consummated because regulatory approval or other closing conditions are not satisfied.
Changes in retail distribution strategies and consumer behavior may adversely impact our investments in our financial service office premises and equipment and other assets and may lead to increased expenditures to change our retail distribution channel.
We have significant investments in financial service office premises and equipment for our financial service office network, including 87 financial service offices as well as our retail work force and other financial service office banking assets. Advances in technology such as e-commerce, telephone, internet and mobile banking, and in-branch self-service technologies including automatic teller machines and other equipment, as well as changing customer preferences for these other methods of accessing our products and services, could affect the value of our financial service office network or other retail distribution assets and may cause us to change our retail distribution strategy, close and/or sell certain financial service offices and restructure or reduce our remaining financial service offices and work force. Further advances in technology and/or changes in customer preferences including those related to social media, digital or cryptocurrency, blockchain, and other “fintech” technologies could result in additional changes in our retail distribution strategy and/or financial service office network. These actions could lead to losses on these assets or could adversely impact the carrying value of other long-lived assets and may lead to increased expenditures to renovate and reconfigure remaining financial service offices or to otherwise reform our retail distribution channel.
General Risk Factors
If our total consolidated assets exceed $10.0 billion, we will become subject to additional regulations
As of December 31, 2024, Park had total consolidated assets of $9.8 billion. However, should our total consolidated assets exceed $10.0 billion, Park and Park National Bank will become subject to heightened regulatory requirements stemming largely from the Dodd-Frank Act. These requirements include, but are not limited to, the following: (i) supervision, examination and enforcement by the CFPB with respect to federal consumer financial protection laws; (ii) a modified methodology and scorecard for calculating FDIC insurance assessments and, depending on the result of Park National Bank’s performance under the scorecard, potentially higher assessment rates; (iii) limitations on interchange transaction fees for debit card transactions; (iv) heightened compliance standards under the Volcker Rule; (v) enhanced supervision by the OCC and the Federal Reserve Board; and (vi) no longer being eligible to elect to be subject to the CBLR. The imposition of these regulatory requirements and increased supervision, should the $10.0 billion threshold be crossed, may require the additional commitment of financial resources to regulatory compliance and may increase Park National Bank’s cost of operations and provide greater limitations on the products and services that can be offered.
Compliance with these additional ongoing requirements may necessitate additional personnel, the design and implementation of additional internal controls, or the incurrence of other significant expenses, any of which could have a significant adverse effect on our business, financial condition, or results of operations. Our regulators may also consider our preparation for compliance with these regulatory requirements in the course of examining our operations generally or when considering any request from us or Park National Bank.
We may be a defendant from time to time in a variety of litigation and other actions, which could have a material adverse effect on our financial condition, results of operations and cash flows.
We may be involved from time to time in a variety of litigation arising out of our business. The risk of litigation increases in times of increased troubled loan collection activity. Our insurance may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our financial condition, results of operations and cash flows. In addition, we may not be able to obtain appropriate types or levels of insurance in the future or obtain adequate replacement policies with acceptable terms.
A default by another larger financial institution could adversely affect financial markets generally.
Many financial institutions and their related operations are closely intertwined, and the soundness of such financial institutions may, to some degree, be interdependent. As a result, concerns about, or a default or threatened default by, one financial institution could lead to significant market-wide liquidity and credit problems and/or losses or defaults by other financial institutions. This “systemic risk” may adversely affect our business.
We are at risk of increased losses from fraud.
Criminals are committing fraud at an increasing rate and are using more sophisticated techniques. In some cases, these individuals are part of larger criminal rings, which allow them to be more effective. Such fraudulent activity has taken many forms, ranging from wire fraud, debit card fraud, check fraud, mechanical devices attached to ATM machines, social engineering and phishing attacks to obtain personal information, or impersonation of clients through the use of falsified or stolen credentials. Additionally, an individual or business entity may properly identify itself, yet seek to establish a business relationship for the purpose of perpetrating fraud. An emerging type of fraud even involves the creation of synthetic identification in which fraudsters "create" individuals for the purpose of perpetrating fraud. In addition to fraud committed directly against us, we may suffer losses as a result of fraudulent activity committed against third parties. Increased deployment of technologies, such as chip card technology, defray and reduce certain aspects of fraud; however, criminals are turning to other sources to steal personally identifiable information, such as unaffiliated healthcare providers and government entities, in order to impersonate consumers and thereby commit fraud.
Changes in tax laws could adversely affect our performance.
We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and ad valorem taxes. Changes to our taxes could have a material adverse effect on our results of operations, fair values of net deferred tax assets and obligations of states and political subdivisions held in our investment securities portfolio. In addition, our customers are subject to a wide variety of federal, state and local taxes. Changes in taxes paid by our customers
may adversely affect their ability to purchase homes or consumer products, which could adversely affect their demand for our loans and deposit products. In addition, such negative effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities in which we have invested.
Adverse changes in the financial markets may adversely impact our results of operations.
While we generally invest in securities issued by U.S. government agencies and sponsored entities and domestic state and local governments with limited credit risk, certain investment securities we hold possess higher credit risk since they represent beneficial interests in structured investments collateralized by residential mortgages, debt obligations and other similar asset-backed assets. Even securities issued by U.S. governmental agencies and sponsored entities may entail risk depending on political and economic changes. Regardless of the level of credit risk, all investment securities are subject to changes in market value due to changing interest rates, implied credit spreads and credit ratings.
Park National Bank is subject to additional requirements and restrictions imposed by the U.S. Department of Justice (the “DOJ”) in the DOJ Consent Order approved by the U.S. District Court for the Southern District of Ohio, Eastern Division.
On February 28, 2023, Park National Bank reached an agreement with the DOJ to increase the efforts of Park National Bank to promote home lending in the Columbus, Ohio market. The agreement, which is reflected in the consent order filed on February 28, 2023, in the U.S. District Court for the Southern District of Ohio, Eastern Division (the “DOJ Consent Order”) and approved on March 2, 2023 by that Court, serves to voluntarily resolve all claims of the U.S. alleging that Park National Bank’s mortgage lending practices within the Columbus, Ohio Metropolitan Statistical Area violated the Fair Housing Act and the Equal Credit Opportunity Act.
In accordance with the terms of the DOJ Consent Order, Park National Bank will invest a minimum of $7.75 million over five years in a loan subsidy fund to increase credit opportunities for home mortgage loans, home improvement loans, home refinance loans and home equity loans and lines of credit for consumers applying for loans in majority-minority census tracts ("MMCTs") in Fairfield, Franklin, Hocking, Licking, Morrow and Perry counties in Ohio (the “Columbus Lending Area”). Park National Bank will also devote a minimum of $500,000 over five years toward one or more community development partnership programs that provide services to residents of MMCTs in the Columbus Lending Area related to credit, financial education, homeownership and foreclosure prevention; and at least $750,000 over five years toward advertising, community outreach, consumer financial education and credit counseling in the Columbus Lending Area. Park National Bank will also establish one new mortgage loan production office and one new full-service branch in MMCTs in the Columbus Lending Area and hire four lenders, one of whom will be Spanish-speaking, focused on serving these communities. In addition, Park National Bank will continue to maintain, throughout the term of the DOJ Consent Order, Park National Bank’s full-time Director of Community Home Lending and Development position, who will oversee Park National Bank’s lending in MMCTs in the Columbus Lending Area.
Park is committed to investing at least $9.0 million over five years and will record the related expenses incurred in the
period in which the associated activities occur.
Through its first two years, Park National Bank is in full compliance with the DOJ Consent Order and on target to complete its compliance with the DOJ Consent Order within the required five-year period. Continuing to achieve compliance may continue to require management attention, may affect Park’s financial performance, and may require Park to allocate resources away from existing businesses or to undertake significant changes to our businesses, operations, products and services, and risk management practices. In addition, Park and Park National Bank could be subject to other enforcement actions relating to the alleged violations resolved by the DOJ Consent Order.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B.UNRESOLVED STAFF COMMENTS.
No response required.

---

ITEM 2. PROPERTIES
ITEM 2.PROPERTIES.
Park’s principal executive offices are located at 51 North Third Street, Newark, Ohio 43055. This facility, which we own, houses our executive offices as well as various operational functions. We believe that our current facilities are suitable and adequate to meet our ongoing needs and that, if we require additional space, we will be able to obtain additional facilities.
Park National Bank
As of December 31, 2024, Park National Bank and its subsidiary Scope Leasing, Inc. had a total of 87 financial service offices in Ohio, Kentucky, North Carolina and South Carolina. Park National Bank has three financial service offices (including its main office) and three operations centers in Newark in Licking County, Ohio. We operate a total of 76 financial service offices in Ohio, one financial service office in Kentucky, five financial service offices in North Carolina and five financial service offices in South Carolina. Of the financial service offices described above, 17 are leased and the remainder are owned. Park National Bank also operates 32 off-site automated teller machines.
Scope Leasing, Inc. has an office located in Columbus in Franklin County, Ohio, which it leases.
Guardian Finance
As of the date of this Annual Report on Form 10-K, Guardian Finance had one administrative office in Newark in Licking County, Ohio, which it leases from Park National Bank.
SE Property Holdings, LLC
SEPH has one administrative office located in Newark in Licking County, Ohio, which it leases from Park National Bank.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3.LEGAL PROCEEDINGS.
We are routinely engaged in various litigation and other legal matters that are part of, or incidental to, our ordinary course of business and we have a number of unresolved lawsuits and open matters pending resolution. While the ultimate liability with respect to these matters and claims cannot be determined at this time, we believe that losses, damages, or liabilities, if any, and other amounts relating to pending matters, individually or in the aggregate, are not likely to have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. See "Note 1 - Significant Accounting Policies - Loss Contingencies" of the Notes to the Financial Statements included in "Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K for additional information.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4.MINE SAFETY DISCLOSURES.
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Park's common shares (symbol: PRK) are traded on NYSE American. At February 21, 2025, Park had 3,035 shareholders of record. Park currently intends to continue to pay quarterly cash dividends comparable to the regular quarterly cash dividends paid during the year ended December 31, 2024, subject to the regulatory restrictions described in "Note 24 - Dividend Restrictions" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA," as well as in the section captioned "Supervision and Regulation of Park and Park's Subsidiaries - Limits on Dividends and Other Payments" in "ITEM 1. BUSINESS" of this Annual Report on Form 10-K.
Performance Graph
The following graph compares the cumulative total shareholder return performance for Park's common shares with the NYSE Composite Index, the KBW NASDAQ Bank Index, and the S&P U.S. SmallCap Banks Index for the five-year period from December 31, 2019 to December 31, 2024. The NYSE Composite Index is a market capitalization-weighted index of the stocks listed on NYSE. The KBW NASDAQ Bank Index is comprised of 24 banking stocks representing the large U.S. national money centers, regional banks and thrift institutions and focuses specifically on banking and de-emphasizes components that would be heavily insurance-related or investment-oriented. The S&P U.S. SmallCap Banks Index is a market capitalization-weighted index comprised of common stocks of U.S. financial services companies that are principally engaged in the business of providing services and products, including banking, investment services, insurance and real estate finance services.
Park believes that the KBW NASDAQ Bank Index and the S&P U.S. SmallCap Banks Index are the appropriate industry indices for Park to use for the five-year total shareholder return performance comparison given the nature of the services provided by the financial services companies included in each.
Total Return Performance
Period Ended
Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24
Park National Corporation 100.00 107.61 145.87 154.82 151.72 201.81
NYSE Composite Index 100.00 106.99 129.11 117.04 133.16 154.19
KBW NASDAQ Bank Index 100.00 89.69 124.06 97.52 96.65 132.60
S&P U.S. SmallCap Banks Index 100.00 90.82 126.43 111.47 112.03 132.44
The annual compound total return on Park’s common shares for the past five years was a positive 15.1%. By comparison, the annual compound total returns for the past five years on the NYSE Composite Index, the KBW NASDAQ Bank Index, and the S&P U.S. SmallCap Banks Index were a positive 9.0%, a positive 5.8% and a positive 5.8%, respectively.
Issuer Purchases of Equity Securities
The following table provides information regarding purchases of Park's common shares made by or on behalf of Park or any "affiliated purchaser" as defined in Rule 10b-18(a)(3) under the Exchange Act during the three months ended December 31, 2024, as well as the maximum number of common shares that may be purchased under Park’s previously announced stock repurchase authorizations to fund the 2017 Long-Term Incentive Plan for Employees (the "2017 Employees LTIP") and the 2017 Long-Term Incentive Plan for Non-Employee Directors (the "2017 Non-Employee Directors LTIP") and Park's previously announced 2017 and 2019 stock repurchase authorizations:
Period Total Number of
Common Shares Purchased Average Price Paid per
Common Share Total Number of
Common Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Common Shares that May Yet Be Purchased under the Plans or Programs (1)
October 1 through October 31, 2024 - - - 996,088
November 1 through November 30, 2024 - - - 996,088
December 1 through December 31, 2024 - - - 996,088
Total - - - 996,088
(1)The number shown represents, as of the end of each period, the maximum number of common shares that may yet be purchased as part of Park’s publicly announced stock repurchase authorizations to fund the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP, both of which became effective on April 24, 2017; Park's stock repurchase authorization covering 500,000 common shares which was announced on January 23, 2017; and Park's stock repurchase authorization covering 500,000 common shares which was announced on January 28, 2019. Such authorizations are not subject to a fixed expiration date.
Purchases may be made through NYSE American, in the over-the-counter market or in privately negotiated transactions, in each case in compliance with the Ohio General Corporation Law, applicable federal and state securities laws, the rules applicable to issuers having securities listed on NYSE American, regulations promulgated by the Federal Reserve Board and all applicable laws and regulations, each as in effect at the time of each such purchase. Purchases will be made upon such terms and conditions and at such times and in such amounts as any one or more of the authorized officers of Park deem to be appropriate, subject to market conditions, regulatory requirements, any contractual obligations of Park and Park's subsidiaries and other factors, and in the best interest of Park and Park's shareholders. The January 23, 2017 stock repurchase authorization and the January 28, 2019 stock repurchase authorization are distinct from the stock repurchase authorizations to fund the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6.[RESERVED]

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
NON-U.S. GAAP FINANCIAL MEASURES
Management's discussion and analysis contains non-U.S. GAAP financial measures where management believes it to be helpful in understanding Park’s results of operations or financial position. Where non-U.S. GAAP financial measures are used, the comparable U.S. GAAP financial measures, as well as the reconciliation from the comparable U.S. GAAP financial measures, can be found herein.
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 / (recovery of) credit losses (aside from those related to former Vision Bank loan relationships), gains (losses) on equity securities, net, and asset valuation adjustments, reflect ordinary banking activities and are, therefore, typically excluded from consideration as items impacting comparability of period results.
Management believes the disclosure of items impacting comparability of period results provides a better understanding of Park's performance and trends and allows management to ascertain which of such items, if any, to include or exclude from an analysis of Park's performance; i.e., within the context of determining how that performance differed from expectations, as well as how, if at all, to adjust estimates of future performance taking such items into account.
Items impacting comparability of the results of particular periods are not intended to be a complete list of items that may materially impact current or future period performance.
Non-U.S. GAAP Financial Measures
Park's management uses certain non-U.S. GAAP financial measures to evaluate Park's performance. Specifically, management reviews the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio, and pre-tax, pre-provision net income ("PTPP").
Management has included in this Management's Discussion and Analysis of Financial Condition and Results of Operation, information relating to the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio,and pre-tax, pre-provision net income for the years ended December 31, 2024, December 31, 2023, and December 31, 2022. For the purpose of calculating the return on average tangible equity, a non-GAAP financial measure, net income for each period is divided by average tangible equity during the period. Average tangible equity equals average shareholders' equity during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating the return on average tangible assets, a non-GAAP financial measure, net income for each period is divided by average tangible assets during the period. Average tangible assets equals average assets during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating the tangible equity to tangible assets ratio, a non-GAAP financial measure, tangible equity is divided by tangible assets. Tangible equity equals total shareholders' equity less goodwill and other intangible assets, in each case at period end. Tangible assets equal total assets less goodwill and other intangible assets, in each case at period end. For the purpose of calculating pre-tax, pre-provision net income, a non-GAAP financial measure, income taxes and the provision for credit losses are added back to net income, in each case during the applicable period.
Management believes that the disclosure of the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio, and pre-tax, pre-provision net income 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 tables included within the "ANALYSIS OF EARNINGS - Items Impacting Comparability" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations, Park has provided a reconciliation of average tangible equity from average shareholders' equity, average tangible assets from average assets, tangible equity from total shareholders' equity, tangible assets from total assets, and pre-tax, pre-provision net income from net income solely for the purpose of complying with SEC Regulation G and not as an indication that the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio, and pre-tax, pre-provision net income are substitutes for the return on average equity, the return on average assets, the total shareholders' equity to total assets ratio, and net income, respectively, as determined in accordance with U.S. GAAP
FTE (fully taxable equivalent) Financial Measures
Interest income, yields, and ratios on a FTE basis are considered non-U.S. 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%. In the tables included within the "ANALYSIS OF EARNINGS - Net Interest Income" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations, Park has provided detail 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.
OVERVIEW
The table below reflects Park's net income for the years ended December 31, 2024, 2023 and 2022.
Table 1 - Summary Income Statement
(In thousands) 2024 2023 2022
Net interest income $ 398,019 $ 373,113 $ 347,059
Provision for credit losses 14,543 2,904 4,557
Other income 122,588 92,634 135,935
Other expense 321,339 309,239 297,978
Income before income taxes $ 184,725 $ 153,604 $ 180,459
Income tax expense 33,305 26,870 32,108
Net income $ 151,420 $ 126,734 $ 148,351
Pre-tax, pre-provision net income (1)
$ 199,268 $ 156,508 $ 185,016
(1) PTPP net income is calculated as net income, plus income taxes, plus the provision for credit losses, in each case during the applicable period.
Net income for the year ended December 31, 2024 of $151.4 million represented a $24.7 million, or 19.5%, increase compared to $126.7 million for the year ended December 31, 2023. Net income for the year ended December 31, 2023 of $126.7 million represented a $21.6 million, or 14.6%, decrease compared to $148.4 million for the year ended December 31, 2022.
Pre-tax, pre-provision net income (non-U.S. GAAP) for the year ended December 31, 2024 of $199.3 million represented a $42.8 million, or 27.3%, increase compared to $156.5 million for the year ended December 31, 2023. Pre-tax, pre-provision net income for the year ended December 31, 2023 of $156.5 million represented a $28.5 million, or 15.4%, decrease compared to $185.0 million for the year ended December 31, 2022.
Highlights from the years ended December 31, 2024, 2023, and 2022 included:
•During the year ended December 31, 2024, Park recognized a $6.1 million pension settlement gain due to a combination of lump sum payouts as well as the purchase of a nonparticipating annuity contract which will provide ongoing benefits to vested and retired participants. There was no pension settlement gain recognized during the years ended December 31, 2023 and December 31, 2022.
•Park completed a series of debt security sale trades in November 2023, selling an aggregate of $291.0 million in available-for-sale ("AFS") debt securities with a net pre-tax loss of $7.9 million for the year ended December 31, 2023. Among the various objectives of the trade, the liquidity generated from the sale was used to reduce borrowing needs
and improve the overall net interest margin. A net loss on sale of debt securities of $526,000 was recognized during the year ended December 31, 2024. No gain or loss on the sale of debt securities was recorded in the year ended December 31, 2022.
•During the years ended December 31, 2024 and 2022, Park recognized $115,000 and $5.6 million, respectively, in net gains on the sale of OREO related to former Vision Bank relationships. There was no gain on the sale of OREO, net, related to former Vision Bank relationships during the year ended December 31, 2023.
•During the years ended December 31, 2023 and 2022, Park recognized $46,000 and $12.0 million, respectively, in OREO valuation markups related to the foreclosure and subsequent sale of properties collateralizing former Vision Bank relationships. There was no OREO valuation markup related to former Vision Bank relationships during the year ended December 31, 2024.
•During the years ended December 31, 2024, 2023, and 2022, Park incurred $215,000, $100,000 and $1.8 million, respectively, in direct expenses related to the collection of payments on former Vision Bank loan relationships.
•During the year ended December 31, 2024, Park contributed $2.0 million to its charitable foundation, compared to $1.0 million for the year ended December 31, 2023 and $4.0 million for the year ended December 31, 2022.
•Park's loans outstanding at December 31, 2024 increased 4.6% compared to December 31, 2023. Park's loans outstanding at December 31, 2023 increased 4.7% compared to December 31, 2022.
Net income for each of the years ended December 31, 2024, 2023 and 2022, included several items of income and expense that impacted comparability of period results. These items are detailed in the "ANALYSIS OF EARNINGS - Items Impacting Comparability" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
DIVIDENDS ON COMMON SHARES
Cash dividends declared on Park's common shares were $4.74 in 2024, $4.20 in 2023 and $4.66 in 2022. Dividends declared as a percentage of net income was 51%, 54% and 51% for 2024, 2023 and 2022, respectively. Management targets a dividend payout ratio of 50% each year.
The quarterly cash dividend on Park's common shares was $1.06 per share for the first, second and third quarters of 2024, and $1.56 per share for the fourth quarter of 2024. The fourth quarter of 2024 included a one-time special cash dividend of $0.50 per share. The quarterly cash dividend on Park's common shares was $1.05 per share for each of the quarters of 2023. The quarterly cash dividend on Park's common shares was $1.04 per share for the first, second and third quarters of 2022, and $1.54 per share for the fourth quarter of 2022. The fourth quarter of 2022 included a one-time special cash dividend of $0.50 per share.
Please see the discussion of limitations on Park's ability to pay dividends in the section captioned "Supervision and Regulation of Park and its Subsidiaries - Limits on Dividends and Other Payments" in "ITEM 1. BUSINESS" of this Annual Report on Form 10-K.
CRITICAL ACCOUNTING ESTIMATES
The significant accounting estimates used in the development and presentation of Park’s consolidated financial statements are listed in "Note 1 - Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." The accounting and reporting estimates of Park conform with U.S. GAAP and general practices within the financial services industry. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.
Allowance for Credit Losses: Park believes the determination of the allowance for credit losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for credit losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses over the life of an asset or an off-balance sheet credit exposure. Management’s determination of the adequacy of the allowance for credit losses is based on periodic evaluations of past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. However, this evaluation has subjective components requiring material estimates, including expected default probabilities, the expected loss given default, the amounts and timing of expected future cash flows on individually evaluated loans, and estimated losses based on historical loss experience and forecasted economic conditions. All of these factors may be susceptible to significant change. To the extent that actual results differ from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods.
One of the significant judgments impacting the ACL estimate is the economic forecasts for Ohio unemployment, Ohio GDP, and Ohio HPI. These economic forecasts inform the regression model used to calculate cash flows during the reasonable and supportable forecast period. Additionally, multiple economic forecast scenarios are weighted to arrive at the quantitative reserve. Changes in the economic forecast or weighting could significantly affect the estimated credit losses which could potentially lead to materially different allowance levels from one reporting period to the next.
As noted above, in calculating the ACL, management weighs different scenarios, including a baseline (most likely) scenario and an adverse scenario. At December 31, 2024, management applied a 50% weighting to the baseline scenario and applied a 50% weighting to the adverse scenario. To create hypothetical sensitivity analyses, management calculated a quantitative allowance using a 100% weighting applied to a baseline scenario and a quantitative allowance using a 100% weighting applied to an adverse scenario. The adverse scenario assumes among other things that: (1) Tensions with China and Taiwan increase and China briefly interrupts trade through the Taiwan Strait and the Russian invasion lasts longer than expected. Worries grow that the Hamas-Israel conflict will lead to a wider conflict. (2) Due to continuing concerns about rising inflation, the Federal Reserve raises the federal funds rate. However, it resumes easing in Q3 2025 as a downturn persists. (3) Europe goes into a recession as increased tariffs lower exports. Populism in Europe rises, raising uncertainties about longevity of the Euro and causes financial stress to highly indebted nations, especially Italy. (4) Impacts of Trump tariffs and deportations are significantly worse than expected. Tariffs will be levied on China, Canada, Mexico and Europe and the tariff rate will increase more than in the baseline forecast before rolling back in 2026. Retaliatory tariffs reduce US exports and lead to a global turndown. Tax revenues are lower than in the baseline creating a higher deficit. (5) Recession in Q1 2025 which lasts through Q3 2025. Real GDP declines by 2.6%. The unemployment rate rises to a peak of 8.3% in Q1 2026. The stock market falls 35% from Q1 2025 to Q3 2025. The adverse scenario forecasts Ohio unemployment for the next twelve months to range from 6.6% to 9.5%. Excluding consideration of qualitative adjustments, this sensitivity analysis would result in a hypothetical increase in Park's ACL of $27.5 million as of December 31, 2024 if only the adverse scenario was used. Excluding consideration of qualitative adjustments, a corresponding $27.5 million decrease in Park's ACL would occur in a hypothetical scenario if only the baseline (most likely) scenario was used.
Refer to the “CREDIT METRICS AND PROVISION FOR CREDIT LOSSES” section within this "ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for additional discussion.
Pension Plan: The determination of pension plan obligations and related expenses requires the use of assumptions to estimate the amount of benefits that employees will earn while working, as well as the present value of those benefits. Annual pension income/expense is principally based on four components: (1) the value of benefits earned by employees for working during the year (service cost), (2) the increase in the liability due to the passage of time (interest cost), and (3) other gains and losses, reduced by (4) the expected return on plan assets for our pension plan. During the year ended December 31, 2024, Park exceeded the pension settlement threshold established in ASC 715-30 and recognized in income a pro-rata portion of the unamortized gain in accumulated other comprehensive loss (pension settlement gain).
Significant assumptions used to measure our annual pension expense include:
•the interest rate used to determine the present value of liabilities (discount rate);
•certain employee-related factors, such as turnover, retirement age and mortality;
•the expected return on assets in our funded pension plan; and
•the rate of salary increases where benefits are based on earnings.
The most significant of these assumptions is the discount rate and the expected return on assets. The discount rate utilized for the December 31, 2024 calculation was 5.89% and the expected return on plan assets was 6.92%. This compares to the discount rate utilized for the December 31, 2023 calculation of 5.14% and the expected return on plan assets of 6.92%. Presented below is the estimated impact on Park's projected benefit obligation ("PBO") and 2024 pension expense assuming changes in the significant assumptions.
Table 2 - Pension Sensitivity
Discount Rate Expected Return on Plan Assets
(In thousands) - 25 BPS +25 BPS - 50 BPS +50 BPS
Change in PBO $ 2,690 $ (2,560) N.A. N.A.
Change in Pension Expense 110 (280) $ 1,110 $ (1,110)
Our assumptions reflect our historical experience and management’s best judgment regarding future expectations. Due to the significant management judgment involved, our assumptions could have a material impact on the measurement of our pension plan income/expense and obligation.
ABOUT OUR BUSINESS
Through our national bank subsidiary, PNB, Park is engaged in a general commercial banking and trust business, primarily in Ohio, Kentucky, North Carolina and South Carolina, with the exception of nationwide aircraft loans and nationwide asset-based lending to consumer finance companies. Management believes there are a significant number of consumers and businesses that seek long-term relationships with community-based financial institutions of quality and strength. While not engaging in activities such as foreign lending, nationally syndicated loans or investment banking, Park attempts to meet the needs of our customers for commercial, real estate and consumer loans, and investment, fiduciary and deposit services.
Park’s subsidiaries compete for deposits and loans with other banks, savings associations, credit unions and other types of financial institutions. At December 31, 2024, Park operated 87 financial service offices (including those of PNB and Scope Leasing, Inc. ("Scope Aircraft Finance")) and a network of 108 automated teller machines in 24 Ohio counties, five North Carolina counties, four South Carolina counties and one Kentucky county. SEPH and Guardian each operated one administrative office, located in Newark, Ohio.
SOURCE OF FUNDS
Deposits: Park’s major source of funds is deposits from individuals, businesses and local government entities. These deposits consist of non-interest bearing and interest bearing deposits.
Average total deposits were $8,260 million in 2024, compared to $8,360 million in 2023 and $8,450 million in 2022. The average interest rate paid on interest bearing deposits was 1.97% in 2024, 1.52% in 2023 and 0.39% in 2022. The average cost of interest bearing deposits for each quarter of 2024 was 1.90% for the fourth quarter, 2.06% for the third quarter, 1.99% for the second quarter and 1.94% for the first quarter.
The table below provides a summary of deposit balances as of December 31, 2024 and 2023, along with the change over the past year.
Table 3 - Year-End Deposits
December 31 (In thousands) 2024 2023 Change
Non-interest bearing checking $ 2,612,708 $ 2,628,234 $ (15,526)
Interest bearing transaction accounts 1,939,755 2,064,512 (124,757)
Savings 2,678,015 2,541,959 136,056
Time deposits 735,297 641,615 93,682
Brokered deposits and Bid Ohio CDs 176,486 164,985 11,501
Other 1,265 1,261 4
Total $ 8,143,526 $ 8,042,566 $ 100,960
Off balance sheet deposits 115,186 1,185 114,001
Total deposits including off balance sheet deposits $ 8,258,712 $ 8,043,751 $ 214,961
During the years ended December 31, 2024 and 2023, Park decided to continue participation in a program to transfer deposits off-balance sheet in order to manage growth of the balance sheet. Park is able to increase or decrease the amount of deposit
balances transferred off balance sheet based on its balance sheet management strategies and liquidity needs. At December 31, 2024 and December 31, 2023, Park had $115.2 million and $1.2 million, respectively, in off balance sheet deposits.
The table below breaks out the change in deposit balances, by deposit type, for Park.
Table 4 - Retail and Commercial Deposits
December 31 (In thousands) 2024 2023 2022 2021 2020
Retail deposits $ 4,035,351 $ 4,080,372 $ 4,388,394 $ 4,416,228 $ 4,025,852
Commercial deposits 3,931,689 3,797,209 3,846,321 3,488,300 3,535,578
Brokered and bid CD deposits 176,486 164,985 - - 10,928
Total deposits $ 8,143,526 $ 8,042,566 $ 8,234,715 $ 7,904,528 $ 7,572,358
Off balance sheet deposits 115,186 1,185 195,937 983,053 710,101
Total deposits including off balance sheet deposits $ 8,258,712 $ 8,043,751 $ 8,430,652 $ 8,887,581 $ 8,282,459
$ change from prior period end $ 214,961 $ (386,901) $ (456,929) $ 605,122
% change from prior period end 2.7 % (4.6) % (5.1) % 7.3 %
Noninterest bearing deposits to total deposits 32.1 % 32.7 % 37.3 % 38.8 % 36.0 %
During the year ended December 31, 2024, total deposits including off balance sheet deposits increased by $215.0 million, or 2.7%. This increase consisted of a $134.5 million increase in total commercial deposits, a $114.0 million increase in off balance sheet deposits and a $11.5 million increase in brokered and bid CD deposits, partially offset by a $45.0 million decrease in total retail deposits. The majority of off balance sheet deposits are commercial and thus impact the change in commercial deposits as the deposits are moved on or off the balance sheet.
Included in the total commercial deposits and off balance sheet deposits shown in the previous table are public fund deposits. These balances fluctuate based on seasonality and the cycle of collection and remittance of tax funds. Public funds include Bid Ohio CDs. The following table details the change in public fund deposits.
Table 5 - Public Fund Deposits
(Dollars in thousands) 2024 2023 2022 2021 2020
Public funds included in commercial deposits $ 1,278,325 $ 1,198,418 $ 1,335,400 $ 1,548,217 $ 1,406,101
Bid Ohio CDs 76,497 15,000 - - -
Total public fund deposits $ 1,354,822 $ 1,213,418 $ 1,335,400 $ 1,548,217 $ 1,406,101
$ change from prior period end $ 141,404 $ (121,982) $ (212,817) $ 142,116
% change from prior period end 11.7 % (9.1) % (13.7) % 10.1 %
Cost of public fund deposits 2.36 % 2.24 % 0.60 % 0.11 % 0.52 %
As of December 31, 2024, Park had approximately $1.4 billion of uninsured deposits, which was 17.6% of total deposits. Uninsured deposits of $1.4 billion included $395.4 million of deposits that were over $250,000, but were fully collateralized by Park's investment securities portfolio. As of December 31, 2023, Park had approximately $1.3 billion of uninsured deposits, which was 16.2% of total deposits. Uninsured deposits of $1.3 billion included $288.2 million of deposits which were over $250,000 but were fully collateralized by Park's investment securities portfolio. The uninsured amounts, those in excess of the $250,000 FDIC insurance limit, are estimates based on the methodologies used for the Corporation's regulatory reporting requirements.
The following table provides a summary of the portion of the Corporation's time deposits, by account, that are in excess of the FDIC insurance limit of $250,000, by remaining time until maturity, as of December 31, 2024:
Table 6 - Maturities of Time Deposits in Excess of FDIC Insurance Limit
December 31 (In thousands) 2024
3 months or less $ 117,011
Over 3 months through 6 months 58,576
Over 6 months through 12 months 50,324
Over 12 months 24,431
Total $ 250,342
Short-Term Borrowings: Short-term borrowings consist of securities sold under agreements to repurchase, Federal Home Loan Bank advances, Federal Funds purchased and other borrowings. These funds are used to manage the Corporation’s liquidity needs and interest rate sensitivity risk. The average rate paid on short-term borrowings generally moves closely with changes in market interest rates for short-term investments. The average rate paid on short-term borrowings was 2.60% in 2024, compared to 2.58% in 2023 and 0.67% in 2022. The year-end balance for short-term borrowings was $90 million at December 31, 2024, compared to $328 million at December 31, 2023 and $227 million at December 31, 2022.
Subordinated Notes: Park assumed, with the 2007 acquisition of Vision's parent holding company, $15.5 million of floating rate junior subordinated notes. The $15.5 million of junior subordinated notes were purchased by Vision Bancshares Trust I ("Trust I") following the issuance of Trust I's $15.0 million of floating rate preferred securities. The interest rate on these junior subordinated notes adjusts every quarter at 174 basis points above the three-month CME Term SOFR. The maturity date for the junior subordinated notes is December 30, 2035, and, since December 30, 2010, Park has had the right to prepay the junior subordinated notes, without penalty. These junior subordinated notes qualify as Tier 1 capital under current Federal Reserve Board guidelines.
On August 20, 2020, Park completed the issuance and sale of $175 million aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030 (the "Subordinated Notes"). The Subordinated Notes initially bear a fixed interest rate of 4.50% per year, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on March 1, 2021. Commencing on September 1, 2025, the Subordinated Notes will bear interest at a floating rate per annum equal to the Benchmark rate, which is expected to be Three-Month Term SOFR, plus a spread of 439 basis points for each quarterly interest period during the floating rate period, payable quarterly in arrears; provided, however, that if the Benchmark rate is less than zero, then the Benchmark rate will be deemed to be zero. The Corporation may, at its option, beginning with the interest payment date of September 1, 2025 and on any interest payment date thereafter, redeem the Subordinated Notes, in whole or in part, subject to obtaining the prior approval of the Federal Reserve Board, if required, at a redemption price equal to 100% of the principal amount of the Subordinated Notes being redeemed, plus accrued and unpaid interest thereon to but excluding the date of redemption. The Subordinated Notes qualify as Tier 2 capital for Park under the Federal Reserve Board's capital adequacy rules.
In 2024, the average balance of subordinated notes was $189 million, compared to $189 million in 2023 and $188 million in 2022. The average interest rate paid on subordinated notes was 4.98% in 2024, compared to 4.97% in 2023 and 4.69% in 2022.
See "Note 18 - Subordinated Notes" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K for additional information about the Subordinated Notes.
Total Debt: Average total debt (subordinated notes and short-term) was $310 million in 2024, compared to $372 million in 2023 and $396 million in 2022. Average total debt decreased by $62.0 million, or 16.7% in 2024 compared to 2023 and decreased $23.6 million, or 6.0% in 2023 compared to 2022. Average long term subordinated notes were 61% of average total debt in 2024, compared to 51% of average total debt in 2023 and 48% of average total debt in 2022.
Shareholders' Equity: The ratio of total shareholders' equity to total assets was 12.69% at December 31, 2024, compared to 11.64% at December 31, 2023 and 10.85% at December 31, 2022. The non-GAAP ratio of tangible shareholders’ equity [shareholders' equity ($1,243.8 million) less goodwill ($159.6 million) and other intangible assets ($3.4 million)] to tangible assets [total assets ($9,805.4 million) less goodwill ($159.6 million) and other intangible assets ($3.4 million)] was 11.21% at December 31, 2024, compared to 10.14% at December 31, 2023 and 9.33% at December 31, 2022.
In accordance with U.S. GAAP, Park reflects any unrealized holding gain or loss on AFS debt securities, any unrealized net holding gain or loss on cash flow hedging derivatives and any change in the funded status of Park's pension plan, in each case, net of income taxes, as accumulated other comprehensive (loss) income which is part of Park’s shareholders’ equity.
The unrealized net holding loss, net of income taxes, on AFS debt securities was $62.9 million at year-end 2024, compared to an unrealized net holding loss, net of income taxes, $67.9 million at year-end 2023 and compared to an unrealized net holding loss, net of income taxes, of $95.7 million at year-end 2022. The unrealized net holding loss on AFS debt securities at December 31, 2024 was impacted by the realization of $415,000 in losses, net of income taxes, during the year ended December 31, 2024 as the result of the sale of $44.6 million in AFS debt securities. The unrealized net holding loss on AFS debt securities at December 31, 2023 was impacted by the realization of $6.2 million in losses, net of income taxes, during the year ended December 31, 2023 as the result of the sale of $291.0 million in AFS debt securities.
The unrealized net holding loss, net of income taxes, on cash flow hedging derivatives was zero at year-end 2024, year-end 2023 and year-end 2022. Park's only borrowing cash flow hedging derivative was terminated during 2022.
In accordance with U.S. GAAP, Park adjusts accumulated other comprehensive (loss) income to recognize the net actuarial gain or loss and prior service cost or credit reflected in the funding status of Park’s pension plan. See "Note 21 - Benefit Plans" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K for additional information on the accounting for Park’s pension plan. At year-end 2024, the balance in accumulated other comprehensive loss pertaining to the pension plan was unrealized income of $16.8 million, compared to unrealized income of $1.7 million at December 31, 2023 and compared to an unrealized loss of $6.7 million at December 31, 2022.
The net other comprehensive income in 2024 was largely due to a $25.2 million ($19.9 million, net of taxes) net unrealized actuarial gain, partially offset by a $6.1 million ($4.9 million, net of taxes) realized pension settlement gain. The unrealized gain was due to asset returns greater than expected, an increase in the discount rate and assumption updates for a change in the mortality table for lump sum distributions, reflecting updates for the 2024 assumption study, partially offset by demographic losses and an increase in the interest credit rate. The realized pension settlement gain was recognized as a result of a combination of lump sum payouts as well as the purchase of a nonparticipating annuity contract which will provide ongoing benefits to vested participants.
The net other comprehensive income in 2023 was largely due to a $10.5 million ($8.3 million, net of taxes) net actuarial gain. The gain was due to asset returns greater than expected, partially offset by the impact of demographic losses driven by salary increases greater than assumed and a decrease in the discount rate. The net other comprehensive loss in 2022 was largely due to $558,000 ($441,000, net of taxes) in prior service cost, as a result of plan amendments, and a $551,000 ($435,000, net of taxes) net actuarial loss.
INVESTMENT OF FUNDS
Loans: Average loans were $7,627 million in 2024, compared to $7,222 million in 2023 and $6,956 million in 2022. The average yield on average loan balances was 6.14% in 2024, compared to 5.55% in 2023 and 4.65% in 2022. Approximately 45% of Park’s loan balances mature or reprice within one year (see Table 31). The average yield on average loan balances for each quarter of 2024 was 6.21% for the fourth quarter, 6.24% for the third quarter, 6.13% for the second quarter and 5.99% for the first quarter.
Loan interest income for 2024, 2023, and 2022 included $54,000, $631,000 and $3.7 million, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB. In addition, loan interest income included $1.2 million, $633,000 and $1.8 million, respectively, of the accretion of loan purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Loan interest income for 2023 and 2022 included interest and fee income related to PPP loans of $69,000 and $3.1 million, respectively.
Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 6.13%, 5.53% and 4.55%, for the years ended December 31, 2024, 2023, and 2022. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 6.20% for the fourth quarter of 2024, 6.22% for the third quarter of 2024, 6.11% for the second quarter of 2024, and 5.97% for the first quarter of 2024.
At December 31, 2024, loan balances were $7,817 million compared to $7,476 million at year-end 2023, an increase of $341 million, or 4.6%. At December 31, 2023, loan balances were $7,476 million, compared to $7,142 million at year-end 2022, an increase of $334 million, or 4.7%.
The table below reports year-end loan balances by type of loan for the past three years.
Table 7 - Loans by Type
December 31 (In thousands) 2024 2023 2022
Commercial, financial and agricultural $ 1,269,585 $ 1,295,640 $ 1,300,933
Construction real estate 412,577 305,099 325,415
Residential real estate 2,200,433 2,029,524 1,796,871
Commercial real estate 1,994,332 1,875,993 1,794,054
Consumer 1,910,372 1,945,936 1,904,981
Leases 29,829 24,029 19,637
Total loans $ 7,817,128 $ 7,476,221 $ 7,141,891
On a combined basis, year-end commercial, financial and agricultural loans, construction real estate loans and commercial real estate loans increased by $199.8 million, or 5.7%, in 2024. The increase in 2024 was due to an increase in commercial real estate loans of $118.3 million and an increase in construction real estate loans of $107.5 million, which were partially offset by an decrease in commercial, financial and agricultural loans of $26.1 million. On a combined basis, year-end commercial, financial and agricultural loans, construction real estate loans and commercial real estate loans increased $56.3 million, or 1.6%, in 2023. The increase in 2023 was due to an increase in commercial real estate of $81.9 million, partially offset by a decrease of $20.3 million in construction real estate and a $5.3 million decrease in commercial, financial and agricultural loans.
Consumer loans decreased by $35.6 million, or 1.8% in 2024 and increased by $41.0 million, or 2.1%, in 2023. The change in consumer loans in 2024 and 2023 was primarily due to fluctuations in automobile lending in Ohio.
Residential real estate loans increased by $170.9 million, or 8.4% in 2024 and increased by $232.7 million, or 12.9%, in 2023. The increase in 2024 was due to an increase in mortgage loans secured by residential real estate of $106.7 million, an increase in commercial loans secured by residential real estate of $35.0 million, an increase in home equity loans secured by residential real estate of $29.1 million and an increase in installment loans secured by residential real estate of $109,000. The increase in 2023 was due to an increase in mortgage loans secured by residential real estate of $164.4 million, an increase in commercial loans secured by residential real estate of $59.2 million, an increase in home equity loans secured by residential real estate of $7.2 million and an increase in installment loans secured by residential real estate of $1.8 million.
Leases increased by $5.8 million to $29.8 million in 2024 and increased by $4.4 million to $24.0 million in 2023.
The table below summarizes the distribution of maturities for loan segments as of December 31, 2024:
Table 8 - Loan Maturity Distribution
One Year or Less (1)
Over One Through Five Years Over Five Through Fifteen Years Over
Fifteen
Years Total
December 31, 2024
(In thousands)
Commercial, financial and agricultural $ 482,598 $ 550,330 $ 133,674 $ 102,983 $ 1,269,585
Construction real estate 66,716 168,026 97,487 80,348 412,577
Residential real estate 67,883 204,793 764,811 1,162,946 2,200,433
Commercial real estate 101,428 444,034 743,432 705,438 1,994,332
Consumer 24,239 903,550 949,874 32,709 1,910,372
Leases 1,894 27,407 528 - 29,829
Total loans and leases $ 744,758 $ 2,298,140 $ 2,689,806 $ 2,084,424 $ 7,817,128
(1) Nonaccrual loans of $68.2 million are included within the one year or less classification above.
The table below summarizes the composition of the loan portfolio by fixed and adjustable rate as of December 31, 2024 that are contractually due after December 31, 2025:
Table 9 - Amounts Due After One Year
(In thousands) Fixed Adjustable Total
Commercial, financial and agricultural $ 470,583 $ 316,404 $ 786,987
Construction real estate 70,318 275,543 345,861
Residential real estate 685,378 1,447,172 2,132,550
Commercial real estate 433,374 1,459,530 1,892,904
Consumer 1,877,029 9,104 1,886,133
Leases 27,935 - 27,935
Total loans and leases $ 3,564,617 $ 3,507,753 $ 7,072,370
Investment Securities: Park’s investment securities portfolio is structured to minimize credit risk, provide liquidity and contribute to earnings. As conditions change over time, Park’s overall interest rate risk, liquidity needs and potential return on the investment portfolio will change. Management regularly evaluates the securities in the investment portfolio as circumstances evolve. Circumstances that could result in the sale of a security include: to better manage interest rate risk; to meet liquidity needs; or to improve the overall net interest margin.
AFS debt securities are carried on the books at their estimated fair value with the unrealized holding gain or loss, net of income taxes, accounted for as accumulated other comprehensive (loss) income. The debt securities that are classified as AFS are free to be sold in future periods in carrying out Park’s investment strategies.
Beginning in 2021, Park began investing in the AAA and AA rated tranches of Collateralized Loan Obligations ("CLOs"). CLOs had a fair value as of December 31, 2024 of $271.8 million. Management closely monitors the credit status of these securities. At December 31, 2024, the market value of overcollateralization was greater than 121% for each CLO. The market value of overcollateralization is a measure of the underlying collateral value of the instrument relative to our specific tranche position, and our AAA or AA rated senior tranches are supported by subordinate tranches.
Average taxable debt investment securities were $1,082 million in 2024, compared to $1,387 million in 2023 and $1,475 million in 2022. The average yield on taxable debt investment securities was 3.86% in 2024, compared to 3.81% in 2023 and 2.44% in 2022. Average tax-exempt debt investment securities were $219 million in 2024, compared to $400 million in 2023 and $405 million in 2022. The average tax-equivalent yield on tax-exempt debt investment securities was 3.19% in 2024, compared to 3.47% in 2023 and 3.43% in 2022.
Total debt securities (at amortized cost) were $1,076 million at December 31, 2024, compared to $1,419 million at December 31, 2023 and $1,855 million at December 31, 2022. Management purchased debt securities totaling $3 million in 2024, $4 million in 2023 and $317 million in 2022. Proceeds from repayments, redemptions and maturities of debt securities were $300 million in 2024, $145 million in 2023 and $186 million in 2022.
During 2024, Park sold certain AFS debt securities with a book value of $42.3 million at a gross loss of $553,000 and sold certain AFS debt securities with a book value of $2.3 million for a gross gain of $27,000. During 2023, Park sold certain AFS debt securities with a book value of $291.0 million at a gross loss of $7.9 million. There were no sales of AFS debt securities in 2022.
For the years ended December 31, 2024, 2023, and 2022, the average tax-equivalent yield on the total investment portfolio was 3.74%, 3.73% and 2.66%, respectively. The weighted average remaining maturity of the total investment portfolio was 4.7 years at December 31, 2024, 4.8 years at December 31, 2023 and 5.0 years at December 31, 2022. Obligations of U.S. Government sponsored entities and U.S. Government sponsored entities' asset-backed securities were approximately 47.1% of the total investment portfolio at year-end 2024, 44.4% of the total investment portfolio at year-end 2023 and 43.6% of the total investment portfolio at year-end 2022.
Other investment securities (as shown on Park's Consolidated Balance Sheets) consist of restricted stock investments in the FHLB and the FRB and equity securities which include equity investments in other financial institutions and equity investments in limited partnerships which provide mezzanine funding. Total other investment securities were $104 million at December 31, 2024, $96 million at December 31, 2023 and $87 million at December 31, 2022. There were $9.2 million in FHLB stock
purchases in 2024, $18.2 million in FHLB stock purchases in 2023 and no FHLB stock purchases in 2022. Proceeds from the redemption/repurchase of FHLB stock were $18.4 million in 2024, compared to $11.7 million in 2023 and compared to $2.2 million in 2022. No shares of FRB stock were purchased or sold in any of the years ended December 31, 2024, 2023, or 2022. Management purchased equity securities totaling $10.2 million in 2024, $2.2 million in 2023 and $9.2 million in 2022. During the years ended December 31, 2024, 2023, and 2022. Park entered into partnership agreements with commitments totaling $2.5 million, $2.7 million and $16.3 million, respectively. Funding of limited partnerships totaled $7.5 million, $5.6 million and $4.8 million during the years ended December 31, 2024, 2023, and 2022, respectively.
"Gain on equity securities, net" on Park's Consolidated Statements of Income were $3.1 million, $971,000 and $3.0 million for the years ended December 31, 2024, 2023 and 2022, respectively. These gains on equity securities were made up of gains (losses) on equity investments carried at fair value as well as gains (losses) on equity investments carried at modified cost and gains (losses) on partnership investments carried at NAV.
For the years ended December 31, 2024, 2023 and 2022, $2.6 million, $600,000 and $601,000, respectively, of gains on equity investments carried at fair value were recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income.
For the years ended December 31, 2024, 2023 and 2022, $468,000, $371,000 and $2.4 million, respectively, of gains on equity investments carried at NAV were recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income.
The average maturity of the investment portfolio would lengthen if long-term interest rates were to increase as principal repayments from mortgage-backed securities and CMOs would decrease and callable securities would price to their maturity dates. At year-end 2024, management estimated that the average maturity of the investment portfolio would lengthen to 5.1 years with a 100 basis point increase in long-term interest rates and would lengthen to 5.2 years with a 200 basis point increase in long-term interest rates. Likewise, the average maturity of the investment portfolio would shorten if long-term interest rates were to decrease as the principal repayments from mortgage-backed securities and CMOs would increase and callable securities would price to their call dates. At year-end 2024, management estimated that the average maturity of the investment portfolio would decrease to 4.3 years with a 100 basis point decrease in long-term interest rates and to 4.0 years with a 200 basis point decrease in long-term interest rates.
The table below sets forth the carrying value of investment securities, as well as the percentage held within each category at year-end 2024, 2023 and 2022:
Table 10 - Investment Securities
December 31 (In thousands) 2024 2023 2022
Obligations of U.S. Government sponsored entities $ 249 $ - $ 37,213
Obligations of states and political subdivisions 186,883 241,184 406,711
U.S. Government sponsored entities' asset-backed securities 518,576 635,475 756,761
Collateralized loan obligations 271,833 438,286 516,539
Corporate debt securities 19,083 17,897 16,472
FHLB stock 8,607 17,754 11,197
FRB stock 14,653 14,653 14,653
Equities 80,977 63,895 61,241
Total $ 1,100,861 $ 1,429,144 $ 1,820,787
Investments by category as a percentage of total investment securities
Obligations of U.S. Government sponsored entities - % - % 2.0 %
Obligations of states and political subdivisions 17.0 % 16.9 % 22.3 %
U.S. Government sponsored entities' asset-backed securities 47.1 % 44.4 % 41.6 %
Collateralized loan obligations 24.7 % 30.7 % 28.4 %
Corporate debt securities 1.7 % 1.3 % 0.9 %
FHLB stock 0.8 % 1.2 % 0.6 %
FRB stock 1.3 % 1.0 % 0.8 %
Equities 7.4 % 4.5 % 3.4 %
Total 100.0 % 100.0 % 100.0 %
The carrying value of investments in debt securities at December 31, 2024, is shown in the following table by contractual maturity, except for asset-backed securities and collateralized loan obligations, which are shown as a single total, due to the unpredictability of the timing in principal repayments. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Table 11 - Investment Maturity Distribution
One Year or under Over One Through Five Years Over Five Through Ten Years Over
Ten
Years Total
December 31, 2024
(In thousands)
Corporate debt securities $ 979 $ 18,104 $ - $ - $ 19,083
Obligations of U.S. Government sponsored entities 249 - - - 249
Obligations of states and political subdivisions 250 1,490 75,408 109,735 186,883
Total $ 1,478 $ 19,594 $ 75,408 $ 109,735 $ 206,215
U.S. Government sponsored entities' asset-backed securities $ 518,576
Collateralized loan obligations 271,833
ANALYSIS OF EARNINGS
Net Interest Income: Park’s principal source of earnings is net interest income, the difference between total interest income and total interest expense. Net interest income results from average balances outstanding for interest earning assets and interest bearing liabilities in conjunction with the average rates earned and paid on them. (See the table below for three years of history on the average balances of the balance sheet categories as well as the average rates earned on interest earning assets and the average rates paid on interest bearing liabilities.)
Table 12 - Distribution of Assets, Liabilities and Shareholders' Equity
December 31, 2024 2023 2022
(In thousands) Daily
Average Interest Average
Rate Daily
Average Interest Average
Rate Daily
Average Interest Average
Rate
ASSETS
Loans (1)(2)
$ 7,627,419 $ 468,566 6.14 % $ 7,222,479 $ 400,606 5.55 % $ 6,955,674 $ 323,734 4.65 %
Taxable investment securities 1,081,906 41,718 3.86 % 1,386,670 52,786 3.81 % 1,474,659 36,047 2.44 %
Tax-exempt investment securities (3)
219,233 6,992 3.19 % 400,028 13,881 3.47 % 404,788 13,878 3.43 %
Money market instruments 157,292 8,121 5.16 % 162,544 8,123 5.00 % 392,256 8,129 2.07 %
Total interest earning assets 9,085,850 525,397 5.78 % 9,171,721 475,396 5.18 % 9,227,377 381,788 4.14 %
Non-interest earning assets:
Allowance for credit losses (85,930) (87,002) (81,736)
Cash and due from banks 129,070 147,414 157,295
Premises and equipment, net 72,689 79,443 86,322
Other assets 699,585 645,978 654,950
TOTAL $ 9,901,264 $ 9,957,554 $ 10,044,208
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Transaction accounts $ 2,156,400 $ 36,351 1.69 % $ 2,209,846 $ 32,633 1.48 % $ 1,932,752 $ 6,880 0.36 %
Savings deposits 2,688,773 46,438 1.73 % 2,727,299 39,143 1.44 % 2,771,016 10,766 0.39 %
Time deposits 690,938 21,531 3.12 % 572,918 10,699 1.87 % 653,041 3,314 0.51 %
Brokered/bid CD deposits 160,074 8,063 5.04 % 35,952 1,978 5.50 % - - N.M.
Total interest bearing deposits 5,696,185 112,383 1.97 % 5,546,015 84,453 1.52 % 5,356,809 20,960 0.39 %
Federal funds purchased 123 7 5.55 % 26 1 5.66 % 68 1 0.95 %
Repurchase agreements 95,680 1,746 1.82 % 146,388 2,583 1.76 % 199,813 1,134 0.57 %
Short-term borrowings 24,794 1,382 5.58 % 36,633 2,137 5.83 % 7,195 260 3.62 %
Subordinated notes 189,399 9,428 4.98 % 188,908 9,383 4.97 % 188,439 8,833 4.69 %
Total interest bearing liabilities 6,006,181 124,946 2.08 % 5,917,970 98,557 1.67 % 5,752,324 31,188 0.54 %
Non-interest bearing liabilities:
Demand deposits 2,564,009 2,814,259 3,093,019
Other 133,954 128,182 121,986
Total non-interest bearing liabilities 2,697,963 2,942,441 3,215,005
Shareholders' equity 1,197,120 1,097,143 1,076,879
TOTAL $ 9,901,264 $ 9,957,554 $ 10,044,208
Tax equivalent net interest income $ 400,451 $ 376,839 $ 350,600
Net interest spread 3.70 % 3.51 % 3.60 %
Net yield on interest earning assets (net interest margin) 4.41 % 4.11 % 3.80 %
(1)Loan income includes net loan-related fee (expense) income, purchase accounting accretion and origination expense in the aggregate amount of $(11.6) million in 2024, $(12.1) million in 2023 and $(5.5) million in 2022. Loan income also includes the effects of taxable equivalent adjustments using a 21%
federal corporate income tax rate in 2024, 2023 and 2022. The taxable equivalent adjustments were $964,000 in 2024, $811,000 in 2023 and $627,000 in 2022.
(2)For the purpose of the computation for loans, nonaccrual loans are included in the daily average loans outstanding.
(3)Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate in 2024, 2023 and 2022. The taxable equivalent adjustments were $1.5 million in 2024, $2.9 million in 2023 and $2.9 million in 2022.
Average interest earning assets for 2024 decreased $86 million, or 0.9% to $9,086 million, compared to $9,172 million for 2023. The decrease was largely due to a $486 million decrease in average investment securities and a $5 million decrease in average money market instruments, partially offset by a $405 increase in average loans. Average interest earning assets for 2023 decreased by $55 million, or 0.6%, to $9,172 million, compared to $9,227 million for 2022. The average yield on interest earning assets increased by 60 basis points to 5.78% for 2024, compared to 5.18% for 2023 and 4.14% for 2022.
Loan interest income for 2024, 2023, and 2022 included $54,000, $631,000 and $3.7 million, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB. In addition, loan interest income included $1.2 million, $633,000 and $1.8 million, respectively, of the accretion of loan purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Loan interest income for 2023 and 2022 included interest and fee income related to PPP loans of $69,000 and $3.1 million, respectively. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 6.13%, 5.53% and 4.55%, for the years ended December 31, 2024, 2023, and 2022. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on earning assets was 5.77%, 5.17% and 4.06%, for the years ended December 31, 2024, 2023 and 2022, respectively, and the net interest margin was 4.39%, 4.09% and 3.72%, for the years ended December 31, 2024, 2023 and 2022, respectively.
Average interest bearing liabilities for 2024 increased by $88 million, or 1.5%, to $6,006 million, compared to $5,918 million for 2023. Average interest bearing liabilities for 2023 increased by $166 million, or 2.9%, to $5,918 million, compared to $5,752 million for 2022. The average cost of interest bearing liabilities increased by 41 basis points to 2.08% for 2024, compared to 1.67% for 2023 and 0.54% for 2022.
For the most recent interest rate cycle, peak through-the-cycle beta on interest bearing deposits (measured as the change from December 31, 2021 to September 30, 2024 compared to the peak change in the Fed Funds target rate) totaled 38%, while the peak through-the-cycle betas on total deposits and total cost of funds were both 26%. During this same time period, betas on loans and total interest earning assets were 32% and 38%, respectively.
The table below shows for the years ended December 31, 2024, 2023, and 2022, the average balance and tax equivalent yield by type of loan.
Table 13 - Average Loans and Tax Equivalent Yield
Year Ended December 31, 2024 2023 2022
(Dollars in thousands) Average
balance Tax
equivalent
yield Average
balance Tax
equivalent
yield Average
balance Tax
equivalent
yield
Home equity $ 186,466 8.34 % $ 169,570 8.17 % $ 163,388 5.03 %
Installment loans 1,946,060 6.46 % 1,942,428 5.49 % 1,818,778 4.74 %
Real estate loans 1,389,914 5.08 % 1,253,919 4.38 % 1,145,989 3.81 %
Commercial loans (1)
4,099,623 6.25 % 3,852,174 5.83 % 3,823,481 4.85 %
Other 5,356 6.26 % 4,388 8.07 % 4,038 8.47 %
Total loans and leases before allowance for credit losses $ 7,627,419 6.14 % $ 7,222,479 5.55 % $ 6,955,674 4.65 %
(1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate in 2023, 2022 and 2021. The taxable equivalent adjustments were $964,000 in 2024, $811,000 in 2023 and $627,000 in 2022.
Loan interest income for 2024, 2023, and 2022 included $54,000, $631,000 and $3.7 million, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB, as well as $1.2 million, $633,000 and $1.8 million of purchase accounting accretion for 2024, 2023 and 2022, respectively. Interest income for 2023
and 2022 included interest and fee income related to PPP loans of $69,000 and $3.1 million, respectively. Below is a summary of the impact of these items on the tax equivalent yield of loans.
•The amount of interest related to purchase accounting accretion included in home equity loan interest income for 2024, 2023 and 2022 was $184,000, $79,000 and $173,000, respectively. Excluding the impact of these items, the average tax equivalent yield on home equity loans was 8.23%, 8.11% and 4.93%, respectively.
•The amount of interest related to purchase accounting accretion included in real estate loan interest income for 2024, 2023 and 2022 was $80,000, $4,000 and $170,000, respectively. Excluding the impact of these items, the average tax equivalent yield on real estate loans was 5.07%, 4.38% and 3.80%, respectively.
•The amount of interest related to PPP income, SEPH nonaccrual loan relationships and purchase accounting accretion included in commercial loan interest income for 2024, 2023 and 2022 was $935,000, $1.2 million and $8.2 million, respectively. Excluding the impact of these items, the average tax equivalent yield on commercial loans was 6.23%, 5.80% and 4.66%, for 2024, 2023 and 2022, respectively.
•Excluding the impact of interest related to PPP income, SEPH nonaccrual loan relationships and purchase accounting accretion, the average tax equivalent yield on total loans and leases was 6.13%, 5.53% and 4.55%, for 2024, 2023, and 2022, respectively.
The table below shows for the years ended December 31, 2024, 2023, and 2022, the average balance and cost of funds by type of deposit.
Table 14 - Average Deposits and Cost of Funds
Year Ended December 31, 2024 2023 2022
(Dollars in thousands) Average
balance Cost of funds Average
balance Cost of funds Average
balance Cost of funds
Transaction accounts $ 2,156,400 1.69 % $ 2,209,846 1.48 % $ 1,932,752 0.36 %
Savings deposits and clubs 2,688,773 1.73 % 2,727,299 1.44 % 2,771,016 0.39 %
Time deposits 690,938 3.12 % 572,918 1.87 % 653,041 0.51 %
Brokered/bid CD deposits 160,074 5.04 % 35,952 5.50 % - N.M.
Total interest bearing deposits $ 5,696,185 1.97 % $ 5,546,015 1.52 % $ 5,356,809 0.39 %
The following table displays (for each quarter of 2024) the average balance of interest earning assets, the net interest income and the tax equivalent net interest income and net interest margin.
Table 15 - Quarterly Net Interest Margin
(In thousands) Average Interest Earning Assets Net Interest Income Tax Equivalent Net Interest Income Tax Equivalent Net Interest Margin
First Quarter $ 9,048,204 $ 95,623 $ 96,239 4.28 %
Second Quarter 9,016,905 97,837 98,442 4.39 %
Third Quarter 9,100,594 101,114 101,708 4.45 %
Fourth Quarter 9,176,540 103,445 104,062 4.51 %
2024 $ 9,085,850 $ 398,019 $ 400,451 4.41 %
In the following table, the change in tax equivalent interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Table 16 - Volume/Rate Variance Analysis
Change from 2023 to 2024 Change from 2022 to 2023
(In thousands) Volume Rate Total Volume Rate Total
Increase (decrease) in:
Interest income:
Total loans $ 22,461 $ 45,499 $ 67,960 $ 12,426 $ 64,446 $ 76,872
Taxable investments (11,601) 533 (11,068) (2,151) 18,890 16,739
Tax-exempt investments (6,274) (615) (6,889) (164) 167 3
Money market instruments (263) 261 (2) (4,760) 4,754 (6)
Total interest income 4,323 45,678 50,001 5,351 88,257 93,608
Interest expense:
Transaction accounts $ (789) $ 4,507 $ 3,718 $ 986 $ 24,767 $ 25,753
Savings accounts (553) 7,848 7,295 (170) 28,547 28,377
Time deposits and brokered/bid CD deposits 5,041 11,876 16,917 (224) 9,587 9,363
Short-term borrowings (1,610) 24 (1,586) (162) 3,488 3,326
Subordinated notes 25 20 45 22 528 550
Total interest expense 2,114 24,275 26,389 452 66,917 67,369
Net variance $ 2,209 $ 21,403 $ 23,612 $ 4,899 $ 21,340 $ 26,239
Other Income: Other income was $122.6 million for 2024, compared to $92.6 million for 2023 and $135.9 million for 2022.
The following table displays total other income for Park in 2024, 2023 and 2022.
Table 17 - Other Income
Year Ended December 31,
(In thousands) 2024 2023 2022
Income from fiduciary activities $ 42,489 $ 35,474 $ 34,091
Service charges on deposit accounts 9,001 8,445 10,091
Other service income 11,743 10,300 15,295
Debit card fee income 25,873 26,522 26,046
Bank owned life insurance income 7,770 5,338 6,100
ATM fees 1,840 2,178 2,273
Pension settlement gain 6,148 - -
Gain (loss) on the sale of OREO, net 42 (3) 5,611
OREO valuation markup 30 60 12,039
Loss on sale of debt securities, net (526) (7,875) -
Gain on equity securities, net 3,080 971 2,955
Other components of net periodic benefit income 9,263 7,572 12,108
Miscellaneous 5,835 3,652 9,326
Total other income $ 122,588 $ 92,634 $ 135,935
Income from fiduciary activities increased by $7.0 million, or 19.8%, to $42.5 million, compared to $35.5 million in 2023. The $35.5 million in 2023 was an increase of $1.4 million, or 4.1%, compared to $34.1 million in 2022. The majority of fiduciary fees are calculated on a lag, based on the market value of the assets under management. The average market value of the wealth management assets managed by PNB was $8.58 billion in 2024, compared to $7.69 billion in 2023 and $7.22 billion in 2022.
The increase in fiduciary fee income in 2024 was largely due to an increase in the market value of assets under management as well as updates to the fee structure. The increase in fiduciary fee income in 2023 was primarily related to an increase in wealth management assets due to improvements in equity market values and new wealth management accounts.
Service charges on deposit accounts increased $556,000, or 6.6%, to $9.0 million in 2024, compared to $8.4 million in 2023. The $8.4 million in 2023 was a decrease of $1.6 million, or 16.3%, compared to $10.1 million in 2022. The increase in 2024 was related to increases in service charges on demand deposit accounts, partially offset by decreases in non-sufficient funds (NSF) fee income. The decrease in 2023 was related to decreases in non-sufficient funds (NSF) fee income.
Other service income increased $1.4 million in 2024, or 14.0%, to $11.7 million, compared to $10.3 million in 2023. The $10.3 million in 2023 was a decrease of $5.0 million, or 32.7%, compared to $15.3 million in 2022. The increase in 2024 compared to 2023 was primarily due to an increase in other service income related to mortgage loan originations, including a $950,000 increase in fee income related to mortgage loan originations to be sold in the secondary market and a $400,000 increase in mortgage servicing rights income. The decrease in 2023 compared to 2022 was primarily related to a decrease in other service income related to mortgage loan originations, including a $2.6 million decrease in fee income related to mortgage loan originations to be sold in the secondary market and a $1.7 million decrease in mortgage servicing rights income, partially offset by a $465,000 increase in income related to investor rate locks and loans held for sale. Park has experienced fluctuations in mortgage loan origination volume resulting in increases and decreases in other service income. A summary of mortgage loan originations for the years ended December 31, 2024, 2023 and 2022 follows.
Table 18 - Mortgage Loan Origination Volume
Year Ended December 31,
(In thousands) 2024 2023 2022
Sold $ 107,665 $ 59,386 $ 159,142
Portfolio 233,237 249,151 263,287
Construction 81,887 92,612 120,794
Service released 8,241 5,825 14,738
Total mortgage loan originations $ 431,030 $ 406,974 $ 557,961
Refinances as a % of Total Mortgage Loan Originations 15.3 % 17.4 % 29.4 %
Debit card fee income, which is generated from debit card transactions, decreased $649,000, or 2.4%, to $25.9 million in 2024, compared to $26.5 million in 2023. The $26.5 million in 2023 was an increase of $476,000, or 1.8%, compared to $26.0 million in 2022. The decrease in 2024 was attributable to a decrease in the average blended interchange rate per transaction, which is influenced by various factors, including the average spend per transaction. This decrease was partially offset by continued increases in both the volume of debit card transactions and increases in total sales dollars of debit card transactions. The increase in 2023 was attributable to continued increases in both the volume of debit card transactions and increases in total sales dollars of debit card transactions. Debit card transaction volume increased 1.3% in 2024 from 2023. Total sales dollars of debit card transactions increased 1.4% in 2024 from 2023. Debit card transaction volume increased 3.4% in 2023 from 2022. Total sales dollars of debit card transactions increased 2.5% in 2023 from 2022. Park continues to focus on deposit offerings that provide incentives for our customers to use their debit card.
Bank owned life insurance income increased $2.4 million, or 45.6%, to $7.8 million in 2024, compared to $5.3 million in 2023. The $5.3 million in 2023 was a decrease of $762,000, or 12.5%, compared to $6.1 million in 2022. The increase in 2024 and the decrease in 2023 was related to death benefit income of $2.0 million recognized in 2024, compared to $325,000 recognized in 2023 and compared to $1.4 million recognized in 2022.
During 2024, Park recognized a $6.1 million pension settlement gain due to a combination of lump sum payouts as well as the purchase of a nonparticipating annuity contract which will provide ongoing benefits to vested participants. There was no pension settlement gain recognized during 2023 or 2022.
Gain (loss) on the sale of OREO, net, reflected a net gain of $42,000 in 2024, compared to a net loss of $3,000 in 2023, and a net gain of $5.6 million in 2022. A $5.6 million gain on the sale of OREO, net, was recognized during 2022 and was related to former Vision Bank relationships.
OREO valuation markup income was $30,000, $60,000 and $12.0 million for 2024, 2023 and 2022, respectively. The $12.0 million OREO valuation markup during 2022 related to the foreclosure of a property collateralizing a former Vision Bank relationship. This property was subsequently sold during 2022.
During 2024, Park sold certain AFS debt securities with a book value of $42.3 million at a gross loss of $553,000 and sold certain AFS debt securities with a book value of $2.3 million for a gross gain of $27,000. During 2023, Park sold certain AFS debt securities with a book value of $291.0 million at a gross loss of $7.9 million. No debt securities were sold in 2022.
During the years ended December 31, 2024, 2023 and 2022, $2.6 million, $600,000 and $601,000, respectively, of gains on equity investments carried at fair value or modified cost were recorded within "Gain on equity securities, net". For the years ended December 31, 2024, 2023 and 2022, $468,000, $371,000 and $2.4 million, respectively, of gains on equity investments carried at NAV were recorded within "Gain on equity securities, net".
Other components of net periodic pension benefit income increased $1.7 million, or 22.3%, to $9.3 million in 2024, compared to $7.6 million in 2023. The $7.6 million in 2023 was a decrease of $4.5 million, or 37.5%, compared to $12.1 million in 2022. The increase in 2024 was largely due to an increase in the expected return on plan assets, partially offset by a decrease in interest cost. The decrease in 2023 was largely due a decrease in the expected return on plan assets as well as an increase in interest cost.
Miscellaneous income increased by $2.2 million, or 59.8%, to $5.8 million in 2024, compared to $3.7 million in 2023. The $3.7 million in 2023 was a decrease of $5.7 million, or 60.8%, compared to $9.3 million in 2022. The increase in 2024 was primarily due to an increase in the net gain on the sale of assets, an increase in filing fee income, an increase in net gains on the sale of repossessed assets and a decrease in OREO devaluations, partially offset by a decline in miscellaneous income that was received in 2023 as the result of an investment fund liquidation. The decrease in 2023 was primarily due to a decrease in the net gain on the sale of loans and other assets, a decrease due to the write downs on strategic initiatives, and a decrease in fees earned on off-balance sheet deposit accounts.
Other Expense: Other expense was $321.3 million in 2024, compared to $309.2 million in 2023 and $298.0 million in 2022. Other expense increased by $12.1 million, or 3.9% in 2024, compared to 2023 and increased by $11.3 million, or 3.8%, in 2023 compared to 2022. The following table displays total other expense for Park for 2024, 2023 and 2022.
Table 19 - Other Expense
Year Ended December 31,
(In thousands) 2024 2023 2022
Salaries $ 147,311 $ 139,237 $ 133,299
Employee benefits 41,724 42,264 40,490
Occupancy expense 12,816 13,114 13,866
Furniture and equipment expense 9,983 12,233 11,901
Data processing fees 40,564 37,637 32,627
Professional fees and services 31,146 29,173 30,837
Marketing 6,318 5,471 5,335
Insurance 6,735 7,640 5,413
Communication 4,097 4,210 3,891
State tax expense 4,500 4,657 4,585
Amortization of intangible assets 1,215 1,323 1,487
Foundation contributions 2,000 1,000 4,000
Miscellaneous 12,930 11,280 10,247
Total other expense $ 321,339 $ 309,239 $ 297,978
Full-time equivalent employees 1,725 1,782 1,725
Salaries expense increased by $8.1 million, or 5.8%, to $147.3 million in 2024, compared to $139.2 million in 2023. The $139.2 million in 2023 was an increase of $5.9 million, or 4.5%, compared to $133.3 million in 2022. The increase in 2024 was due to an increase in salaries expense of $4.9 million, a $2.6 million increase in officer incentive compensation expense, and a $1.2 million increase in additional compensation expense, partially offset by a $340,000 decrease in share-based compensation
expenses related to PBRSU and TBRSU awards granted under the 2017 Employee LTIP and a $288,000 decrease in the vacation expense accrual. The increase in 2023 was due to an increase in salaries expense of $11.1 million and a $909,000 increase in share-based compensation expenses related to PBRSU and TBRSU awards granted under the 2017 Employee LTIP, partially offset by a $4.4 million decrease in additional compensation expense and a $1.6 million decrease in officer incentive compensation expense.
Park had 1,725 full-time equivalent employees at year-end 2024, compared to 1,782 full-time equivalent employees at year-end 2023, and 1,725 full-time equivalent employees at year-end 2022.
Employee benefits expense decreased by $540,000, or 1.3%, to $41.7 million in 2024, compared to $42.3 million in 2023. The $42.3 million in 2023 was an increase of $1.8 million, or 4.4%, compared to $40.5 million in 2022. The decrease in 2024 was due to a $1.9 million decrease in group insurance costs, partially offset by a $680,000 increase in pension plan expense, a $310,000 increase in the KSOP match and a $175,000 increase in payroll tax expense. The increase in 2023 was due to a $3.5 million increase in group insurance costs, a $1.0 million increase in payroll tax expense and a $347,000 increase in the KSOP match, partially offset by a $3.5 million decrease in pension plan expense.
Occupancy expense decreased by $298,000, or 2.3%, to $12.8 million in 2024, compared to $13.1 million in 2023. The $13.1 million in 2023 was a decrease of $752,000, or 5.4%, compared to $13.9 million in 2022. The $298,000 decrease was primarily due to decreased expense for the rental of leased space and decreased utilities expense, partially offset by increases in maintenance and repairs expense, which included expenses related to a building demolition. The $752,000 decrease in 2023 was primarily related to decreased lease expense and depreciation expense, partially offset by an increase in maintenance and repair expenses and an increase in utilities expense.
Furniture and equipment expense decreased $2.3 million, or 18.4%, to $10.0 million in 2024, compared to $12.2 million in 2023. The $12.2 million in 2023 was an increase of $332,000, or 2.8%, compared to $11.9 million in 2022. The decrease in 2024 was primarily related to decreased depreciation expense and decreased expenses related to repairs on maintenance and equipment. The increase in 2023 was primarily related to increased depreciation expense and increased expenses related to repairs and maintenance on equipment.
Data processing fees increased by $2.9 million, or 7.8%, to $40.6 million in 2024, compared to $37.6 million in 2023. The $37.6 million in 2023 was an increase of $5.0 million, or 15.4%, compared to $32.6 million in 2022. The increase in 2024 primarily related to an increase in software expenses of $5.9 million, partially offset by a decrease in debit card processing costs of $3.0 million. The increase in 2023 primarily related to an increase in software expenses of $3.7 million and an increase in debit card processing costs of $1.4 million.
Professional fees and services increased $2.0 million, or 6.8%, to $31.1 million in 2024, compared to $29.2 million in 2023. The $29.2 million in 2023 was a decrease of $1.7 million, or 5.4%, compared to $30.8 million in 2022. This subcategory of total other expense includes legal fees, management consulting fees, directors' fees, audit fees, regulatory examination fees and memberships in industry associations. The $2.0 million increase in 2024 related to increases in management consulting fees, credit services expense, IntraFi insured deposit fees, temporary wages and recruiting fees, partially offset by decreases in legal fees and other fees. The $1.7 million decrease in 2023 related to decreases in management consulting fees and recruiting fees, partially offset by increases in IntraFi insured deposit fees and temporary wages.
Marketing expense increased by $847,000, or 15.5%, to $6.3 million in 2024, compared to $5.5 million in 2023. The $5.5 million in 2023 was an increase of $136,000, or 2.5%, compared to $5.3 million in 2022. The $847,000 increase in 2024 was primarily due to an increase in advertising expense.
Insurance expense decreased by $905,000, or 11.8% to $6.7 million in 2024, compared to $7.6 million in 2023. The $7.6 million in 2023 was an increase of $2.2 million, or 41.1%, compared to $5.4 million in 2022. The decrease in 2024 and the increase in 2023 were related to fluctuations in FDIC assessment expense.
The subcategory "Miscellaneous" other expense includes expenses for supplies, travel, and other miscellaneous expense. The subcategory Miscellaneous other expense increased by $1.7 million, or 14.6%, to $12.9 million in 2024, compared to $11.3 million in 2023. The $11.3 million in 2023 was an increase of $1.0 million, or 10.1%, compared to $10.2 million in 2022. The increase in 2024 was related to increases in fraud and other non loan related losses as well as an increase in the provision for unfunded credit losses. The increase in 2023 was related to increases in training and travel expenses and increased expense related to losses as a result of fraud and other non loan related losses and other miscellaneous expenses, partially offset by a decrease in operating lease depreciation expense and a decrease in the expense for the provision for unfunded credit losses.
Efficiency Ratio: The following table details the calculation of the efficiency ratio for the years ended December 31, 2024, 2023, and 2022.
Table 20 - Efficiency ratio(1)
Year Ended December 31,
(In thousands) 2024 2023 2022
Net interest income $ 398,019 $ 373,113 $ 347,059
Add: Tax equivalent adjustment (2)
2,432 3,726 3,541
Net interest income - Fully tax equivalent $ 400,451 $ 376,839 $ 350,600
Total other income $ 122,588 $ 92,634 $ 135,935
Total other expense $ 321,339 $ 309,239 $ 297,978
Efficiency ratio 61.44 % 65.87 % 61.24 %
(1) Calculated by dividing "Total other expense" by the sum of fully-tax equivalent net interest income and "Total other income."
(2) The tax equivalent adjustment to net interest income was calculated assuming a 21% corporate federal income tax rate for 2024, 2023 and 2022.
Items Impacting Comparability (non-U.S. GAAP): 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 relate 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.
The following table details those items which management believes impacts the comparability of current and prior period amounts.
Table 21 - Items impacting comparability Year Ended December 31,
(In thousands, except share and per share data) 2024 2023 2022 Affected Line Item
Net interest income $ 398,019 $ 373,113 $ 347,059
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions 1,154 633 1,773 Interest and fees on loans
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions - - 7 Interest on deposits
less interest income on former Vision Bank relationships 54 631 3,703 Interest and fees on loans
Net interest income - adjusted $ 396,811 $ 371,849 $ 341,576
Provision for credit losses $ 14,543 $ 2,904 $ 4,557
less recoveries on former Vision Bank relationships (1,304) (788) (1,319) Provision for credit losses
Provision for credit losses - adjusted $ 15,847 $ 3,692 $ 5,876
Total other income $ 122,588 $ 92,634 $ 135,935
less pension settlement gain 6,148 - - Pension settlement gain
less impact of strategic initiatives 775 (1,038) - Miscellaneous income
less Vision related gain on the sale of OREO, net 115 - 5,607 Gain (loss) on the sale of OREO, net
less other service income related to former Vision Bank relationships 312 175 788 Other service income
less Vision related OREO devaluations - (416) (594) Miscellaneous income
less Vision related OREO valuation markup - 46 12,009 OREO valuation markup
less loss on the sale of debt securities, net (526) (7,875) - Loss on the sale of debt securities, net
Total other income - adjusted $ 115,764 $ 101,742 $ 118,125
Table 21 - Items impacting comparability (continued) Year Ended December 31,
(In thousands, except share and per share data) 2024 2023 2022 Affected Line Item
Total other expense $ 321,339 $ 309,239 $ 297,978
less core deposit intangible amortization related to NewDominion and Carolina Alliance acquisitions 1,215 1,323 1,487 Amortization of intangible assets
less building demolition costs 458 - - Occupancy expense
less special incentive 1,700 - - Salaries
less Foundation contributions 2,000 1,000 4,000 Foundation contributions
less direct expenses related to collection of payments on former Vision Bank loan relationships 215 100 1,761 Professional fees and services
Total other expense - adjusted $ 315,751 $ 306,816 $ 290,730
Tax effect of adjustments to net income identified above (7)
$ (787) $ 1,991 $ (3,646)
Net income - reported $ 151,420 $ 126,734 $ 148,351
Net income - adjusted (6)
$ 148,459 $ 134,222 $ 134,633
Diluted earnings per common share (1) $ 9.32 $ 7.80 $ 9.06
Diluted earnings per common share, adjusted (6) $ 9.14 $ 8.26 $ 8.23
Return on average assets (1)(2) 1.53 % 1.27 % 1.48 %
Return on average assets, adjusted (1)(2)(6)
1.50 % 1.35 % 1.34 %
Return on average tangible assets (1)(2)(4) 1.56 % 1.29 % 1.50 %
Return on average tangible assets, adjusted (1)(2)(4)(6) 1.52 % 1.37 % 1.36 %
Return on average shareholders' equity (1)(2) 12.65 % 11.55 % 13.78 %
Return on average shareholders' equity, adjusted (1)(2)(6) 12.40 % 12.23 % 12.50 %
Return on average tangible equity (1)(2)(3) 14.65 % 13.60 % 16.29 %
Return on average tangible equity, adjusted (1)(2)(3)(6) 14.37 % 14.40 % 14.79 %
Efficiency ratio (5) 61.44 % 65.87 % 61.24 %
Efficiency ratio, adjusted (5)(6) 61.31 % 64.28 % 62.76 %
Net interest margin (5) 4.41 % 4.11 % 3.80 %
Net interest margin, adjusted (5)(6) 4.39 % 4.09 % 3.74 %
Table 21 - Items impacting comparability (continued)
Financial Reconciliations
(1) Reported measure uses net income.
(2) Averages are for the years ended December 31, 2024, December 31, 2023 and December 31, 2022, as appropriate.
(3) 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:
Year Ended December 31,
2024 2023 2022
AVERAGE SHAREHOLDERS' EQUITY $ 1,197,120 $ 1,097,143 $ 1,076,879
Less: Average goodwill and other intangible assets 163,669 164,960 166,337
AVERAGE TANGIBLE EQUITY $ 1,033,451 $ 932,183 $ 910,542
(4) Net income for each period divided by average tangible assets during the period. Average tangible assets equal average assets less average goodwill and other intangible assets, in each case during the applicable period.
RECONCILIATION OF AVERAGE ASSETS TO AVERAGE TANGIBLE ASSETS
Year Ended December 31,
2024 2023 2022
AVERAGE ASSETS $ 9,901,264 $ 9,957,554 $ 10,044,208
Less: Average goodwill and other intangible assets 163,669 164,960 166,337
AVERAGE TANGIBLE ASSETS $ 9,737,595 $ 9,792,594 $ 9,877,871
(5) Efficiency ratio is calculated by dividing total other expense by the sum of FTE net interest income and other income. The FTE 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 FTE net interest income by average interest earning assets, in each case during the applicable period.
RECONCILIATION OF FULLY TAXABLE EQUIVALENT NET INTEREST INCOME TO NET INTEREST INCOME
Year Ended December 31,
2024 2023 2022
Interest income $ 522,965 $ 471,670 $ 378,247
FTE adjustment 2,432 3,726 3,541
FTE interest income $ 525,397 $ 475,396 $ 381,788
Interest expense 124,946 98,557 31,188
FTE net interest income $ 400,451 $ 376,839 $ 350,600
(6) Adjustments to net income for each period presented are detailed in the non-GAAP reconciliations of net interest income, provision for credit losses, other income, other expense and tax effect of adjustments to net income.
(7) The tax effect of adjustments to net income was calculated assuming a 21% federal corporate income tax rate.
OTHER RECONCILIATIONS
The following reconciliations are not utilized in Table 21 - Items impacting comparability, but provide reconciliations for values referenced elsewhere within Management's Discussion and Analysis of Financial Condition and Results of Operations.
(8) 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:
Year Ended December 31,
2024 2023 2022
TOTAL SHAREHOLDERS' EQUITY $ 1,243,848 $ 1,145,293 $ 1,069,226
Less: Goodwill and other intangible assets 163,032 164,247 165,570
TANGIBLE EQUITY $ 1,080,816 $ 981,046 $ 903,656
Table 21 - Items impacting comparability (continued)
(9) Tangible assets equal total assets less goodwill and other intangible assets, in each case at the end of the period.
RECONCILIATION OF TOTAL ASSETS TO TANGIBLE ASSETS:
Year Ended December 31,
2024 2023 2022
TOTAL ASSETS $ 9,805,350 $ 9,836,453 $ 9,854,993
Less: Goodwill and other intangible assets 163,032 164,247 165,570
TANGIBLE ASSETS $ 9,642,318 $ 9,672,206 $ 9,689,423
(10) Pre-tax, pre-provision ("PTPP") net income is calculated as net income, plus income taxes, plus the provision for credit losses, in each case during the applicable period. PTPP net income is a common industry metric utilized in capital analysis and review. PTPP is used to assess the operating performance of Park while excluding the impact of the provision for credit losses.
RECONCILIATION OF PRE-TAX, PRE-PROVISION NET INCOME
Year Ended December 31,
2024 2023 2022
Net income $ 151,420 $ 126,734 $ 148,351
Plus: Income taxes 33,305 26,870 32,108
Plus: Provision for credit losses 14,543 2,904 4,557
Pre-tax, pre-provision net income $ 199,268 $ 156,508 $ 185,016
Income Taxes:
Income tax expense was $33.3 million in 2024 and consisted of federal income tax expense of $31.8 million and state income tax expense of $1.5 million. Income tax expense was $26.9 million in 2023 and consisted of federal income tax expense of $25.7 million and state income tax expense of $1.2 million. This compares to income tax expense of $32.1 million in 2022, which consisted of federal income tax expense of $30.8 million and state income tax expense of $1.3 million. The effective income tax rate was 18.0% in 2024, 17.5% in 2023 and 17.8% in 2022.
The difference between the statutory federal corporate income tax rate of 21% and Park’s effective tax rate reflected permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, qualified affordable housing and historical tax credits, bank owned life insurance income, and dividends paid on common shares held within Park’s salary deferral plan, offset by the impact of state income taxes. Park's permanent federal tax differences were approximately $7.0 million in 2024, compared to $6.6 million in 2023 and $7.1 million in 2022. Park expects permanent federal tax differences for 2025 will be approximately $5.5 million.
CREDIT METRICS AND PROVISION FOR CREDIT LOSSES
The provision for credit losses is the amount added to/subtracted from the allowance for credit losses to ensure the allowance is sufficient to absorb estimated credit losses over the life of a loan. The amount of the provision for credit losses is determined by management based on relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets.
The adoption of ASU 2022-02 on January 1, 2023 resulted in a $383,000 increase to the allowance for credit losses. A cumulative effect adjustment resulting in a $303,000 decrease to retained earnings and an $80,000 increase to deferred tax assets was also recorded. Additionally, as a result of the adoption of this ASU and elimination of the concept of TDRs, total nonperforming loans decreased by $20.1 million effective January 1, 2023 and individually evaluated loans decreased by $11.5 million effective January 1, 2023.
The table below provides additional information on the provision for credits losses and the ACL for 2024, 2023 and 2022.
Table 22 - ACL Activity
(In thousands) 2024 2023 2022
ACL, beginning balance $ 83,745 $ 85,379 $ 83,197
Cumulative change in accounting principle; adoption of ASU 2022-02 - 383 -
Charge-offs 18,334 10,863 9,133
Recoveries (8,012) (5,942) (6,758)
Net charge-offs 10,322 4,921 2,375
Provision for credit losses: 14,543 2,904 4,557
ACL, ending balance $ 87,966 $ 83,745 $ 85,379
Average loans $ 7,627,419 $ 7,222,479 $ 6,955,674
Net charge-offs as a percentage of average loans 0.14 % 0.07 % 0.03 %
For the year ended December 31, 2024, gross income of $6.4 million would have been recognized on loans that were nonaccrual as of December 31, 2024 had these loans been current in accordance with their original terms. Interest income on nonaccrual loans may be recorded on a cash basis and be included in income only when Park expects to receive the entire recorded investment of the loan. Of the $6.4 million that would have been recognized, approximately $4.1 million was included in interest income for the year ended December 31, 2024 as a result of payments made.
At year-end 2024, the allowance for credit losses was $88.0 million, or 1.13%, of total loans outstanding, compared to $83.7 million, or 1.12%, of total loans outstanding at year-end 2023, and $85.4 million, or 1.20% of total loans outstanding at year-end 2022.
The following table provides additional information related to the allowance for credit losses for Park including information related to individual reserves and collective reserves, at December 31, 2024, December 31, 2023 and December 31, 2022. Park has determined that any commercial loans which have been placed on nonaccrual status are to be individually evaluated. Additionally, accruing collateral dependent commercial loans to borrowers experiencing financial difficulty are also to be individually evaluated.
Table 23- Allowance for Credit Losses Summary
(Dollars in thousands) 12/31/2024 12/31/2023 12/31/2022
Total allowance for credit losses $ 87,966 $ 83,745 $ 85,379
Allowance on accruing PCD loans - - -
Reserves on individually evaluated loans - accruing (1)
- - -
Reserves on individually evaluated loans - nonaccrual 1,299 4,983 3,566
General reserves on collectively evaluated loans $ 86,667 $ 78,762 $ 81,813
Total loans $ 7,817,128 $ 7,476,221 $ 7,141,891
Accruing PCD loans 2,174 2,835 4,653
Individually evaluated loans - accrual (1)
15,290 - 11,477
Individually evaluated loans - nonaccrual 53,149 45,215 66,864
Collectively evaluated loans $ 7,746,515 $ 7,428,171 $ 7,058,897
Allowance for credit losses as a % of period end loans 1.13 % 1.12 % 1.20 %
General reserve as a % of collectively evaluated loans 1.12 % 1.06 % 1.16 %
(1) Includes accruing collateral dependent commercial loans to borrowers experiencing financial difficulty at December 31, 2024 and 2023 and accruing TDRs at December 31, 2022.
The allowance for credit losses of $88.0 million at December 31, 2024 represented a $4.2 million, or 5.0%, increase compared to $83.7 million at December 31, 2023. The increase was due to a $7.9 million increase in general reserves and a $3.7 million decrease in individual reserves on nonaccrual loans. The $7.9 million increase in general reserves takes into account changing economic forecasts and prepayment and curtailment speeds, while balancing the risks associated with other economic factors. Additionally, the $7.9 million increase in general reserves included a $757,000 additional reserve related to Hurricane Helene which impacted borrowers in Park's Carolina region. The decrease in individual reserves at December 31, 2024 compared to December 31, 2023 was primarily related to $4.2 million in charge-offs related to two relationships that previously carried individual reserves, partially offset by new or increasing reserves on other credits.
The allowance for credit losses of $83.7 million at December 31, 2023 represented a $1.6 million, or 1.9%, decrease compared to $85.4 million at December 31, 2022. The decrease was largely due to a $3.1 million decrease in general reserves taking into account changing economic forecasts while balancing the risks associated with other economic factors and a $1.4 million increase in individual reserves.
Management believes that the allowance for credit losses at year-end 2024 is adequate to absorb estimated life of loan credit losses in the loan portfolio. See "Note 1 - Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K, and the discussion under the heading “CRITICAL ACCOUNTING POLICIES” earlier in this Management's Discussion and Analysis of Financial Condition and Results of Operations, for additional information on management’s evaluation of the adequacy of the allowance for credit losses.
ACL Detail by Loan Type: The following tables breakdown the allowance for credit losses and components by loan type.
The table below provides a summary of Park's loan loss experience over the past three years:
Table 24 - Summary of Loan Credit Loss Experience
(In thousands) 2024 2023 2022
Average loans $ 7,627,419 $ 7,222,479 $ 6,955,674
Allowance for credit losses:
Beginning balance 83,745 85,379 83,197
Adoption of ASU 2022-02 - 383 -
Charge-offs:
Commercial, financial and agricultural 5,443 1,226 2,056
Construction real estate - 546 33
Residential real estate 31 44 81
Commercial real estate 99 754 1,578
Consumer 12,753 8,293 5,343
Leases 8 - 42
Total charge-offs $ 18,334 $ 10,863 $ 9,133
Recoveries:
Commercial financial, and agricultural $ 438 $ 292 $ 826
Construction real estate 1,067 548 1,343
Residential real estate 366 482 164
Commercial real estate 825 240 627
Consumer 5,315 4,379 3,767
Leases 1 1 31
Total recoveries $ 8,012 $ 5,942 $ 6,758
Net charge-offs $ 10,322 $ 4,921 $ 2,375
Provision included in net income 14,543 2,904 4,557
Ending balance $ 87,966 $ 83,745 $ 85,379
Ratio of net charge-offs to average loans 0.14 % 0.07 % 0.03 %
Ratio of allowance for credit losses to end of year loans 1.13 % 1.12 % 1.20 %
The follow table presents net-charge offs (recoveries), average loans outstanding, and net charge-offs (recoveries) as a percentage of average loans, by type of loan over the past three years:
Table 25- Net Charge-Offs (Recoveries) to Average Loans
Year Ended December 31,
2024 2023 2022
(Dollars in thousands) Net Charge-offs (Recoveries) Average Loans Net Charge-offs (Recoveries) as a % of Average Loans Net Charge-offs (Recoveries) Average Loans Net Charge-offs (Recoveries) as a % of Average Loans Net Charge-offs (Recoveries) Average Loans Net Charge-offs (Recoveries) as a % of Average Loans
Commercial, financial, and agricultural $ 5,005 $ 1,277,654 0.39 % $ 934 $ 1,262,791 0.07 % $ 1,230 $ 1,282,431 0.10 %
Construction real estate (1,067) 348,195 (0.31) % (2) 292,920 - % (1,310) 316,805 (0.41) %
Residential real estate (335) 2,101,285 (0.02) % (438) 1,894,891 (0.02) % (83) 1,747,149 - %
Commercial real estate (726) 1,936,959 (0.04) % 514 1,818,935 0.03 % 951 1,778,622 0.05 %
Consumer 7,438 1,935,322 0.38 % 3,914 1,933,669 0.20 % 1,576 1,810,985 0.09 %
Leases 7 28,004 0.02 % (1) 19,273 (0.01) % 11 19,682 0.06 %
Total $ 10,322 $ 7,627,419 0.14 % $ 4,921 $ 7,222,479 0.07 % $ 2,375 $ 6,955,674 0.03 %
The following table summarizes Park's allocation of the allowance for credit losses for the past three years:
Table 26- Allocation of Allowance for Credit Losses
December 31, 2024 2023 2022
(In thousands) Allowance Percent of Loans Per Category Allowance Percent of Loans Per Category Allowance Percent of Loans Per Category
Commercial, financial, and agricultural $ 12,683 16.24 % $ 15,496 17.33 % $ 16,987 18.22 %
Construction real estate 7,125 5.28 % 5,227 4.08 % 5,550 4.56 %
Residential real estate 22,355 28.15 % 18,818 27.15 % 16,831 25.16 %
Commercial real estate 19,571 25.51 % 16,374 25.09 % 17,829 25.12 %
Consumer 26,081 24.44 % 27,713 26.03 % 28,021 26.67 %
Leases 151 0.38 % 117 0.32 % 161 0.27 %
Total $ 87,966 100.00 % $ 83,745 100.00 % $ 85,379 100.00 %
Nonperforming Assets: After the adoption of ASU 2022-02 on January 1, 2023, which eliminated the TDR classification, non-performing assets include: 1) loans whose interest is accounted for on a nonaccrual basis; 2) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue; and 3) OREO which results from taking possession of property that served as collateral for a defaulted loan. Prior to the adoption of ASU 2022-02 on January 1, 2023, nonperforming assets included: 1) loans whose interest is accounted for on a nonaccrual basis; 2) TDRs on accrual status; 3) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue; and 4) OREO which results from taking possession of property that served as collateral for a defaulted loan.
Generally, management obtains updated appraisal information for nonperforming loans and OREO annually. As new appraisal information is received, management performs an evaluation of the appraisal and applies a discount for anticipated disposition costs to determine the net realizable value of the collateral, which is compared to the outstanding principal balance to determine if additional write-downs are necessary.
The following is a summary of Park’s nonperforming assets at the end of the last three years:
Table 27 - Nonperforming Assets
December 31,
(In thousands) 2024 2023 2022
Nonaccrual loans $ 68,178 $ 60,259 $ 79,696
Accruing TDRs (for year 2022) (1)
N/A N/A 20,134
Loans past due 90 days or more and accruing 1,754 859 1,281
Total nonperforming loans $ 69,932 $ 61,118 $ 101,111
OREO 938 983 1,354
Total nonperforming assets $ 70,870 $ 62,101 $ 102,465
Percentage of nonperforming loans to total loans (1)
0.89 % 0.82 % 1.42 %
Percentage of nonperforming assets to total loans (1)
0.91 % 0.83 % 1.43 %
Percentage of nonperforming assets to total assets (1)
0.72 % 0.63 % 1.04 %
Percentage of nonaccrual loans to total loans 0.87 % 0.81 % 1.12 %
Allowance for credit losses to nonaccrual loans 129.02 % 138.98 % 107.13 %
(1) Effective January 1, 2023, Park adopted ASU 2022-02. Among other things, this ASU eliminated the concept of TDRs.
Park classifies loans as nonaccrual when 1) a loan is maintained on a cash basis because of deterioration in the financial condition of the borrower, 2) payment in full of principal or interest is not expected, or 3) principal or interest has been in default for a period of 90 days for commercial loans and 120 days for all other loans. As a result, loans may be classified as nonaccrual despite being current with their contractual terms. The following table details the delinquency status of nonaccrual loans at December 31, 2024, 2023, and 2022. Loans are classified as current if they are less than 30 days past due.
Table 28 - Delinquency Status of Nonaccrual Loans
December 31, 2024 December 31, 2023 December 31, 2022
(Dollars in thousands) Balance Percent of Total Loans Balance Percent of Total Loans Balance Percent of Total Loans
Nonaccrual loans - current $ 44,135 0.56 % $ 38,956 0.52 % $ 58,893 0.83 %
Nonaccrual loans - past due 24,043 0.31 % 21,303 0.29 % 20,803 0.29 %
Total nonaccrual loans $ 68,178 0.87 % $ 60,259 0.81 % $ 79,696 1.12 %
Credit Quality Indicators: When determining the quarterly credit loss provision, Park reviews the grades of commercial loans. These loans are graded from 1 to 8. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded an 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher PD is applied to these loans. Commercial loans graded a 6 (substandard), also considered to be watch list credits, represent higher credit risk than those rated special mention and, as a result, a higher PD is applied to these loans. Commercial loans that are graded a 7 (doubtful) are shown as nonperforming and Park charges these loans down to their fair value by taking a partial charge-off or recording an individual reserve. Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and included within the individually evaluated category. Any commercial loan graded an 8 (loss) is completely charged off.
The following table highlights the credit trends within the commercial loan portfolio.
Table 29- Commercial Credit Trends
Commercial loans * (In thousands) December 31, 2024 December 31, 2023 December 31, 2022
Pass rated $ 4,094,178 $ 3,905,673 $ 3,709,065
Special Mention 81,090 57,236 79,855
Substandard 3,484 3,414 1,965
Individually evaluated for impairment - accrual (1)
15,290 - 11,477
Individually evaluated for impairment - nonaccrual
53,149 45,215 66,864
Accruing PCD 2,095 2,760 4,563
Total $ 4,249,286 $ 4,014,298 $ 3,873,789
(1) Includes accruing collateral dependent commercial loans to borrowers experiencing financial difficulty at December 31, 2024 and 2023 and accruing TDRs at December 31, 2022.
*Commercial loans include: (1) commercial, financial and agricultural loans; (2) commercial real estate loans; (3) commercial related loans in the construction portfolio; (4) commercial related loans in the residential real estate portfolio; and (5) leases.
Park’s watch list includes all criticized and classified commercial loans, defined by Park as loans rated special mention or worse. Park had $99.9 million of collectively evaluated commercial loans and accruing individually evaluated for impairment loans included on the watch list at December 31, 2024, compared to $60.7 million at December 31, 2023, and $93.3 million at December 31, 2022. The existing conditions of these loans do not warrant classification as nonaccrual. However, these loans have shown some weakness and management performs additional analysis regarding each borrower's ability to comply with payment terms.
The increase in watch list credits during the year ended 2024 was largely due to the downgrade of two non-bank consumer finance company relationships to special mention and/or accruing individually evaluated totaling $28.0 million, partially offset by problem loan resolutions. The downgraded loans were current in respect to their contractual terms at December 31, 2024.
Delinquencies have remained low over the past 36 months. Delinquent and accruing loans were $28.4 million, or 0.36% of total loans at December 31, 2024, compared to $23.5 million, or 0.31% of total loans at December 31, 2023, and $18.9 million, or 0.26% of total loans at December 31, 2022.
Individually Evaluated Loans: Loans that do not share risk characteristics are evaluated on an individual basis. Park has determined that any commercial loans which have been placed on nonaccrual status will be individually evaluated. Additionally, accruing collateral dependent commercial loans to borrowers experiencing financial difficulty will be individually evaluated. Individual analysis will establish a reserve for loans in scope. Reserves on individually evaluated commercial loans are typically based on management’s best estimate of the fair value of collateral securing these loans. The amount ultimately charged off for these loans may be different from the reserve as the ultimate liquidation of the collateral may be for an amount different from management’s estimate. Prior to the elimination of TDRs with the adoption of ASU 2022-02 on January 1, 2023, Park also included commercial accruing TDRs as individually evaluated loans.
Nonaccrual individually evaluated commercial loans were $53.1 million at December 31, 2024, an increase of $7.9 million, compared to $45.2 million at December 31, 2023 and a decrease of $13.7 million, compared to $66.9 million at December 31, 2022. Accruing individually evaluated commercial loans were $15.3 million at December 31, 2024, compared to no accruing individually evaluated commercial loans at December 31, 2023 and $11.5 million of accruing individually evaluated commercial loans at December 31, 2022. The $11.5 million of individually evaluated commercial loans at December 31, 2022 consisted of loans modified in a TDR which were performing in accordance with the restructured terms.
At December 31, 2024, Park had taken partial charge-offs of $5.0 million related to the $53.1 million of the nonaccrual individually evaluated commercial loans, compared to partial charge-offs of $2.3 million related to the $45.2 million of nonaccrual individually evaluated commercial loans at December 31, 2023 and compared to partial charge-offs of $1.8 million related to the $78.3 million of nonaccrual individually evaluated commercial loans at December 31, 2022.
The table below provides additional information related to Park's nonaccrual individually evaluated commercial loans at December 31, 2024, 2023, and 2022.
Table 30 - Nonaccrual individually Evaluated Commercial Loans
Years ended December 31,
(In thousands) 2024 2023 2022
Unpaid principal balance $ 58,158 $ 47,564 $ 68,639
Prior charge-offs 5,009 2,349 1,775
Remaining principal balance 53,149 45,215 66,864
Reserves 1,299 4,983 3,566
Book value, after reserves $ 51,850 $ 40,232 $ 63,298
Loans Acquired with Deteriorated Credit Quality: PCD loans are individually evaluated on a quarterly basis to determine if a specific reserve is necessary. At December 31, 2024, December 31, 2023 and December 31, 2022, there was no allowance for credit losses on PCD loans. The carrying amount of accruing loans acquired with deteriorated credit quality at December 31, 2024, 2023, and 2022 was $2.2 million, $2.8 million, and $4.7 million, respectively. The carrying amount of nonaccrual loans acquired with deteriorated credit quality was $551,000 and $534,000 at December 31, 2024 and December 31, 2023, respectively. There were no nonaccrual loans acquired with deteriorated quality at December 31, 2022.
Additional Considerations: As part of its quarterly allowance process, Park evaluates certain industries which are more likely to be under economic stress in the current environment. The office sector continues to face challenges as it adjusts to the new normal of work from home brought on by the pandemic. Nationally, office properties in downtown and urban business districts are seeing the most stress. As of December 31, 2024, Park had $247.2 million of loans which were fully or partially secured by non-owner-occupied office space, $244.0 million of which were accruing. This portfolio is not currently exhibiting signs of stress, but Park continues to monitor this portfolio, and others, for signs of deterioration.
CAPITAL RESOURCES
Liquidity and Interest Rate Sensitivity Management: Park’s objective in managing its liquidity is to maintain the ability to continuously meet the cash flow needs of customers, such as borrowings or deposit withdrawals, while at the same time seeking higher yields from longer-term lending and investing activities.
Cash and cash equivalents decreased by $57.7 million during 2024 to $160.6 million at year end. Cash provided by operating activities was $178.8 million in 2024, $151.1 million in 2023 and $136.6 million in 2022. Net income was the primary source of cash provided by operating activities during each year.
Cash used in investing activities was $19.1 million in 2024, cash provided by investing activities was $63.5 in 2023 and cash used in investing activities was $405.5 million in 2022. Investment securities transactions and loan originations/repayments are the major uses or sources of cash in investing activities. Proceeds from the sale, repayment or maturity of investment securities provide cash and purchases of investment securities use cash. Net investment securities transactions provided cash of $338.5 million in 2024, provided cash of $418.9 million in 2023 and used cash of $137.8 million in 2022. Cash used by the net increase in the loan portfolio was $341.5 million in 2024, $330.4 million in 2023 and $273.5 million in 2022.
Cash used in financing activities was $217.4 million in 2024, $186.1 million in 2023 and cash provided by financing activities was $239.4 million in 2022. A major source of cash provided by or used in financing activities is the net change in deposits. Deposits increased and provided $101.0 million of cash in 2024, decreased and used $192.1 million of cash in 2023, and increased and provided $330.2 million of cash in 2022. These decreases and increases in deposits included an increase in off-balance sheet deposits of $114.0 million in 2024, a decrease in off-balance sheet deposits of $194.8 million in 2023 and a decrease in off-balance sheet deposits of $787.1 million in 2022. Other major sources of cash from financing activities are short-term borrowings. In 2024, net short-term borrowings decreased and used $237.8 million in cash. In 2023, net short-term borrowings increased and provided $100.8 million in cash. In 2022, net short-term borrowings decreased and used $11.4 million in cash. Cash used in the repurchase of common shares was $23.0 million in 2023. No common shares were repurchased in 2024 or 2022. Finally, cash declined by $77.5 million in 2024, $69.0 million in 2023 and $76.6 million in 2022, from the payment of cash dividends.
Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as the operating cash needs of the Corporation, are met. Funds are available from a number of sources, including the capital markets, the investment securities portfolio, the core deposit base, FHLB borrowings and the capability to securitize or package loans for sale. In the opinion of Park's management, the present funding sources provide more than adequate liquidity for Park to meet our cash flow needs in the short- and long-term.
The following table shows interest rate sensitivity data for five different time intervals as of December 31, 2024:
Table 31 - Interest Rate Sensitivity
0-3 3-12 1-3 3-5 Over 5
(In thousands) Months Months Years Years Years Total
Interest earning assets:
Investment securities (1)
$ 300,985 $ 83,833 $ 187,129 $ 119,769 $ 438,660 $ 1,130,376
Money market instruments 38,203 - - - - 38,203
Loans (1)
1,880,759 1,651,084 2,590,624 1,218,712 475,949 7,817,128
Total interest earning assets 2,219,947 1,734,917 2,777,753 1,338,481 914,609 8,985,707
Interest bearing liabilities:
Interest bearing transaction accounts (2)
$ 1,149,388 $ - $ 790,367 $ - $ - $ 1,939,755
Savings accounts (2)
1,424,213 - 1,253,802 - - 2,678,015
Time deposits and brokered/bid CD deposits 504,904 293,380 86,439 24,938 2,122 911,783
Other - 1,265 - - - 1,265
Total deposits 3,078,505 294,645 2,130,608 24,938 2,122 5,530,818
Short-term borrowings 90,432 - - - 90,432
Subordinated notes 15,000 174,651 - - - 189,651
Total interest bearing liabilities 3,183,937 469,296 2,130,608 24,938 2,122 5,810,901
Interest rate sensitivity gap (963,990) 1,265,621 647,145 1,313,543 912,487 3,174,806
Cumulative rate sensitivity gap (963,990) 301,631 948,776 2,262,319 3,174,806
Cumulative gap as a
percentage of total
interest earning assets (10.73) % 3.36 % 10.56 % 25.18 % 35.33 %
(1)Investment securities and loans that are subject to prepayment are shown in the table by the earlier of their re-pricing date or their expected repayment date and not by their contractual maturity date. Nonaccrual loans of $68.2 million are included within the over five year maturity category.
(2)Management considers interest bearing transaction accounts and savings accounts to be core deposits and, therefore, not as rate sensitive as other deposit accounts and borrowed money. Accordingly, only 59.3% of interest bearing transaction accounts and 53.2% of savings accounts are considered to re-price within one year. If all of the interest bearing transaction accounts and savings accounts were considered to re-price within one year, the one-year cumulative gap would change from a positive 3.36% to a negative 19.39%.
The interest rate sensitivity gap analysis provides an overall picture of Park’s static interest rate risk position. At December 31, 2024, the cumulative interest earning assets maturing or repricing within twelve months were $3,955 million compared to the cumulative interest bearing liabilities maturing or repricing within twelve months of $3,653 million. For the twelve-month cumulative interest rate sensitivity gap position, rate sensitive assets exceeded rate sensitive liabilities by $302 million or 3.4% of interest earning assets. The cumulative twelve-month interest rate sensitivity gap position at year-end 2023 was a positive $783 million or 8.7% of total interest earning assets. The percentage of interest earning assets maturing or repricing within one year was 44.0% at year-end 2024, compared to 46.5% at year-end 2023. The percentage of interest bearing liabilities maturing or repricing within one year was 62.9% at year-end 2024, compared to 57.3% at year-end 2023.
A positive twelve-month cumulative rate sensitivity gap (assets exceed liabilities) would suggest that Park’s net interest margin would increase if interest rates were to increase. Conversely, a negative twelve-month cumulative rate sensitivity gap would suggest that Park’s net interest margin would decrease if interest rates were to increase. However, the usefulness of the interest rate sensitivity gap analysis as a forecasting tool in projecting net interest income is limited. The gap analysis does not consider the magnitude, timing or frequency by which assets or liabilities will reprice during a period and also contains assumptions as to the repricing of interest bearing transaction accounts and savings accounts that may not prove to be correct.
Management supplements the interest rate sensitivity gap analysis with periodic simulations of balance sheet sensitivity under various interest rate and what-if scenarios to better forecast and manage the net interest margin. Park’s management uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates. This model is based on actual cash flows and repricing characteristics for balance sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. This model also includes management’s projections for activity levels of various balance sheet instruments and non-interest fee income and operating expense. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into this earnings simulation model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure net interest income and net income. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies.
Management uses a 50 basis point change in market interest rates per quarter for a total of 200 basis points per year in evaluating the impact of changing interest rates on net interest income and net income over a twelve-month horizon. At December 31, 2024, the earnings simulation model projected that net income would increase by 1.25% using a rising interest rate scenario and decrease by 1.34% using a declining interest rate scenario over the next year. At December 31, 2023, the earnings simulation model projected that net income would increase by 1.52% using a rising interest rate scenario and decrease by 1.92% using a declining interest rate scenario over the next year. At December 31, 2022, the earnings simulation model projected that net income would increase by 3.69% using a rising interest rate scenario and decrease by 5.38% using a declining interest rate scenario over the next year. Park’s net interest margin was 4.41% in 2024, 4.11% in 2023 and 3.80% in 2022.
Contractual Obligations: In the ordinary course of operations, Park enters into certain contractual obligations. The following table summarizes Park’s significant and determinable obligations by payment date at December 31, 2024.
Further discussion of the nature of each specified obligation is included in the referenced Note to the Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
Table 32 - Contractual Obligations (1)
December 31, 2024 Payments Due In
0-1 1-3 3-5 Over 5
(In thousands) Note Years Years Years Years Total
Deposits without stated maturity 14 $ 7,231,743 $ - $ - $ - $ 7,231,743
Certificates of deposit 14 776,464 111,665 23,644 10 911,783
Short-term borrowings 16 90,432 - - - 90,432
Subordinated notes (3)
17 - - - 189,651 189,651
Operating leases 13 1,882 4,747 4,559 9,334 20,522
Defined benefit pension plan (2)
20 8,469 16,733 17,055 43,780 86,037
Supplemental Executive Retirement Plan agreements 20 790 2,329 2,468 39,319 44,906
Total contractual obligations $ 8,109,780 $ 135,474 $ 47,726 $ 282,094 $ 8,575,074
(1) Amounts do not include associated interest payments.
(2) Pension payments reflect 10 years of payments, through 2034.
(3) Subordinated notes are shown above based on their contractual maturity. Of the $189.7 million in subordinated notes, $15.0 million is currently able to be redeemed and $174.7 million is able to be redeemed on or after September 1, 2025.
As of December 31, 2024, Park had $29.7 million in unfunded commitments related to investments in qualified affordable housing projects which are not included in "Table 32 - Contractual Obligations" above. Commitments are funded when capital calls are made by the general partner. Park expects that the current commitments will be funded between 2025 and 2039.
As of December 31, 2024, Park had $17.6 million in unfunded commitments related to certain equity investments which are not included in "Table 32 - Contractual Obligations" above. Commitments are funded when capital calls are made by the general partner.
The Corporation’s operating lease obligations represent short-term and long-term lease and rental payments for facilities and equipment.
Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements: In order to meet the financing needs of our customers, the Corporation issues loan commitments and standby letters of credit. At December 31, 2024, the Corporation had $1.5 billion of loan commitments and had $33.5 million of standby letters of credit. At December 31, 2023, the Corporation had $1.5 billion of loan commitments and had $31.3 million of standby letters of credit.
Commitments to extend credit under loan commitments and standby letters of credit do not necessarily represent future cash requirements. These commitments often expire without being drawn upon. However, all of the loan commitments and standby letters of credit were permitted to be drawn upon in 2024. See "Note 25 - Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" in this Annual Report on Form 10-K, for additional information on loan commitments and standby letters of credit.
The Corporation did not have any unrecorded significant contingent liabilities at December 31, 2024.
Capital: Park’s primary means of maintaining capital adequacy is through retained earnings. At December 31, 2024, the Corporation’s total shareholders’ equity was $1,243.8 million, compared to $1,145.3 million at December 31, 2023. Total shareholders’ equity at December 31, 2024 was 12.69% of total assets, compared to 11.64% of total assets at December 31, 2023.
Tangible equity (non-U.S. GAAP) was $1,080.8 million at December 31, 2024, and was $981.0 million at December 31, 2023. At December 31, 2024, tangible equity (non-U.S. GAAP) was 11.21% of tangible assets compared to 10.14% of tangible assets at December 31, 2023. A reconciliation of total shareholders' equity to tangible equity and total assets to tangible assets is included in Table 21.
Net income was $151.4 million in 2024, $126.7 million in 2023 and $148.4 million in 2022.
Cash dividends declared for Park's common shares were $77.4 million in 2024, $68.7 million in 2023 and $76.8 million in 2022. On a per share basis, the cash dividends declared were $4.74 per common share in 2024, $4.20 per common share in 2023 and $4.66 per common share in 2022.
The table below shows the repurchases and issuances of common shares and treasury shares for 2022 through 2024.
Table 33
(In thousands, except share data) Treasury Shares Number of Common Shares
Balance at January 1, 2022 $ (142,490) 16,219,563
Cash payment for fractional shares in dividend reinvestment plan - (14)
Treasury shares reissued for share-based compensation awards 3,477 34,245
Treasury shares reissued for director grants 994 9,789
Balance at December 31, 2022 $ (138,019) 16,263,583
Treasury shares repurchased (23,017) (199,000)
Treasury shares reissued for share-based compensation awards 4,014 38,842
Treasury shares reissued for director grants 1,349 13,054
Balance at December 31, 2023 $ (155,673) 16,116,479
Treasury shares repurchased - -
Treasury shares reissued for share-based compensation awards 3,633 35,161
Treasury shares reissued for director grants 758 7,342
Balance at December 31, 2024 $ (151,282) 16,158,982
Park did not issue any new common shares, which had not already been held as treasury shares, in 2024, 2023 or 2022. Common shares (including treasury shares) had a balance of $463.7 million, $463.3 million and $462.4 million at December 31, 2024, 2023, and 2022, respectively.
Accumulated other comprehensive (loss) income, net reflected a loss of $46.2 million, $66.2 million, and $102.4 million at December 31, 2024, 2023, and 2022, respectively. During 2024, the change in net unrealized holding (loss) gain on AFS debt
securities, net of income tax, was a gain of $5.0 million, which included a $415,000, net of income tax, realized loss on the sale of debt securities. During 2023, the change in net unrealized holding (loss) gain on AFS debt securities, net of income tax, was a gain of $27.8 million, which included a $6.2 million, net of income tax, realized loss on the sale of debt securities. During 2022, the change in net unrealized holding (loss) gain on AFS debt securities, net of income tax, was a loss of $116.9 million.
Additionally, Park recognized an other comprehensive gain of $15.1 million, net of income tax, related to the change in pension plan assets and benefit obligations in 2024. The $15.1 million gain in 2024 included $4.9 million, net of income tax, related to a realized pension settlement gain. Park recognized an other comprehensive gain of $8.4 million, net of income tax, related to the change in pension plan assets and benefit obligations in 2023, compared to an other comprehensive loss of $888,000, net of income tax, related to the change in pension plan assets and benefit obligations in 2022. Finally, during 2022, Park recognized an other comprehensive gain of $206,000, net of income tax, related to an unrealized net holding gain on cash flow hedging derivatives. There was no unrealized holding gain or loss on cash flow hedging derivatives in 2024 or 2023.
Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies. Park has elected not to include the net unrealized gain or loss on debt securities AFS in computing regulatory capital. Park has adopted the Basel III regulatory capital framework as approved by the federal banking agencies. Under the Basel III regulatory capital framework, in order to avoid limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers, Park must hold a capital conservation buffer of 2.5% above the adequately capitalized risk-based capital ratios. The amounts shown below as the adequately capitalized ratio plus capital conservation buffer include the 2.50% buffer. The Federal Reserve Board has also adopted capital requirements Park must maintain to be deemed "well capitalized" and remain a financial holding company.
Park and PNB met each of the well-capitalized ratio guidelines applicable to them at December 31, 2024. The following table indicates the capital ratios for PNB and Park at December 31, 2024 and December 31, 2023.
Table 34 - PNB and Park Capital Ratios
As of December 31, 2024
Leverage Tier 1
Risk-Based Common Equity Tier 1 Total
Risk-Based
PNB 9.80 % 11.44 % 11.44 % 12.85 %
Park 11.51 % 13.46 % 13.28 % 16.63 %
Adequately capitalized ratio 4.00 % 6.00 % 4.50 % 8.00 %
Adequately capitalized ratio plus capital conservation buffer 4.00 % 8.50 % 7.00 % 10.50 %
Well-capitalized ratio - PNB 5.00 % 8.00 % 6.50 % 10.00 %
Well-capitalized ratio - Park N/A 6.00 % N/A 10.00 %
As of December 31, 2023
Leverage Tier 1
Risk-Based Common Equity Tier 1 Total
Risk-Based
PNB 9.11 % 10.95 % 10.95 % 12.35 %
Park 10.74 % 12.97 % 12.79 % 16.19 %
Adequately capitalized ratio 4.00 % 6.00 % 4.50 % 8.00 %
Adequately capitalized ratio plus capital conservation buffer 4.00 % 8.50 % 7.00 % 10.50 %
Well-capitalized ratio - PNB 5.00 % 8.00 % 6.50 % 10.00 %
Well-capitalized ratio - Park N/A 6.00 % N/A 10.00 %
Effects of Inflation: Balance sheets of financial institutions typically contain assets and liabilities that are monetary in nature and, therefore, differ greatly from most commercial and industrial companies which have significant investments in premises, equipment and inventory. During periods of inflation, financial institutions that are in a net positive monetary position will experience a decline in purchasing power, which does have an impact on growth. Another significant effect on internal equity growth is other expenses, which tend to rise during periods of inflation.
Management believes the most significant impact on financial results is the Corporation's ability to align our asset/liability management program to react to changes in interest rates.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As noted in "Table 12 - Distribution of Assets, Liabilities and Shareholders' Equity" included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K, Park’s tax equivalent net interest margin increased by 30 basis points in 2024, 31 basis points in 2023 and 11 basis points in 2022. The tax equivalent net interest margin was 4.41%, 4.11% and 3.80% for each of the years ended December 31, 2024, 2023 and 2022, respectively. The discussion of interest rate sensitivity included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K is incorporated herein by reference. In addition, the discussion of Park’s commitments, contingent liabilities and off-balance sheet arrangements included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K and in "Note 25 - Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K is incorporated herein by reference.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Audited Financial Statements Page
Management’s Report on Internal Control Over Financial Reporting 72
Report of Independent Registered Public Accounting Firm 74
Auditor Name: Crowe LLP
Auditor Location: Columbus, OH
Auditor Firm ID: 173
Consolidated Balance Sheets at December 31, 2024 and 2023 76
Consolidated Statements of Income for the Years Ended December 31, 2024, 2023 and 2022 78
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2024, 2023 and 2022 80
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2024, 2023 and 2022 81
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022 82
Notes to Consolidated Financial Statements 83
Management’s Report on Internal Control Over Financial Reporting
Management’s Report on Internal Control Over Financial Reporting
To the Board of Directors and Shareholders
Park National Corporation
The management of Park National Corporation (the “Corporation”) is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, for the Corporation and its consolidated subsidiaries. The Corporation’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP"). The Corporation’s internal control over financial reporting includes those policies and procedures that:
a.pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation and its consolidated subsidiaries;
b.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Corporation and its consolidated subsidiaries are being made only in accordance with authorizations of management and directors of the Corporation; and
c.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Corporation and its consolidated subsidiaries that could have a material effect on the financial statements.
The Corporation’s internal control over financial reporting as it relates to the consolidated financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation.
With the participation of our Chairman of the Board and Chief Executive Officer and our Chief Financial Officer, Secretary, and Treasurer, management evaluated the effectiveness of the Corporation’s internal control over financial reporting at December 31, 2024, the end of the Corporation’s fiscal year. In making this assessment, management used the criteria set forth for effective internal control over financial reporting by the Committee of Sponsoring Organizations of the Treadway Commission's (COSO) Internal Control - Integrated Framework (2013).
Based on our assessment under the criteria described in the immediately preceding paragraph, management concluded that the
Corporation maintained effective internal control over financial reporting at a reasonable assurance level as of December 31, 2024. We reviewed the results of management's assessment with the Audit Committee of the Board of Directors of the Corporation.
The Corporation’s independent registered public accounting firm, Crowe LLP, has audited the Consolidated Balance Sheets of the Corporation and its subsidiaries at December 31, 2024 and 2023 and the related Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Shareholders' Equity and Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2024, included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K and the Corporation’s internal control over financial reporting as of December 31, 2024, and has issued their Report of Independent
Registered Public Accounting Firm, which appears in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
/s/ David L. Trautman /s/ Brady T. Burt
David L. Trautman Brady T. Burt
Chairman of the Board and Chief Executive Officer Chief Financial Officer, Secretary and Treasurer
February 24, 2025
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of Park National Corporation
Newark, Ohio
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Park National Corporation (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses
The allowance for credit losses (the “ACL”) as described in Notes 1 and 6 is an accounting estimate of expected credit losses over the estimated life of loans. The Company’s loan portfolio, measured at amortized cost, is presented at the net amount expected to be collected. Estimates of expected credit losses for loans are based on historical experience, current conditions and reasonable and supportable forecasts over the life of the loans.
The Company measures expected credit losses based on pooled loans when similar risk characteristics exist primarily utilizing a discounted cash flow (“DCF”) model. A quantitative adjustment is made on top of the model using economic forecasts that are weighted to reflect model risk in the current economic environment. The Company adjusts its quantitative results for certain qualitative factors to reflect the extent to which management expects current conditions and reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated.
The auditing of the quantitative adjustments related to weighting of economic scenarios was identified by us as a critical audit matter because of the significant subjective and complex judgments made by management to develop the quantitative adjustments, which led to significant auditor judgment and audit effort to evaluate the quantitative adjustment made, on top of the model, that weights the economic scenarios to reflect model risk in the current economic environment.
The primary procedures performed to address the critical audit matter included:
•Testing the effectiveness of management's controls addressing:
◦Evaluation of the appropriateness of the key judgments used in the determination of the quantitative adjustment, made on top of the model, that weights the economic scenarios used in the forecast.
◦Evaluation of the relevance and reliability of data used in the determination of the quantitative adjustment, made on top of the model, that weights the economic scenarios used in the forecast.
•Substantive testing included:
◦Evaluating management’s judgments and the relevance and reliability of data used in applying a quantitative adjustment, made on top of the model, that weights the economic scenarios used in the forecast.
Crowe LLP
We have served as the Company's auditor since 2006.
Columbus, Ohio
February 24, 2025
Park National Corporation and Subsidiaries
Consolidated Balance Sheets
at December 31, 2024 and 2023
(In thousands, except share and per share data) 2024 2023
Assets
Cash and due from banks $ 122,363 $ 160,477
Money market instruments 38,203 57,791
Cash and cash equivalents 160,566 218,268
Investment securities:
Debt securities available-for-sale, at fair value (amortized cost of $1,076,281 and $1,418,770 at December 31, 2024 and 2023, respectively, and no allowance for credit losses at December 31, 2024 and 2023)
996,624 1,332,842
Other investment securities 104,237 96,302
Total investment securities 1,100,861 1,429,144
Total loans 7,817,128 7,476,221
Allowance for credit losses (87,966) (83,745)
Net loans 7,729,162 7,392,476
Other assets:
Bank owned life insurance 236,872 231,631
Prepaid assets 190,119 165,879
Goodwill 159,595 159,595
Other intangible assets 3,437 4,652
Premises and equipment, net 69,522 74,211
Affordable housing tax credit investments 66,077 62,703
Accrued interest receivable 36,280 39,236
Other real estate owned 938 983
Mortgage loan servicing rights 13,918 14,656
Operating lease right-of-use asset 15,745 15,715
Other 22,258 27,304
Total other assets 814,761 796,565
Total assets $ 9,805,350 $ 9,836,453
The accompanying notes are an integral part of the consolidated financial statements.
Park National Corporation and Subsidiaries
Consolidated Balance Sheets
at December 31, 2024 and 2023
(In thousands, except share and per share data) 2024 2023
Liabilities and shareholders’ equity
Deposits:
Non-interest bearing $ 2,612,708 $ 2,628,234
Interest bearing 5,530,818 5,414,332
Total deposits 8,143,526 8,042,566
Borrowings:
Short-term borrowings 90,432 328,182
Subordinated notes 189,651 189,147
Total borrowings 280,083 517,329
Other liabilities:
Operating lease liability 16,505 16,605
Accrued interest payable 7,859 6,860
Unfunded commitments in affordable housing tax credit investments 29,677 28,768
Allowance for credit losses on off-balance sheet commitments 5,865 5,103
Other 77,987 73,929
Total other liabilities 137,893 131,265
Total liabilities 8,561,502 8,691,160
Commitments and contingencies
Shareholders’ equity:
Preferred shares (200,000 preferred shares authorized; no preferred shares outstanding at December 31, 2024 and 2023)
$ - $ -
Common shares, no par value (20,000,000 common shares authorized; 17,623,104 common shares issued at December 31, 2024 and 2023)
463,706 463,280
Accumulated other comprehensive loss, net of taxes (46,175) (66,191)
Retained earnings 977,599 903,877
Less: Treasury shares (1,464,122 and 1,506,625 common shares at December 31, 2024 and 2023, respectively)
(151,282) (155,673)
Total shareholders’ equity 1,243,848 1,145,293
Total liabilities and shareholders’ equity $ 9,805,350 $ 9,836,453
The accompanying notes are an integral part of the consolidated financial statements.
Park National Corporation and Subsidiaries
Consolidated Statements of Income
for years ended December 31, 2024, 2023 and 2022
(In thousands, except per share data) 2024 2023 2022
Interest and dividend income:
Interest and fees on loans
$ 467,602 $ 399,795 $ 323,107
Interest and dividends on securities:
Taxable 41,718 52,786 36,047
Tax-exempt 5,524 10,966 10,964
Other interest income
8,121 8,123 8,129
Total interest and dividend income
522,965 471,670 378,247
Interest expense:
Interest on deposits:
Demand and savings deposits
82,789 71,776 17,646
Time deposits
29,594 12,677 3,314
Interest on short-term borrowings
3,135 4,721 1,395
Interest on subordinated notes 9,428 9,383 8,833
Total interest expense
124,946 98,557 31,188
Net interest income
398,019 373,113 347,059
Provision for credit losses 14,543 2,904 4,557
Net interest income after provision for credit losses 383,476 370,209 342,502
Other income:
Income from fiduciary activities
42,489 35,474 34,091
Service charges on deposit accounts
9,001 8,445 10,091
Other service income
11,743 10,300 15,295
Debit card fee income
25,873 26,522 26,046
Bank owned life insurance income
7,770 5,338 6,100
ATM fees
1,840 2,178 2,273
Pension settlement gain 6,148 - -
Gain (loss) on the sale of OREO, net 42 (3) 5,611
OREO valuation markup 30 60 12,039
Loss on the sale of debt securities, net (526) (7,875) -
Gain on equity securities, net
3,080 971 2,955
Other components of net periodic benefit income
9,263 7,572 12,108
Miscellaneous
5,835 3,652 9,326
Total other income
$ 122,588 $ 92,634 $ 135,935
The accompanying notes are an integral part of the consolidated financial statements.
Park National Corporation and Subsidiaries
Consolidated Statements of Income
for years ended December 31, 2024, 2023 and 2022
(In thousands, except per share data) 2024 2023 2022
Other expense:
Salaries
$ 147,311 $ 139,237 $ 133,299
Employee benefits
41,724 42,264 40,490
Occupancy expense
12,816 13,114 13,866
Furniture and equipment expense
9,983 12,233 11,901
Data processing fees
40,564 37,637 32,627
Professional fees and services
31,146 29,173 30,837
Marketing
6,318 5,471 5,335
Insurance
6,735 7,640 5,413
Communication
4,097 4,210 3,891
State tax expense
4,500 4,657 4,585
Amortization of intangible assets
1,215 1,323 1,487
Foundation contributions 2,000 1,000 4,000
Miscellaneous
12,930 11,280 10,247
Total other expense
321,339 309,239 297,978
Income before income taxes
184,725 153,604 180,459
Income taxes
33,305 26,870 32,108
Net income
$ 151,420 $ 126,734 $ 148,351
Earnings per common share:
Basic
$ 9.38 $ 7.84 $ 9.13
Diluted
$ 9.32 $ 7.80 $ 9.06
The accompanying notes are an integral part of the consolidated financial statements.
Park National Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
for years ended December 31, 2024, 2023 and 2022
(In thousands) 2024 2023 2022
Net income $ 151,420 $ 126,734 $ 148,351
Other comprehensive income (loss) net of income tax:
Defined benefit pension plan:
Amortization of prior service cost (credit), net of income tax effect of $10, $10 and $(3), for the years ended December 31, 2024, 2023, and 2022, respectively
38 38 (12)
Unrealized net actuarial gain (loss) and prior service credit (cost), net of income tax effect of $5,285, $2,215 and $(233), for the years ended December 31, 2024, 2023, and 2022, respectively
19,881 8,334 (876)
Gain recognition on partial settlement of vested benefits, net of income tax effect of $(1,291) for the year ended December 31, 2024
(4,857) - -
Change in funded status of defined benefit pension plan, net of income tax effect 15,062 8,372 (888)
Debt securities available-for-sale:
Net loss realized on sale of debt securities AFS, net of income tax effect of $111 and $1,654 for the years ended December 31, 2024 and 2023, respectively
415 6,221 -
Unrealized holding gain (loss) on debt securities AFS, net of income tax effect of $1,206, $5,743 and $(31,066), for the years ended December 31, 2024, 2023 and 2022, respectively
4,539 21,610 (116,867)
Unrealized net holding gain (loss) on debt securities available-for-sale, net of income tax effect 4,954 27,831 (116,867)
Cash flow hedging derivatives:
Unrealized gain on cash flow hedging derivatives, net of income tax effect of $41 for the year ended December 31, 2022
- - 154
Reclassification adjustment for losses included in net income on cash flow hedging derivatives, net of income tax effect of $14 for the year ended December 31, 2022
- - 52
Unrealized net holding gain on cash flow hedging derivatives, net of income tax effect - - 206
Other comprehensive income (loss) $ 20,016 $ 36,203 $ (117,549)
Comprehensive income $ 171,436 $ 162,937 $ 30,802
The accompanying notes are an integral part of the consolidated financial statements.
Park National Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
for the years ended December 31, 2024, 2023 and 2022
Preferred Shares Common Shares Retained Earnings Treasury Shares Accumulated Other Comprehensive Income (Loss)
(In thousands, except share and per share data) Shares Outstanding Amount Shares Outstanding Amount
Balance, January 1, 2022 - $ - 16,219,563 461,800 776,294 (142,490) 15,155
Net income 148,351
Other comprehensive loss, net of income tax (117,549)
Cash dividends, $4.66 per common share
(76,771)
Cash payment for fractional shares in dividend reinvestment plan (14) (2)
Share-based compensation expense 5,879
Issuance of 34,245 common shares under share-based compensation awards, net of 21,219 common shares withheld to pay employee income taxes
34,245 (5,273) (965) 3,477
Treasury shares reissued for director grants 9,789 326 994
Balance, December 31, 2022 - - 16,263,583 462,404 847,235 (138,019) (102,394)
Cumulative effect of a change in accounting principle for ASU 2022-02, net of income tax (303)
Balance January 1, 2023, as adjusted - $ - 16,263,583 462,404 846,932 (138,019) (102,394)
Net income 126,734
Other comprehensive income, net of income tax 36,203
Cash dividends, $4.20 per common share
(68,716)
Share-based compensation expense 6,787
Issuance of 38,842 common shares under share-based compensation awards, net of 23,973 common shares withheld to pay employee income taxes
38,842 (5,911) (947) 4,014
Treasury shares repurchased (199,000) (23,017)
Treasury shares reissued for director grants 13,054 (126) 1,349
Balance, December 31, 2023 - $ - 16,116,479 $ 463,280 $ 903,877 $ (155,673) $ (66,191)
Net income 151,420
Other comprehensive income, net of income tax 20,016
Cash dividends, $4.74 per common share
(77,434)
Share-based compensation expense 6,446
Issuance of 35,161 common shares under share-based compensation awards, net of 22,895 common shares withheld to pay employee income taxes
35,161 (6,020) (729) 3,633
Treasury shares reissued for director grants 7,342 465 758
Balance, December 31, 2024 - $ - 16,158,982 $ 463,706 $ 977,599 $ (151,282) $ (46,175)
The accompanying notes are an integral part of the consolidated financial statements.
Park National Corporation and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 2024, 2023 and 2022
(In thousands) 2024 2023 2022
Operating activities:
Net income
$ 151,420 $ 126,734 $ 148,351
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses 14,543 2,904 4,557
Accretion of loan fees and costs, net (8,892) (8,759) (12,085)
Depreciation of premises and equipment 12,192 14,015 13,819
Amortization of investment securities, net 1,606 3,794 3,666
(Increase) decrease in deferred income tax (409) (703) 611
Loss on the sale of debt securities, net 526 7,875 -
Gain on equity securities, net (3,080) (971) (2,955)
Share-based compensation expense 7,669 8,010 7,199
Pension settlement gain (6,148) - -
Loan originations to be sold in secondary market (115,906) (65,211) (173,880)
Proceeds from sale of loans in secondary market 115,602 65,338 185,361
Gain on sale of loans in secondary market (2,011) (1,213) (4,243)
(Gain) loss on the sale of OREO, net (42) 3 (5,611)
OREO valuation markup (30) (60) (12,039)
Gain on sale of non-mortgage loans - - (495)
Bank owned life insurance income (7,770) (5,338) (6,100)
Investment in qualified affordable housing tax credits amortization 8,126 8,265 7,743
Changes in assets and liabilities:
Decrease (increase) in prepaid dealer premiums 1,513 (43) (9,422)
Decrease (increase) in other assets 8,872 3,479 (3,021)
Increase (decrease) in other liabilities 1,067 (6,982) (4,814)
Net cash provided by operating activities $ 178,848 $ 151,137 $ 136,642
Investing activities:
Proceeds from redemption/repurchase of FHLB stock 18,371 11,672 2,216
Proceeds from sales of investment securities 44,037 284,454 -
Proceeds from calls and maturities of:
AFS debt securities 299,702 145,310 186,123
Purchase of:
AFS debt securities (2,882) (3,981) (317,278)
Equity securities (10,213) (2,195) (9,165)
FHLB stock (9,225) (18,228) -
Net (increase) decrease in other investments (1,288) 1,886 331
Net loan originations, portfolio loans (341,500) (330,443) (273,526)
Park National Corporation and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 2024, 2023 and 2022
(In thousands) 2024 2023 2022
Proceeds from the sale of non-mortgage loans - - 4,345
Proceeds from the sale of OREO 1,095 965 17,684
Bank owned life insurance death benefits 12,466 1,816 9,587
Purchases of bank owned life insurance (9,937) (10,779) (7,500)
Investment in qualified affordable housing tax credits (10,591) (9,364) (10,352)
Purchases of premises and equipment (9,183) (7,589) (7,937)
Net cash (used in) provided by investing activities $ (19,148) $ 63,524 $ (405,472)
Financing activities
Net increase (decrease) in deposits 214,961 (386,901) (456,929)
Net (increase) decrease in off-balance sheet deposits (114,001) 194,752 787,116
Net (decrease) increase in short-term borrowings (237,750) 100,840 (11,444)
Value of common shares withheld to pay employee income taxes (3,116) (2,844) (2,761)
Repurchase of common shares to be held as treasury shares - (23,017) -
Cash dividends paid (77,496) (68,951) (76,604)
Net cash (used in) provided by financing activities $ (217,402) $ (186,121) $ 239,378
(Decrease) increase in cash and cash equivalents (57,702) 28,540 (29,452)
Cash and cash equivalents at beginning of year
218,268 189,728 219,180
Cash and cash equivalents at end of year
$ 160,566 $ 218,268 $ 189,728
Cash paid for:
Interest
$ 123,947 $ 95,183 $ 30,818
Federal income taxes
23,260 17,200 24,670
Non cash items:
Loans transferred to OREO $ 1,008 $ 1,097 $ 13,418
Non-mortgage loans transferred to held for sale, net - - 3,890
Right-of-use assets obtained in exchange for lease obligations 2,718 545 7,867
New commitments in affordable housing tax credit investments 11,500 10,000 10,000
New commitments in other investment securities 2,500 2,745 16,250
The accompanying notes are an integral part of the consolidated financial statements.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed in the preparation of the consolidated financial statements:
Principles of Consolidation
The consolidated financial statements include the accounts of Park National Corporation and its subsidiaries (“Park”, the “Company” or the “Corporation”), unless the context otherwise requires. Material intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current presentation. These reclassifications had no impact on net income or shareholders' equity.
Restrictions on Cash and Due from Banks
As of March 26, 2020, the Federal Reserve Board eliminated reserve requirements for all depository institutions. There were no compensating balance arrangements in existence at December 31, 2024 or 2023.
Debt Securities
Debt securities are classified upon acquisition into one of three categories: HTM, AFS, or trading (see Note 4 - Investment Securities).
HTM debt securities are those debt securities that the Corporation has the positive intent and ability to hold to maturity and are recorded at amortized cost. The Corporation did not hold any HTM debt securities during any period presented. AFS debt securities are those debt securities that would be available to be sold in the future in response to the Corporation’s liquidity needs, changes in market interest rates, and asset-liability management strategies, among other reasons. AFS debt securities are reported at fair value, with unrealized holding gains and losses excluded from earnings, but included in other comprehensive income (loss), net of applicable income taxes. The Corporation did not hold any trading securities during any period presented.
Interest income from debt securities includes amortization of purchase premium or discount. Premiums and discounts on investment securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses realized on the sale of debt securities are recorded on the trade date and determined using the specific identification method.
A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days past due. Interest accrued but not received for a security placed on nonaccrual status is reversed against interest income.
ACL - HTM Debt Securities
Management measures expected credit losses on HTM debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Park does not currently hold any HTM debt securities.
ACL - Debt Securities AFS
For debt securities AFS in an unrealized loss position, Park first assesses whether it intends to sell, or it is more likely than not that Park will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through net income. For debt securities AFS that do not meet the aforementioned criteria, Park evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit
loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss), net of applicable taxes.
Changes in the ACL are recorded as a provision for (or recovery of) credit loss expense. Losses are charged against the ACL when management believes that uncollectibility of a debt security AFS is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Accrued interest receivable on debt securities AFS totaled $6.9 million and $10.6 million at December 31, 2024 and 2023, respectively, and is excluded from the estimate of credit losses.
Equity Securities
Equity securities, included within "Other investment securities" on the Consolidated Balance Sheets, are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.
Federal Home Loan Bank and Federal Reserve Bank of Cleveland Stock
PNB is a member of the FHLB and the FRB. Members are required to own a certain amount of stock based on their level of borrowings and other factors and may invest in additional amounts. FHLB stock and FRB stock are classified as restricted securities and are carried at their redemption value within "Other investment securities" on the Consolidated Balance Sheets. Impairment is evaluated based on the ultimate recovery of par value. Both cash and stock dividends are reported as income.
Loans Held for Sale
Park has elected the fair value option for mortgage loans held for sale, which are carried at their fair value as of each balance sheet date.
Mortgage Banking Derivatives
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. The fair value of an interest rate lock is recorded at the time the commitment to fund a mortgage loan is executed and is adjusted for the expected exercise of a commitment before a loan is funded. In order to economically hedge against a change in interest rates resulting from the Company's commitments to fund loans, the Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into. The fair value of Park's mortgage banking derivatives is estimated based on the change in mortgage interest rates from the date the interest on a loan is locked. The fair value of these mortgage banking derivatives is included in "Loans" in the Consolidated Balance Sheets. Changes in the fair value of these mortgage banking derivatives are included in "Other service income" in the Consolidated Statements of Income.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred loan fees and costs. Interest income is accrued on the unpaid principal balance. Accrued interest receivable totaled $29.2 million and $28.5 million at December 31, 2024 and 2023, respectively, and was reported in "Accrued interest receivable" on the Consolidated Balance Sheets. Late charges on loans are recognized as income when they are collected. Net loan origination fees and costs are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
Commercial loans include: (1) commercial, financial and agricultural loans; (2) commercial real estate loans; (3) those commercial loans in the construction real estate loan segment; (4) those commercial loans in the residential real estate loan segment; and (5) leases. Consumer loans include: (1) mortgage and installment loans included in the construction real estate segment; (2) mortgage, home equity lines of credit ("HELOCs"), and installment loans included in the residential real estate segment; and (3) all loans included in the consumer segment.
Generally, commercial loans are placed on nonaccrual status at 90 days past due and consumer and residential mortgage loans are placed on nonaccrual status at 120 days past due. The delinquency status of a loan is based on contractual terms and not on how recently payments have been received. Park’s charge-off policy for commercial loans requires management to establish an individual reserve or record a charge-off when collection is in doubt and there is, or likely will be, a collateral shortfall related to the estimated value of the collateral securing a loan. The Company’s charge-off policy for consumer loans is dependent on the class of the loan. Residential mortgage loans, HELOCs, and consumer loans secured by residential real estate are typically charged down to the value of the collateral, less estimated selling costs, at 180 days past due. The charge-off policy for other consumer loans, primarily installment loans, requires a monthly review of delinquent loans and a complete charge-off for any
account that reaches 120 days past due. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful.
For loans which are on nonaccrual status, it is Park’s policy to reverse interest previously accrued on the loans against interest income. Interest on such loans may be recorded on a cash basis and be included in earnings only when Park expects to receive the entire recorded investment of the respective loans. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
A description of each segment of the loan portfolio, along with the risk characteristics of each segment, is included below:
Commercial, financial and agricultural: Commercial, financial and agricultural ("C&I") loans are made for a wide variety of general corporate purposes, including financing for commercial and industrial properties, financing for equipment, inventory and accounts receivable, acquisition financing, commercial leasing, and loans originated by consumer finance companies. The term of each commercial loan varies by its purpose. Repayment terms are structured such that commercial loans will be repaid within the economic useful life of the underlying asset. Risk of loss on C&I loans largely depends upon general economic cycles, as they may adversely impact certain industries, competency of the borrower's management team, the quality of the underlying assets supporting the loans including accounts receivable, inventory, and equipment, and the accuracy of the borrower's financial reporting. Such risks are mitigated by generally requiring the borrower's owners to guaranty the loans.
Commercial real estate: Commercial real estate (“CRE”) loans include mortgage loans to developers and owners of commercial real estate. The lending policy for CRE loans is designed to address the unique risk attributes of CRE lending. The collateral for these CRE loans is the underlying commercial real estate. Risk of loss on CRE loans largely depends upon the cash flow of the properties, which is influenced by the amount of vacancy experienced with respect to underlying real estate, the credit capacity of the tenants occupying the underlying real estate, and general economic trends, as they may adversely impact the value of a property. These risks are mitigated by generally requiring personal guarantees of the owners of the properties and by requiring appraisals pursuant to government regulations.
Construction real estate: The Company defines construction loans as both commercial construction loans and residential construction loans where the loan proceeds are used exclusively for the improvement of real estate. Construction loans may be in the form of a permanent loan or a short-term construction loan, depending on the needs of the individual borrower. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost (including interest) of construction. If the estimate of construction cost proves to be inaccurate, Park may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves inaccurate, Park may be confronted, at or prior to the maturity of the loan, with a project having a value insufficient to assure full repayment, should the borrower default. In the event that a default on a construction loan occurs and foreclosure follows, Park must take control of the project and attempt to either arrange for completion of construction or dispose of the unfinished project. Additional risks exist with respect to loans made to developers who do not have a buyer for the property, as the developer may lack funds to pay the loan if the property is not sold upon completion. Park attempts to reduce such risks on loans to developers by generally requiring personal guarantees and reviewing current personal financial statements and tax returns as well as other projects undertaken by the developer.
Residential real estate: The Company defines residential real estate loans as first mortgages on individuals’ primary residences or second mortgages on individuals’ primary residences in the form of HELOCs or installment loans. Credit approval for residential real estate loans requires demonstration of sufficient income to repay the principal and interest and the real estate taxes and insurance, stable employment, an established credit record and a current independent third-party appraisal providing the market value of the real estate securing the loan. Residential real estate loans typically have longer terms and higher balances with lower yields as compared to consumer loans, but generally carry lower risks of default. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires creditors to make a reasonable and good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling. Documentation and verification of income within defined time frames and not-to-exceed limits are bases for affirming ability to repay. Risk of loss largely depends upon factors affecting the borrower's ability to repay as well as general economic trends as they may adversely impact the value of the property. These risks are mitigated by completing a comprehensive underwriting of the borrower and by requiring appraisals pursuant to government regulations.
Consumer: The Company originates direct and indirect consumer loans, primarily automobile, recreational vehicle and watercraft loans, to customers in the Company's primary market areas. Credit approval for consumer loans requires income sufficient to repay principal and interest due, stable employment, an established credit record and sufficient collateral for secured loans. Consumer loans typically have shorter terms and lower balances with higher yields as compared to real estate
mortgage loans, but generally carry higher risks of default. Consumer loan collections are dependent on the borrower’s financial stability, and thus are more likely to be affected by adverse personal circumstances.
Leases: The Company originates financing leases primarily for the purchase of commercial vehicles, operating/manufacturing equipment, and municipal vehicles/equipment. Repayment terms are structured such that the lease will be repaid within the economic useful life of the leased asset. Risk of losses on financing leases largely depends upon general economic cycles, as they may adversely impact certain industries, competency of the borrower’s management team, the quality and residual value of the leased asset, and the accuracy of the borrower’s financial reporting. These risks are mitigated by underwriting leases considering primary and secondary sources of repayment and requiring guaranteed residual values.
Concentration of Credit Risk
Park's commercial loan portfolio includes loans to a wide variety of corporations and businesses across many industrial classifications in the 24 Ohio counties, five North Carolina counties, four South Carolina counties and one Kentucky county where PNB operates, with the exception of nationwide aircraft loans and nationwide asset-based lending to consumer finance companies. The primary industries represented by these customers include real estate rental and leasing; construction; finance and insurance; accommodation and food services; other services (except public administration); health care and social assistance; manufacturing; retail trade; agriculture, forestry, fishing and hunting; and professional, scientific, and technical services.
PCD Loans
The Company has purchased loans, some of which have shown evidence of credit deterioration since origination. Upon adoption of ASC 326, Park elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. Loans are only removed from the existing pools if they are written off, paid off, or sold. Upon adoption of ASC 326, the allowance for credit losses was determined for each pool and added to the pool's carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the pool and the new amortized cost basis is the noncredit premium or discount, which will be amortized into interest income over the remaining life of the pool. Changes to the allowance for credit losses after adoption are recorded through provision for credit losses expense.
ACL - Loans
The ACL is a valuation account that is deducted from the amortized cost of total loans to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes that the uncollectibility of a loan balance is confirmed. Expected recoveries cannot exceed the aggregate of the amounts previously charged-off and expected to be charged-off.
Management estimates the allowance balance using relevant and available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical credit loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.
ACL - Loans - Collectively Evaluated
The ACL is measured on a collective pool basis when similar risk characteristics exist. Park has identified the following portfolio segments and measures the allowance for credit losses using the following methods:
Portfolio Segment Measurement Method Loss Driver
Commercial, financial and agricultural
Commercial, financial and agricultural Discounted Cash Flow Ohio Unemployment, Ohio GDP
PPP loans Other Not Applicable
Overdrafts Historical Loss Experience Not Applicable
Commercial real estate Discounted Cash Flow Ohio Unemployment, Ohio GDP
Construction real estate:
Commercial Discounted Cash Flow Ohio Unemployment, Ohio GDP
Retail Discounted Cash Flow Ohio Unemployment, Ohio GDP
Residential real estate:
Commercial Discounted Cash Flow Ohio Unemployment, Ohio HPI
Mortgage Discounted Cash Flow Ohio Unemployment, Ohio HPI
HELOC Discounted Cash Flow Ohio Unemployment, Ohio HPI
Installment Discounted Cash Flow Ohio Unemployment, Ohio HPI
Consumer:
Consumer Discounted Cash Flow Ohio Unemployment, Ohio GDP
Check loans Historical Loss Experience Not Applicable
Leases Remaining Life Not Applicable
Expected credit losses are estimated over the contractual term of the loans, adjusted for prepayments when appropriate. The contractual term excludes extensions, renewals, and modifications unless renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by Park.
In general, Park utilized a DCF method to estimate the quantitative portion of the allowance for credit losses for loans evaluated on a collective pooled basis. For each segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA utilized Park's own Federal Financial Institutions Examination Council's ("FFIEC") Call Report data for the commercial, financial and agricultural and residential real estate segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer segments.
In creating the DCF model, Park established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. Park's policy is to utilize its own data, which includes loan-level loss data from 2013 through December 31, 2024, whenever possible. Park and peer FFIEC Call Report data are utilized when there are insufficient defaults for a statistically sound calculation, or if Park does not have its own loan-level detail reflecting similar economic conditions as the forecasted loss drivers.
Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, loss history, and forecasted loss drivers. Park utilizes a third party to provide economic forecasts under various scenarios, which are weighted in order to reflect model risk in the then current economic environment. The weighting of the scenarios is evaluated on a quarterly basis considering the various scenarios in the context of the then current economic environment and presumed risk of loss.
Additional key assumptions in the DCF model include the PD, LGD, and prepayment/curtailment rates. When possible, Park utilizes its own PDs for the reasonable and supportable forecast period. When it is not possible to use Park's own PDs, the LDA is utilized to determine PDs based on the forecasted economic factors. In all cases, the LDA is then utilized to determine the long-term historical average, which is reached over the reversion period. When possible, Park's utilizes its own LGDs for the reasonable and supportable forecast period. When it is not possible to use Park's own LGDs, the LGD is derived using a method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the level of PD forecasted. In all cases, the Frye Jacobs method is
utilized to calculate LGDs during the reversion period and long-term historical average. Prepayment and curtailment rates were calculated based on Park's own data utilizing a three-year average.
When the discounted cash flow method is used to determine the allowance for credit losses, management incorporates expected prepayments to determine the effective interest rate utilized to discount expected cash flows.
Park reviews various internal and external factors to consider the need for any qualitative adjustments to the quantitative model. Factors considered include the following:
•The nature and volume of Park’s financial assets; the existence, growth, and effect of any concentrations of credit and the volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets. Specifically, management considers:
◦Trends (e.g., growth, reduction) in specific categories of the loan portfolio, as well as adjustments to the types of loans offered by Park.
◦Level of and trend in loan delinquencies, troubled loans, commercial watch list loans and nonperforming loans.
◦Level of and trend in new nonaccrual loans.
◦Level of and trend in loan charge-offs and recoveries.
•Park's lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, charge-offs, and recoveries.
•The quality of Park’s credit review function.
•The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff.
•The effect of other external factors such as the regulatory, legal and technological environments; competition; geopolitical conflict; and events such as natural disasters or pandemics.
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in the markets in which Park operates that affect the collectability of financial assets.
•Where the U.S. economy is within a given credit cycle.
•The extent that there is government assistance (stimulus).
Allowance for Credit Losses - Loans - Individually Evaluated
Loans that do not share risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. Park has determined that any commercial loans which have been placed on nonaccrual status are to be individually evaluated. Additionally, accruing collateral dependent commercial loans to borrowers experiencing financial difficulty are to be individually evaluated. Individual analysis establishes an individual reserve for loans in scope. Reserves on individually evaluated commercial loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as appropriate.
Allowance for Credit Losses - Off-Balance Sheet Credit Exposures
Park estimates expected credit losses over the contractual period in which Park is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by Park. The allowance for credit losses on off-balance sheet credit exposures is adjusted within "Miscellaneous other expense" on the Consolidated Statements of Income. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over the commitments' respective estimated lives. Funding rates are based on a historical analysis of Park's portfolio, while estimates of credit losses are determined using the same loss rates as funded loans.
Bank Owned Life Insurance
Park has purchased insurance policies on the lives of directors and certain key officers. Bank owned life insurance is recorded at its cash surrender value (or the amount that can be realized).
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over net identifiable tangible and intangible assets acquired in a purchase business combination. Goodwill is not amortized to expense, but is subject to impairment tests annually, or more frequently, if events or changes in circumstances indicate that the asset might be impaired, by assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing these events or circumstances, it is concluded that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the performance of additional analysis is unnecessary. If the carrying amount of the goodwill exceeds the fair value, an impairment charge must be recorded in an amount equal to the excess, not to exceed the total goodwill allocated to the reporting unit.
Other intangible assets consist of core deposit intangibles. Core deposit intangibles are amortized on an accelerated basis over a period of ten years.
Premises and Equipment
Land is carried at cost and is not subject to depreciation. Premises and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation is generally provided on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the remaining lease period or the estimated useful lives of the improvements. Upon the sale or other disposal of an asset, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Maintenance and repairs are charged to expense as incurred while renewals and improvements that extend the useful life of an asset are capitalized. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset may not be recoverable.
The range of depreciable lives over which premises and equipment are being depreciated are:
Buildings 30 Years
Building improvements 5 to 10 Years
Equipment, furniture and fixtures 3 to 12 Years
Software 3 Years or the contractual useful life of the software
Leasehold improvements Shorter of the remaining lease period or the estimated useful life of the improvement
Other Real Estate Owned
Management transfers a loan to OREO at the time that Park takes deed/title to the asset. OREO is initially recorded at fair value less anticipated selling costs (net realizable value), establishing a new cost basis, and consists of property acquired through foreclosure and real estate held for sale. If the net realizable value is below the carrying value of the loan at the date of transfer, the difference is charged to the allowance for credit losses. If the net realizable value is above the carrying value of the loan at the date of transfer, any charged-off amounts are recovered and any additional amount is recorded within the line item "OREO valuation markup." These assets are subsequently accounted for at the lower of cost or fair value less costs to sell. Subsequent changes in the value of real estate are classified as OREO valuation adjustments, are reported as adjustments to the carrying amount of OREO, and recorded within the line item “Miscellaneous income". In certain circumstances where management believes the devaluation may not be permanent in nature, Park utilizes a valuation allowance to record OREO devaluations, which is expensed through the line item “Miscellaneous income". Costs relating to development and improvement of such properties are capitalized (not in excess of fair value less estimated costs to sell), and costs relating to holding the properties are charged to the line item "Miscellaneous expense".
Foreclosed Assets
Foreclosed assets include non-real estate assets where Park, as creditor, has received physical possession of a borrower’s assets, regardless of whether formal foreclosure proceedings take place. Foreclosed assets are initially recorded as fair value less costs to sell when acquired, establishing a new cost basis. Operating costs after acquisition are expensed as incurred. As of December 31, 2024 and 2023, Park had $1.2 million and $1.1 million, respectively, of foreclosed assets included within “Other assets.”
Mortgage Servicing Rights
When Park sells mortgage loans with servicing retained, MSRs are initially recorded at fair value with the income statement effect recorded in "Other service income". Capitalized MSRs are amortized in proportion to and over the period of the estimated future servicing income of the underlying loan and are included within “Other service income”.
MSRs are assessed for impairment quarterly, based on fair value, with any impairment recognized through a valuation allowance. The fair value of MSRs is determined by discounting estimated future cash flows from the servicing assets, using market discount rates and expected future prepayment rates. In order to calculate fair value, the sold loan portfolio is stratified into homogeneous pools of like categories. (See Note 12 - Loan Servicing.)
Fees received for servicing mortgage loans owned by investors are based on a percentage of the outstanding monthly principal balance of such loans and are included in income as loan payments are received. The amortization of MSRs is netted against loan servicing fee income and recorded in "Other service income".
Leases
Management determines if an arrangement is or contains a lease at contract inception. If an arrangement is determined to be or contain a lease, Park recognizes a ROU asset and a lease liability at the lease commencement date. Leases are classified as operating or finance leases at the lease commencement date. At December 31, 2024 and 2023, all of Park's leases were classified as operating leases.
Park elected the practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease components. Additionally, Park has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. Park recognizes the lease payments associated with its short-term leases as an expense on a cash basis.
Park’s lease liability is initially and subsequently measured as the present value of the unpaid lease payments at the lease commencement date. Key estimates and judgments related to the lease liability include how management determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) the lease term, and (3) lease payments.
•ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, Park's management cannot determine the interest rate implicit in a lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, Park utilizes its incremental borrowing rate as the discount rate for leases. Park’s incremental borrowing rate for a lease is the rate of interest Park would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. To manage its capital and liquidity needs, Park periodically obtains wholesale funding from the FHLB on an over-collateralized basis. The impact of utilizing an interest rate on an over-collateralized borrowing versus a fully collateralized borrowing is not material. Therefore, the FHLB yield curve was selected by Park's management as a baseline to determine Park’s discount rates for leases.
•The lease term for all of Park's leases includes the noncancellable period of the lease plus any additional periods covered by either Park's option to extend (or not to terminate) the lease that Park is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. If a lease contract contains multiple renewal options, Park's management generally models lease cash flows through the first renewal option period unless the contract contains economic incentives or other conditions that increase or decrease the likelihood that additional renewals are reasonably certain to be exercised.
•Lease payments included in the measurement of the lease liability are comprised of the following:
◦Fixed payments, including in-substance fixed payments, owed over the lease term;
◦For certain of Park's gross real estate leases, non-lease components such as real estate taxes, insurance, and common area maintenance; and
◦Variable lease payments that depend on an index or rate, initially measured using the index or rate at the lease commencement date.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Consolidated Statements of Cash Flows
Cash and cash equivalents include cash and cash items, amounts due from banks, and money market instruments. Generally, money market instruments are purchased and sold for one-day periods.
Loss Contingencies
We are routinely engaged in various litigation and other legal matters that are part of, or incidental to, our ordinary course of business and we have a number of unresolved lawsuits and open matters pending resolution. While the ultimate liability with respect to these matters and claims cannot be determined at this time, we believe that losses, damages, or liabilities, if any, and other amounts relating to pending matters, individually or in the aggregate, are not likely to have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. Reserves are established for these various litigation and other legal matters, when appropriate under FASB ASC Topic 450, Contingencies, based in part upon the advice of legal counsel.
Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
An uncertain tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The benefit recognized for a tax position that meets the “more-likely-than-not” criteria is measured based on the largest benefit that is more than 50 percent likely to be realized, taking into consideration the amounts and probabilities of the outcome upon settlement. For tax positions not meeting the “more-likely-than-not” test, no tax benefit is recorded. Park recognizes any interest and penalties related to income tax matters in income tax expense.
Treasury Shares
The purchase of Park’s common shares to be held in treasury is recorded at cost. At the date of retirement or subsequent reissuance, the treasury shares account is reduced by the weighted average cost of the common shares retired or reissued.
Dividend Restriction
Banking regulations require the maintenance of certain capital levels and may limit the dividends paid by a bank to its parent holding company or by the parent holding company to its shareholders. (See Note 24 - Dividend Restrictions and Note 27 -Capital Ratios.)
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on debt securities available for sale, changes in the funded status of the Company’s defined benefit pension plan and unrealized gains and losses on cash flow hedges which are also recognized as separate components of equity.
Share-Based Compensation
Compensation cost is recognized for restricted stock units and stock awards issued to employees and directors, respectively, based on the fair value of these awards at the date of grant. The market price of Park’s common shares at the date of grant is used to estimate the fair value of restricted stock units and stock awards. Compensation cost related to restricted stock units granted to employees is recognized on a straight-line basis over the required service period, generally defined as the vesting period and is recorded in "Salaries" expense. (See Note 19 - Share-Based Compensation.) Compensation cost related to stock awards granted to directors is recognized on the date of grant and is recorded in "Professional fees and services" expense. The Company's accounting policy is to recognize forfeitures as they occur.
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
Fair Value Measurement
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 26 - Fair Value. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
Derivatives
At the inception of a derivative contract, Park designates the derivative as one of three types based on Park's intentions and belief as to the likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). Park does not have any fair value hedges. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income (loss) and is reclassified into net income in the same periods during which the hedged transaction affects net income. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in net income, as non-interest income.
Accrued settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Accrued settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the Consolidated Statements of Cash Flow under the same item as the cash flows of the items being hedged.
Park formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking the hedge transaction at the inception of the hedging relationship. The documentation includes linking cash flow hedges to specific assets and liabilities on the Consolidated Balance Sheets. Park also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used are highly effective in offsetting changes in cash flows of the hedged items. Park discontinues hedge accounting when it determines that a derivative is no longer effective in offsetting cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a cash flow hedge is discontinued but the hedged cash flows are still expected to occur, gains or losses that were accumulated in other comprehensive income (loss) are amortized into net income over the same periods that the hedged transactions will affect earnings.
The Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the outstanding contracts. All the contracts to which the Company is party settle monthly or quarterly.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain the transferee from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets.
Retirement Plans
Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. The service cost component of pension expense is recorded within "Employee benefits" on the Consolidated Statements of Income. All other components of pension expense are recorded within "Other components of net periodic benefit income" on the Consolidated Statements of Income. Employee KSOP plan expense is the amount of matching contributions to Park's Employees Stock Ownership Plan. Deferred compensation and supplemental retirement plan expense allocate the benefits over years of service. (See Note 20 - Benefit Plans.)
Earnings Per Common Share
Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under restricted stock unit awards. (See Note 19 - Share-Based Compensation and Note 23 - Earnings Per Common Share.)
Operating Segments
The Corporation is a financial holding company headquartered in Newark, Ohio. While the chief operating decision maker monitors the operating results of its lines of business, operations are managed and financial performance is evaluated on a consolidated basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment. This is aligned with the information that the Chief Operating Decision Maker, Park's Chairman and Chief Executive Officer, utilizes when making key operating and resource allocation decisions.
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, and accounting standards that have been issued but were not effective for Park as of December 31, 2024:
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) Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminated 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 borrowers are 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.
Park adopted ASU 2022-02 using the modified retrospective transition method on January 1, 2023. Park recorded a $383,000 increase to the ACL, a $303,000 decrease to retained earnings and an $80,000 increase to deferred tax assets as of January 1, 2023 for the cumulative effect of adopting ASU 2022-02. Additionally, as a result of the adoption of this ASU and elimination of the concept of TDRs, total nonperforming loans decreased by $20.1 million effective January 1, 2023 and individually evaluated loans decreased by $11.5 million.
The adoption of ASU 2022-02 impacted disclosures in Note 5 - Loans and Note 6 - Allowance for Credit Losses.
ASU 2023-07 - Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures: In November 2023, FASB issued ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires public entities to disclose information about their reportable segments' significant expenses on an interim and annual basis. Public entities are required to disclose other segment items for each reportable segment and provide a description of its composition. Significant expense categories are derived from expenses that are regularly reported to an entity's chief operating decision-makers and included in a segments' reported measures of profit or loss. ASU 2023-07 also requires for an entity to disclose the title and position of the chief operating decision-maker and explain how the chief operating decision-maker uses the reported measures of profit or loss to assess segment performance. ASU 2023-07 also requires interim disclosures of certain segment-related disclosures that previously were required only on an annual basis and clarifies that entities with a single reportable segment are subject to both new and existing segment reporting requirements under Topic 280.
ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. ASU 2023-07 requires entities to adopt the changes to the segment reporting guidance on a retrospective basis and early adoption is permitted. The adoption of the provisions of ASU 2023-07 impacted segment disclosures in Note 28 - Segment Information.
Issued But Not Yet Effective Accounting Standards
ASU 2023-06 - Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative: In October 2023, FASB issued ASU 2023-06 - Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative. ASU 2023-06 amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. ASU 2023-06 was issued in response to the SEC's August 2018 final rule that updated and simplified disclosure requirements. In the final rule, the SEC identified 27 disclosure requirements that were incremental to those in the ASC and referred them to the FASB for potential incorporation into US GAAP. To avoid duplication, the SEC intended to eliminate those disclosure requirements from existing SEC regulations if the FASB incorporated them into the relevant ASC subtopics. The disclosure requirements are currently included in either SEC Regulation S-X or SEC Regulation S-K. ASU 2023-06 adds 14 of the 27 identified disclosure or presentation requirements to the ASC.
For entities, like Park, that are subject to the SEC's existing disclosure requirements, the effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments are to be applied prospectively and if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or S-K, the pending content of the related amendment will be removed from the ASC and will not become effective for any entity. Management intends to adopt the provisions of ASU 2023-06 on their respective effective dates. The adoption of the provisions of ASU 2023-06 is not expected to have a material impact on Park's consolidated financial statements.
ASU 2023-09 - Income Taxes (Topic 740) Improvement to Income Tax Disclosures: In December 2023, FASB issued ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 will require entities to disclose more detailed information in the reconciliation of their statutory tax rate to their effective tax rate. ASU 2023-09 also requires entities to disclose more detailed information about income taxes paid, including by jurisdiction.
ASU 2023-09 is effective for public business entities for annual reporting periods beginning after December 15, 2024 and interim periods beginning after December 15, 2025. The adoption of the provisions of ASU 2023-09 is not expected to have an impact on Park's consolidated financial statements, but will impact disclosures.
ASU 2024-02 - Codification Improvements - Amendments to Remove References to Concepts Statements: In March 2024, FASB issued ASU 2024-02 - Codification Improvements - Amendments to Remove References to the Concepts Statements. ASU 2024-02 contains amendments to the Codification that remove references to various Concepts Statements. In most cases the references were extraneous and not required to understand or apply the guidance. In other instances, the references were used in previous Statements to provide guidance on certain topical areas.
ASU 2024-02 is effective for public business entities for fiscal years beginning after December 15, 2024. The adoption of ASU 2024-02 is not expected to have an impact on Park's consolidated financial statements.
ASU 2024-03 - Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): In November 2024, FASB issued ASU 2024-03 - Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). ASU 2024-03 requires disaggregated disclosure of income statement expenses for public business entities in disclosures within the footnotes to the financial statements. The disclosures will require a footnote disclosure about specific expenses to disaggregate, in a tabular presentation, each relevant expense caption on the income statement that includes any of the following natural expenses: (1) purchases of inventory, (2) employee compensation, (3) depreciation, (4) intangible asset amortization, and (5) deprecation, depletion and amortization recognized as part of oil and gas producing activities and other types of depletion expenses. The tabular disclosure would also include certain other expenses, as applicable.
ASU 2024-03 is effective for public business entities for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted and public business entities are required to adopt ASU 2024-03 prospectively; however, entities are permitted to apply the amendments retrospectively. The adoption of the provisions of ASU 2024-03 is not expected to have an impact on Park's consolidated financial statements, but will impact disclosures.
3. Organization
Park National Corporation is a financial holding company headquartered in Newark, Ohio. Through PNB, Park is engaged in a general commercial banking and trust and wealth management business, primarily in Ohio, Kentucky, North Carolina, and South Carolina, with the exception of nationwide aircraft loans and nationwide asset-based lending to consumer finance companies. PNB is headquartered in Newark, Ohio. A wholly-owned subsidiary of Park, GFSC is a consumer finance company located in Central Ohio. During 2019, Guardian Finance stopped seeking new loans.
PNB provides the following principal services: the acceptance of deposits for demand, savings and time accounts; commercial, industrial, consumer and real estate lending, including installment loans, credit cards (which are largely offered through a third party), home equity lines of credit and commercial leasing; trust and wealth management services; cash management; safe deposit operations; electronic funds transfers; and a variety of additional banking-related services.
4. Investment Securities
"Debt securities" and "Other investment securities" are summarized below.
Debt Securities
The following tables summarize the amortized cost and fair value of debt securities at December 31, 2024 and December 31, 2023 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss.
(In thousands) Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value
2024:
Debt Securities Available-for-Sale
Obligations of U.S. Government sponsored entities $ 250 $ - $ 1 $ 249
Obligations of states and political subdivisions 203,438 88 16,643 $ 186,883
U.S. Government sponsored entities’ asset-backed securities 580,268 2 61,694 518,576
Collateralized loan obligations 271,572 288 27 271,833
Corporate debt securities 20,753 50 1,720 19,083
Total
$ 1,076,281 $ 428 $ 80,085 $ 996,624
(In thousands) Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value
2023:
Debt Securities Available-for-Sale
Obligations of states and political subdivisions $ 251,531 $ 1,173 $ 11,520 $ 241,184
U.S. Government sponsored entities’ asset-backed securities 703,645 23 68,193 635,475
Collateralized loan obligations 443,112 31 4,857 438,286
Corporate debt securities 20,482 - 2,585 17,897
Total $ 1,418,770 $ 1,227 $ 87,155 $ 1,332,842
All debt securities were classified as AFS at December 31, 2024 and December 31, 2023.
The following tables provide detail on debt securities AFS in an unrealized loss position for which an allowance for credit losses had not been recorded at December 31, 2024 and December 31, 2023, aggregated by major security type and length of time in a continuous unrealized loss position:
Less than 12 Months 12 Months or Longer Total
(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
2024:
Debt Securities Available-for-Sale
Obligations of U.S. Government sponsored entities $ 249 $ 1 $ - $ - $ 249 $ 1
Obligations of states and political subdivisions 34,256 528 137,471 16,115 171,727 16,643
U.S. Government sponsored entities’ asset-backed securities 6,555 249 510,846 61,445 517,401 61,694
Collateralized loan obligations 44,935 14 36,223 13 81,158 27
Corporate debt securities - - 15,929 1,720 15,929 1,720
Total
$ 85,995 $ 792 $ 700,469 $ 79,293 $ 786,464 $ 80,085
Less than 12 Months 12 Months or Longer Total
(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
2023:
Debt Securities Available-for-Sale
Obligations of states and political subdivisions $ 46,685 $ 420 $ 103,993 $ 11,100 $ 150,678 $ 11,520
U.S. Government sponsored entities’ asset-backed securities - - 634,261 68,193 634,261 68,193
Collateralized loan obligations - - 404,019 4,857 404,019 4,857
Corporate debt securities 9,530 702 8,367 1,883 17,897 2,585
Total $ 56,215 $ 1,122 $ 1,150,640 $ 86,033 $ 1,206,855 $ 87,155
At December 31, 2024, Park’s debt security portfolio consisted of $1.0 billion of securities, $786.5 million of which were in an unrealized loss position with unrealized losses of $80.1 million. Of the $786.5 million of securities in an unrealized loss position, $700.5 million were in an unrealized loss position for 12 months or longer. Of the $80.1 million in unrealized losses, an aggregate of $61.7 million were related to Park's "Obligations of U.S. Government sponsored entities" and "U.S. Government sponsored entities' asset-backed securities" portfolio. For non-agency debt securities, Park verified that the current credit ratings remain above investment grade. On a quarterly basis, management reviews the credit profile of each non-agency debt security and assesses whether any impairment to the contractually obligated cash flow is likely to occur. Based on these reviews, management has concluded that the underlying creditworthiness for each security remains sufficient to maintain required payment obligations and that changes in value are largely the result of changes in the yield curve, therefore, unrealized losses have not been recognized into net income. Management does not intend to sell, and it is not more likely than not that management would be required to sell, the securities prior to their anticipated recovery in respect of the unrealized losses. Management believes the value will recover as the securities approach maturity or market interest rates change.
There was no allowance for credit losses recorded for debt securities AFS at December 31, 2024 and December 31, 2023. Additionally, for the years ended December 31, 2024, 2023, and 2022, there were no credit-related investment impairment losses recognized.
The amortized cost and estimated fair value of investments in debt securities at December 31, 2024, are shown in the following table by contractual maturity, except for asset-backed securities and collateralized loan obligations, which are shown as a single total, due to the unpredictability of the timing in principal repayments. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
(In thousands) Amortized Cost Fair Value Tax Equivalent Yield (1)
Debt Securities Available-for-Sale
Obligations of U.S.Government sponsored entities
Due within one year $ 250 $ 249 2.88 %
Total $ 250 $ 249 2.88 %
Obligations of states and political subdivisions
Due within one year $ 250 $ 250 6.06 %
Due one through five years 1,490 1,490 5.06 %
Due five through ten years 79,116 75,408 3.07 %
Due greater than ten years 122,582 109,735 3.19 %
Total $ 203,438 $ 186,883 3.16 %
U.S. Government sponsored entities’ asset-backed securities $ 580,268 $ 518,576 1.86 %
Collateralized loan obligations $ 271,572 $ 271,833 6.33 %
Corporate debt securities
Due within one year $ 971 $ 979 9.67 %
Due five through ten years 19,782 18,104 4.10 %
Total $ 20,753 $ 19,083 4.36 %
(1) The tax equivalent yield for obligations of states and political subdivisions includes the effects of a taxable equivalent adjustment using a 21% federal corporate income tax rate.
At December 31, 2024, investment securities with a fair value of $471.2 million were pledged for government and public fund deposits, $124.1 million were pledged to secure repurchase agreements and $3.9 million were pledged as collateral for FHLB advance borrowings. At December 31, 2023, investment securities with a fair value of $416.0 million were pledged for government and public fund deposits, $180.8 million were pledged to secure repurchase agreements and $5.2 million were pledged as collateral for FHLB advance borrowings.
At December 31, 2024, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.
During 2024, Park sold certain AFS debt securities with a book value of $42.3 million at a gross loss of $553,000 and sold certain AFS debt securities with a book value of $2.3 million for a gross gain of $27,000. During 2023, Park sold certain AFS debt securities with a book value of $291.0 million at a gross loss of $7.9 million. There were no sales of AFS debt securities during 2022.
Other Investment Securities
Other investment securities (as shown on the Consolidated Balance Sheets) consist of restricted stock investments in the FHLB and the FRB, and equity securities. The FHLB and FRB restricted stock investments are carried at their redemption value. Equity securities with a readily determinable fair value are carried at fair value. Equity securities without a readily determinable fair value are recorded at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions ("modified cost"). Park's portfolio of equity investments in limited partnerships which provide mezzanine funding ("Partnership Investments") are valued using the net asset value practical expedient in accordance with ASC 820.
The carrying amount of other investment securities at December 31, 2024 and 2023 was as follows:
(In thousands) December 31, 2024 December 31, 2023
FHLB stock $ 8,607 $ 17,754
FRB stock 14,653 14,653
Equity investments carried at fair value 11,488 2,089
Equity investments carried at modified cost (1)
19,347 15,921
Equity investments carried at net asset value 50,142 45,885
Total other investment securities $ 104,237 $ 96,302
(1) There have been no impairments or downward adjustments made to equity investments carried at modified cost. Cumulatively, upward adjustments of $1.4 million have been recorded as a result of observable price changes. An upward adjustment of $571,000 was recorded during the year ended December 31, 2024 as a result of observable price changes. There were no adjustments recorded during the year ended December 31, 2023 as a result of observable price changes.
During the year ended December 31, 2024, Park purchased 92,245 shares of FHLB stock with a book value of $9.2 million and the FHLB repurchased 183,713 shares of FHLB stock with a book value of $18.4 million. During the year ended December 31, 2023, Park purchased 182,289 shares of FHLB stock with a book value of $18.2 million. and the FHLB repurchased 116,722 shares of FHLB stock with a book value of $11.7 million. During the year ended December 31, 2022, the FHLB repurchased 22,160 shares of FHLB stock with a book value of $2.2 million. No shares of FHLB stock were purchased in the year ended December 31, 2022.
No shares of FRB stock were purchased or sold in any of the years ended December 31, 2024, 2023, or 2022.
For the years ended December 31, 2024, 2023 and 2022, $2.6 million, $600,000 and $601,000, respectively, of gains on equity investments carried at fair value or modified cost were recorded within "Gain on equity securities, net" on the Consolidated Statements of Income.
For the years ended December 31, 2024, 2023 and 2022, $468,000, $371,000 and $2.4 million, respectively, of gains on equity investments carried at NAV were recorded within "Gain on equity securities, net" on the Consolidated Statements of Income.
5. Loans
The composition of the loan portfolio at December 31, 2024 and December 31, 2023 was as follows:
December 31, 2024 December 31, 2023
(In thousands) Amortized Cost Amortized Cost
Commercial, financial and agricultural: (1)
Commercial, financial and agricultural (1)
$ 1,267,263 $ 1,292,025
PPP loans 847 2,116
Overdrafts 1,475 1,499
Commercial real estate (1)
1,994,332 1,875,993
Construction real estate:
Commercial 311,122 209,226
Retail 101,455 95,873
Residential real estate:
Commercial 644,418 609,410
Mortgage 1,346,543 1,239,861
HELOC 203,459 174,349
Installment 6,013 5,904
Consumer:
Consumer 1,908,473 1,943,869
Check loans 1,899 2,067
Leases 29,829 24,029
Total $ 7,817,128 $ 7,476,221
Allowance for credit losses (87,966) (83,745)
Net loans $ 7,729,162 $ 7,392,476
(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that were not broken out by class.
Loans are shown net of deferred origination fees, costs and unearned income of $20.4 million at December 31, 2024, and of $19.8 million at December 31, 2023, which represented a net deferred income position in both years. At December 31, 2024 and December 31, 2023, loans included purchase accounting adjustments of $669,000 and $1.8 million, respectively, which represented a net deferred income position at each date. This fair market value purchase accounting adjustment is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.
Overdrawn deposit accounts of $1.5 million were reclassified to loans at both December 31, 2024 and December 31, 2023.
Credit Quality
Nonperforming loans consist of nonaccrual loans and loans past due 90 days or more and still accruing.
The following tables present the amortized cost of nonaccrual loans and loans past due 90 days or more and still accruing, by class of loan, at December 31, 2024 and December 31, 2023:
December 31, 2024
(In thousands) Nonaccrual
Loans Loans Past Due
90 Days
or More
and Accruing Total
Nonperforming
Loans
Commercial, financial and agricultural:
Commercial, financial and agricultural $ 24,241 $ - $ 24,241
PPP loans - - $ -
Overdrafts - - $ -
Commercial real estate 23,230 - $ 23,230
Construction real estate:
Commercial 8 - $ 8
Retail 22 - $ 22
Residential real estate:
Commercial 5,700 - $ 5,700
Mortgage 11,368 913 $ 12,281
HELOC 918 15 $ 933
Installment 31 - $ 31
Consumer:
Consumer 2,643 826 $ 3,469
Check loans - - $ -
Leases 17 - $ 17
Total loans $ 68,178 $ 1,754 $ 69,932
December 31, 2023
(In thousands) Nonaccrual
Loans Loans Past Due 90 Days or More and Accruing Total
Nonperforming
Loans
Commercial, financial and agricultural
Commercial, financial and agricultural $ 21,284 $ 14 $ 21,298
PPP loans - - $ -
Overdrafts - - $ -
Commercial real estate 20,740 - $ 20,740
Construction real estate:
Commercial 504 - $ 504
Retail - 26 $ 26
Residential real estate:
Commercial 2,670 - $ 2,670
Mortgage 11,786 206 $ 11,992
HELOC 815 - $ 815
Installment 16 - $ 16
Consumer
Consumer 2,371 613 $ 2,984
Check loans - - $ -
Leases 73 - $ 73
Total loans $ 60,259 $ 859 $ 61,118
The following tables provide additional detail on nonaccrual loans and the related ACL, by class of loan, at December 31, 2024 and December 31, 2023:
December 31, 2024
(In thousands) Nonaccrual Loans With No ACL Nonaccrual Loans With an ACL Related ACL
Commercial, financial and agricultural:
Commercial, financial and agricultural $ 18,778 $ 5,463 $ 1,261
PPP loans - - -
Overdrafts - - -
Commercial real estate 23,230 - -
Construction real estate:
Commercial 8 - -
Retail - 22 1
Residential real estate:
Commercial 3,755 1,945 39
Mortgage - 11,368 128
HELOC - 918 154
Installment - 31 1
Consumer
Consumer - 2,643 786
Check loans - - -
Leases 17 - -
Total loans $ 45,788 $ 22,390 $ 2,370
December 31, 2023
(In thousands) Nonaccrual Loans With No ACL Nonaccrual Loans With an ACL Related ACL
Commercial, financial and agricultural:
Commercial, financial and agricultural $ 8,634 $ 12,650 $ 4,985
PPP loans - - -
Overdrafts - - -
Commercial real estate 20,175 565 2
Construction real estate:
Commercial 504 - -
Retail - - -
Residential real estate:
Commercial 2,670 - -
Mortgage - 11,786 117
HELOC - 815 25
Installment - 16 -
Consumer
Consumer - 2,371 672
Check loans - - -
Leases 73 - -
Total loans $ 32,056 $ 28,203 $ 5,801
Nonaccrual commercial loans are evaluated on an individual basis and are excluded from the collective evaluation. Additionally, accruing collateral dependent commercial loans to borrowers experiencing financial difficulty are individually evaluated. Management’s general practice is to proactively charge down nonaccrual loans individually evaluated to the fair value of the underlying collateral. Nonaccrual consumer loans are collectively evaluated based on similar risk characteristics.
The following tables provide the amortized cost basis of collateral-dependent loans by class of loan, as of December 31, 2024 and December 31, 2023:
December 31, 2024
(In thousands) Real Estate Business Assets Other Total
Commercial, financial and agricultural
Commercial, financial and agricultural $ 5,583 $ 11,423 $ 22,187 $ 39,193
Commercial real estate 24,539 8 - 24,547
Construction real estate:
Commercial 589 - - 589
Residential real estate:
Commercial 5,898 - - 5,898
Mortgage 78 - - 78
Leases - 17 - 17
Total loans $ 36,687 $ 11,448 $ 22,187 $ 70,322
December 31, 2023
(In thousands) Real Estate Business Assets Other Total
Commercial, financial and agricultural
Commercial, financial and agricultural $ 8,137 $ 9,377 $ 3,737 $ 21,251
Commercial real estate 22,096 514 - 22,610
Construction real estate:
Commercial 1,130 - - 1,130
Residential real estate:
Commercial 2,910 - - 2,910
Mortgage 76 - - 76
Leases - 73 - 73
Total loans $ 34,349 $ 9,964 $ 3,737 $ 48,050
Interest income on nonaccrual loans is recognized on a cash basis only when Park expects to receive the entire recorded investment in the loans. The following table presents interest income recognized on nonaccrual loans for the years ended December 31, 2024, 2023 and 2022:
Interest Income Recognized
(In thousands) December 31, 2024 December 31, 2023 December 31, 2022
Commercial, financial and agricultural:
Commercial, financial and agricultural $ 1,595 $ 1,843 $ 438
PPP loans - - -
Overdrafts - - -
Commercial real estate 1,132 781 956
Construction real estate:
Commercial 38 65 32
Retail 1 - 13
Residential real estate:
Commercial 238 136 88
Mortgage 434 227 157
HELOC 16 20 16
Installment - 3 3
Consumer:
Consumer 134 97 59
Check loans
Leases - - 33
Total loans $ 3,588 $ 3,172 $ 1,795
The following tables present the aging of the amortized cost in past due loans at December 31, 2024 and December 31, 2023 by class of loan:
December 31, 2024
(In thousands) Accruing Loans
Past Due 30-89
Days Past Due
Nonaccrual
Loans and Loans Past
Due 90 Days or
More and
Accruing (1)
Total Past Due Total Current (2)
Total
Amortized Cost
Commercial, financial and agricultural:
Commercial, financial and agricultural $ 1,881 $ 13,234 $ 15,115 $ 1,252,148 $ 1,267,263
PPP loans 20 - 20 827 847
Overdrafts - - - 1,475 1,475
Commercial real estate 458 2,594 3,052 1,991,280 1,994,332
Construction real estate:
Commercial - - - 311,122 311,122
Retail 100 22 122 101,333 101,455
Residential real estate:
Commercial - 2,164 2,164 642,254 644,418
Mortgage 13,403 5,946 19,349 1,327,194 1,346,543
HELOC 438 620 1,058 202,401 203,459
Installment 39 22 61 5,952 6,013
Consumer:
Consumer 10,309 1,195 11,504 1,896,969 1,908,473
Check loans 3 - 3 1,896 1,899
Leases - - - 29,829 29,829
Total loans $ 26,651 $ 25,797 $ 52,448 $ 7,764,680 $ 7,817,128
(1) Includes an aggregate of $1.8 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes an aggregate of $44.1 million of nonaccrual loans which were current in regards to contractual principal and interest payments.
December 31, 2023
(in thousands) Accruing Loans
Past Due 30-89
Days Past Due
Nonaccrual
Loans and Loans Past
Due 90 Days or
More and
Accruing (1)
Total Past Due Total Current (2)
Total
Amortized Cost
Commercial, financial and agricultural
Commercial, financial and agricultural $ 522 $ 11,629 $ 12,151 $ 1,279,874 $ 1,292,025
PPP loans 9 - 9 2,107 2,116
Overdrafts - - - 1,499 1,499
Commercial real estate 1,656 1,839 3,495 1,872,498 1,875,993
Construction real estate:
Commercial - 205 205 209,021 209,226
Retail 554 26 580 95,293 95,873
Residential real estate:
Commercial 295 219 514 608,896 609,410
Mortgage 9,831 6,450 16,281 1,223,580 1,239,861
HELOC 788 611 1,399 172,950 174,349
Installment 52 - 52 5,852 5,904
Consumer
Consumer 8,974 1,183 10,157 1,933,712 1,943,869
Check loans 5 - 5 2,062 2,067
Leases - - - 24,029 24,029
Total loans $ 22,686 $ 22,162 $ 44,848 $ 7,431,373 $ 7,476,221
(1) Includes an aggregate of $859,000 of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes an aggregate of $39.0 million of nonaccrual loans which were current in regards to contractual principal and interest payments.
Credit Quality Indicators
Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information at December 31, 2024 and December 31, 2023 is included in the previous tables. The past due information is the primary credit quality indicator within the following classes of loans: (1) overdrafts in the commercial, financial and agricultural portfolio segment; (2) retail loans in the construction real estate portfolio segment; (3) mortgage loans, HELOC and installment loans in the residential real estate portfolio segment; and (4) consumer loans and check loans in the consumer portfolio segment. The primary credit indicator for commercial loans is based on an internal grading system that grades all commercial loans on a scale from 1 to 8. Credit grades are continuously monitored by the responsible loan officer and adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded a 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher PD is applied to these loans. Loans classified as special mention have potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of Park’s credit position at some future date. Commercial loans graded a 6 (substandard), also considered watch list credits, are considered to represent higher credit risk and, as a result, a higher PD is applied to these loans. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or the value of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that Park will sustain some loss if the weaknesses are not corrected. Commercial loans graded a 7 (doubtful) are shown as nonaccrual and Park generally charges these loans down to their fair value by taking a partial charge-off or recording an individual reserve. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and included within the individually evaluated category. A commercial loan is deemed nonaccrual, and is individually evaluated, when management determines the borrower's ability to perform in accordance with the contractual loan agreement is in doubt. Any commercial loan graded an 8 (loss) is completely charged off.
Based on the most recent analysis performed, the risk category of loans by class of loans as of December 31, 2024 and December 31, 2023 are detailed in the tables below. Also included in the tables detailing balances at December 31, 2024 and December 31, 2023 are gross charge offs for the years ended December 31, 2024 and December 31, 2023.
December 31, 2024 Term Loans Amortized Cost Basis by Origination Year
(In thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total
Commercial, financial and agricultural: Commercial, financial and agricultural (1)
Risk rating
Pass $ 239,260 $ 150,007 $ 97,761 $ 80,409 $ 66,032 $ 53,327 $ 506,998 $ 1,193,794
Special Mention 2,709 1,222 3,819 314 818 1,467 37,447 47,796
Substandard 1,574 633 264 1,879 817 5,232 12,417 22,816
Doubtful 371 944 256 104 336 - 846 2,857
Total $ 243,914 $ 152,806 $ 102,100 $ 82,706 $ 68,003 $ 60,026 $ 557,708 $ 1,267,263
Current period gross charge-offs $ - $ 104 $ 143 $ 20 $ 1,317 $ 2,872 $ 50 $ 4,506
Commercial, financial and agricultural: PPP
Risk rating
Pass $ - $ - $ - $ 547 $ 300 $ - $ - $ 847
Special Mention - - - - - - - -
Substandard - - - - - - - -
Doubtful - - - - - - - -
Total $ - $ - $ - $ 547 $ 300 $ - $ - $ 847
Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
Commercial real estate (1)
Risk rating
Pass $ 329,203 $ 252,923 $ 289,622 $ 296,745 $ 276,181 $ 459,856 $ 30,203 $ 1,934,733
Special Mention 3,054 2,779 11,978 4,071 5,728 7,416 1,165 36,191
Substandard 2,083 1,477 3,037 3,310 2,223 7,850 2,985 22,965
Doubtful - - 443 - - - - 443
Total $ 334,340 $ 257,179 $ 305,080 $ 304,126 $ 284,132 $ 475,122 $ 34,353 $ 1,994,332
Current period gross charge-offs $ - $ 99 $ - $ - $ - $ - $ - $ 99
Construction real estate: Commercial
Risk rating
Pass $ 158,403 $ 83,233 $ 32,035 $ 2,623 $ 3,014 $ 2,783 $ 22,896 $ 304,987
Special Mention 5,084 - 374 - - - 88 5,546
Substandard 8 581 - - - - - 589
Doubtful - - - - - - - -
Total $ 163,495 $ 83,814 $ 32,409 $ 2,623 $ 3,014 $ 2,783 $ 22,984 $ 311,122
Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
December 31, 2024 Term Loans Amortized Cost Basis by Origination Year
(In thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total
Residential Real Estate: Commercial
Risk rating
Pass $ 120,873 $ 111,577 $ 88,292 $ 92,240 $ 102,999 $ 93,918 $ 20,455 $ 630,354
Special Mention 1,403 540 661 437 831 941 3,165 7,978
Substandard 351 91 2,790 324 1,262 1,123 145 6,086
Doubtful - - - - - - - -
Total $ 122,627 $ 112,208 $ 91,743 $ 93,001 $ 105,092 $ 95,982 $ 23,765 $ 644,418
Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
Leases
Risk rating
Pass $ 17,537 $ 5,868 $ 3,557 $ 1,243 $ 967 $ 315 $ - $ 29,487
Special Mention - 46 251 - 28 - - 325
Substandard 17 - - - - - - 17
Doubtful - - - - - - - -
Total $ 17,554 $ 5,914 $ 3,808 $ 1,243 $ 995 $ 315 $ - $ 29,829
Current period gross charge-offs $ 8 $ - $ - $ - $ - $ - $ - $ 8
Total Commercial Loans
Risk rating
Pass $ 865,276 $ 603,608 $ 511,267 $ 473,807 $ 449,493 $ 610,199 $ 580,552 $ 4,094,202
Special Mention 12,250 4,587 17,083 4,822 7,405 9,824 41,865 97,836
Substandard 4,033 2,782 6,091 5,513 4,302 14,205 15,547 52,473
Doubtful 371 944 699 104 336 - 846 3,300
Total $ 881,930 $ 611,921 $ 535,140 $ 484,246 $ 461,536 $ 634,228 $ 638,810 $ 4,247,811
Current period gross charge-offs $ 8 $ 203 $ 143 $ 20 $ 1,317 $ 2,872 $ 50 $ 4,613
(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.
December 31, 2023 Term Loans Amortized Cost Basis by Origination Year
(In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total
Commercial, financial and agricultural: Commercial, financial and agricultural (1)
Risk rating
Pass $ 204,601 $ 149,386 $ 118,992 $ 93,495 $ 38,205 $ 45,814 $ 600,301 $ 1,250,794
Special Mention 530 1,549 435 128 252 2 16,260 19,156
Substandard 149 894 1,041 1,133 143 582 7,427 11,369
Doubtful - - 39 1,771 96 7,848 952 10,706
Total $ 205,280 $ 151,829 $ 120,507 $ 96,527 $ 38,696 $ 54,246 $ 624,940 $ 1,292,025
Current period gross charge-offs $ - $ 13 $ 73 $ - $ 5 $ 52 $ 19 $ 162
Commercial, financial and agricultural: PPP
Risk rating
Pass $ - $ - $ 925 $ 1,191 $ - $ - $ - $ 2,116
Special Mention - - - - - - - -
Substandard - - - - - - - -
Doubtful - - - - - - - -
Total $ - $ - $ 925 $ 1,191 $ - $ - $ - $ 2,116
Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
Commercial real estate (1)
Risk rating
Pass $ 278,922 $ 322,096 $ 334,452 $ 318,473 $ 204,740 $ 347,389 $ 17,174 $ 1,823,246
Special Mention 2,092 2,951 4,637 7,629 - 13,043 98 30,450
Substandard 1,828 1,589 2,509 2,668 3,406 7,495 1,584 21,079
Doubtful 889 - - - - 329 - 1,218
Total $ 283,731 $ 326,636 $ 341,598 $ 328,770 $ 208,146 $ 368,256 $ 18,856 $ 1,875,993
Current period gross charge-offs $ 224 $ - $ - $ - $ - $ 530 $ - $ 754
Construction real estate: Commercial
Risk rating
Pass $ 89,283 $ 77,988 $ 7,480 $ 18,195 $ 1,090 $ 2,718 $ 11,342 $ 208,096
Special Mention - - - - - - - -
Substandard 831 236 63 - - - - 1,130
Doubtful - - - - - - - -
Total $ 90,114 $ 78,224 $ 7,543 $ 18,195 $ 1,090 $ 2,718 $ 11,342 $ 209,226
Current period gross charge-offs $ 546 $ - $ - $ - $ - $ - $ - $ 546
Residential Real Estate: Commercial
Risk rating
Pass $ 128,589 $ 104,008 $ 105,225 $ 117,442 $ 49,797 $ 71,489 $ 23,535 $ 600,085
Special Mention - 333 623 1,964 914 1,578 - 5,412
Substandard 195 560 159 1,192 16 1,601 190 3,913
Doubtful - - - - - - - -
Total $ 128,784 $ 104,901 $ 106,007 $ 120,598 $ 50,727 $ 74,668 $ 23,725 $ 609,410
Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
December 31, 2023 Term Loans Amortized Cost Basis by Origination Year
(In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total
Leases
Risk rating
Pass $ 11,440 $ 4,404 $ 2,197 $ 1,941 $ 356 $ 623 $ - $ 20,961
Special Mention 731 1,564 391 297 10 2 - 2,995
Substandard - - - - 67 6 - 73
Doubtful - - - - - - - -
Total $ 12,171 $ 5,968 $ 2,588 $ 2,238 $ 433 $ 631 $ - $ 24,029
Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
Total Commercial Loans
Risk rating
Pass $ 712,835 $ 657,882 $ 569,271 $ 550,737 $ 294,188 $ 468,033 $ 652,352 $ 3,905,298
Special Mention 3,353 6,397 6,086 10,018 1,176 14,625 16,358 58,013
Substandard 3,003 3,279 3,772 4,993 3,632 9,684 9,201 37,564
Doubtful 889 - 39 1,771 96 8,177 952 11,924
Total $ 720,080 $ 667,558 $ 579,168 $ 567,519 $ 299,092 $ 500,519 $ 678,863 $ 4,012,799
Current period gross charge-offs $ 770 $ 13 $ 73 $ - $ 5 $ 582 $ 19 $ 1,462
(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.
Park considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential and consumer loan classes, Park also evaluates credit quality based on the aging status of the loan, which was previously presented, and by performing status. The following tables present the amortized cost in residential and consumer loans based on performing status and gross charge-offs for the years ended December 31, 2024 and December 31, 2023. Nonperforming loans consisted of nonaccrual loans and loans past due 90 days or more and still accruing.
December 31, 2024 Term Loans Amortized Cost Basis by Origination Year
(In thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total
Commercial, financial and agricultural: Overdrafts
Performing $ 1,475 $ - $ - $ - $ - $ - $ - $ 1,475
Nonperforming - - - - - - - -
Total $ 1,475 $ - $ - $ - $ - $ - $ - $ 1,475
Current period gross charge-offs $ 937 $ - $ - $ - $ - $ - $ - $ 937
Construction Real Estate: Retail
Performing $ 51,109 $ 26,237 $ 8,517 $ 6,233 $ 3,571 $ 5,306 $ 460 $ 101,433
Nonperforming - - - - 22 - - 22
Total $ 51,109 $ 26,237 $ 8,517 $ 6,233 $ 3,593 $ 5,306 $ 460 $ 101,455
Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
Residential Real Estate: Mortgage
Performing $ 194,883 $ 236,260 $ 250,132 $ 192,193 $ 157,438 $ 303,356 $ - $ 1,334,262
Nonperforming 536 721 1,324 729 1,508 7,463 - 12,281
Total $ 195,419 $ 236,981 $ 251,456 $ 192,922 $ 158,946 $ 310,819 $ - $ 1,346,543
Current period gross charge-offs $ - $ - $ - $ - $ - $ 22 $ - $ 22
December 31, 2024 Term Loans Amortized Cost Basis by Origination Year
(In thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total
Residential Real Estate: HELOC
Performing $ 13 $ 153 $ 577 $ 333 $ 56 $ 1,048 $ 200,346 $ 202,526
Nonperforming - 39 14 56 - 610 214 933
Total $ 13 $ 192 $ 591 $ 389 $ 56 $ 1,658 $ 200,560 $ 203,459
Current period gross charge-offs $ - $ - $ - $ - $ - $ 9 $ - $ 9
Residential Real Estate: Installment
Performing $ 1,198 $ 1,704 $ 133 $ - $ - $ 2,947 $ - $ 5,982
Nonperforming - - - - 2 29 - 31
Total $ 1,198 $ 1,704 $ 133 $ - $ 2 $ 2,976 $ - $ 6,013
Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
Consumer: Consumer
Performing $ 607,783 $ 454,403 $ 427,982 $ 204,806 $ 126,075 $ 76,707 $ 7,248 $ 1,905,004
Nonperforming 337 1,035 928 452 310 404 3 3,469
Total $ 608,120 $ 455,438 $ 428,910 $ 205,258 $ 126,385 $ 77,111 $ 7,251 $ 1,908,473
Current period gross charge-offs $ 683 $ 3,532 $ 4,596 $ 2,328 $ 809 $ 743 $ 2 $ 12,693
Consumer: Check loans
Performing $ - $ - $ - $ - $ - $ - $ 1,899 $ 1,899
Nonperforming - - - - - - - -
Total $ - $ - $ - $ - $ - $ - $ 1,899 $ 1,899
Current period gross charge-offs - - - - - - 60 60
Total Consumer Loans
Performing $ 856,461 $ 718,757 $ 687,341 $ 403,565 $ 287,140 $ 389,364 $ 209,953 $ 3,552,581
Nonperforming
873 1,795 2,266 1,237 1,842 8,506 217 16,736
Total $ 857,334 $ 720,552 $ 689,607 $ 404,802 $ 288,982 $ 397,870 $ 210,170 $ 3,569,317
Current period gross charge-offs $ 1,620 $ 3,532 $ 4,596 $ 2,328 $ 809 $ 774 $ 62 $ 13,721
December 31, 2023 Term Loans Amortized Cost Basis by Origination Year
(In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total
Commercial, financial and agricultural: Overdrafts
Performing $ 1,499 $ - $ - $ - $ - $ - $ - $ 1,499
Nonperforming - - - - - - - -
Total $ 1,499 $ - $ - $ - $ - $ - $ - $ 1,499
Current period gross charge-offs $ 1,064 $ - $ - $ - $ - $ - $ - $ 1,064
Construction Real Estate: Retail
Performing $ 52,904 $ 24,219 $ 7,709 $ 4,251 $ 3,604 $ 2,891 $ 269 $ 95,847
Nonperforming - - - 26 - - - 26
Total $ 52,904 $ 24,219 $ 7,709 $ 4,277 $ 3,604 $ 2,891 $ 269 $ 95,873
Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
December 31, 2023 Term Loans Amortized Cost Basis by Origination Year
(In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total
Residential Real Estate: Mortgage
Performing $ 209,315 $ 259,076 $ 218,417 $ 177,518 $ 80,627 $ 282,916 $ - $ 1,227,869
Nonperforming 197 1,144 1,172 406 581 8,492 - 11,992
Total $ 209,512 $ 260,220 $ 219,589 $ 177,924 $ 81,208 $ 291,408 $ - $ 1,239,861
Current period gross charge-offs $ - $ - $ - $ - $ - $ 35 $ - $ 35
Residential Real Estate: HELOC
Performing $ 99 $ 205 $ 379 $ 98 $ 221 $ 1,838 $ 170,694 $ 173,534
Nonperforming - - - - 32 603 180 815
Total $ 99 $ 205 $ 379 $ 98 $ 253 $ 2,441 $ 170,874 $ 174,349
Current period gross charge-offs $ - $ - $ - $ - $ - $ 9 $ - $ 9
Residential Real Estate: Installment
Performing $ 2,225 $ 162 $ - $ 3 $ 144 $ 3,354 $ - $ 5,888
Nonperforming - - - - - 16 - 16
Total $ 2,225 $ 162 $ - $ 3 $ 144 $ 3,370 $ - $ 5,904
Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
Consumer: Consumer
Performing $ 627,985 $ 613,019 $ 319,161 $ 214,714 $ 81,446 $ 65,955 $ 18,605 $ 1,940,885
Nonperforming 395 891 654 435 216 389 4 2,984
Total $ 628,380 $ 613,910 $ 319,815 $ 215,149 $ 81,662 $ 66,344 $ 18,609 $ 1,943,869
Current period gross charge-offs $ 560 $ 3,517 $ 2,371 $ 763 $ 545 $ 480 $ 6 $ 8,242
Consumer: Check loans
Performing $ - $ - $ - $ - $ - $ - $ 2,067 $ 2,067
Nonperforming - - - - - - - -
Total $ - $ - $ - $ - $ - $ - $ 2,067 $ 2,067
Current period gross charge-offs $ - $ - $ - $ - $ - $ - $ 51 $ 51
Total Consumer Loans
Performing $ 894,027 $ 896,681 $ 545,666 $ 396,584 $ 166,042 $ 356,954 $ 191,635 $ 3,447,589
Nonperforming
592 2,035 1,826 867 829 9,500 184 15,833
Total $ 894,619 $ 898,716 $ 547,492 $ 397,451 $ 166,871 $ 366,454 $ 191,819 $ 3,463,422
Current period gross charge-offs $ 1,624 $ 3,517 $ 2,371 $ 763 $ 545 $ 524 $ 57 $ 9,401
Loans and Leases Acquired with Deteriorated Credit Quality
PCD loans are individually evaluated on a quarterly basis to determine if a reserve is necessary. At each of December 31, 2024 and December 31, 2023, there was no allowance for credit losses on PCD loans. The carrying amount of accruing loans acquired with deteriorated credit quality at December 31, 2024 and December 31, 2023 was $2.2 million and $2.8 million, respectively. The carrying amount of nonaccrual loans acquired with deteriorated credit quality was $551,000 and $534,000 at December 31, 2024 and December 31, 2023, respectively.
Modifications to Borrowers Experiencing Financial Difficulty
Management identifies loans as modifications to borrowers experiencing financial difficulty when a borrower is experiencing financial difficulties and Park has altered the cash flow of the loan as part of a modification or in the loan renewal process. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of the borrower's debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy. Park modifies loans to borrowers experiencing financial difficulty by providing principal forgiveness, a term extension, an other-than-insignificant payment delay or an interest rate reduction.
In some cases, Park provides multiple types of modifications on one loan. Typically, one type of modification, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another modification, such as principal forgiveness, may be granted. For the loans included in the combination columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.
The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. As a result, the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses and a change to the allowance for credit losses is generally not recorded upon modification. When principal forgiveness is provided, the amount of forgiveness is charged off against the allowance for credit losses.
The following tables present the amortized cost basis of loans at December 31, 2024 and 2023 that were both experiencing financial difficulty and modified during the years ended December 31, 2024 and 2023 by class of and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below.
Year ended December 31, 2024
(Dollars in thousands) Principal Forgiveness Payment Delay Term Extension Interest Rate Reduction Combination Term Extension and Interest Rate Reduction Other Total Percent of Total Class of Financing Receivable
Commercial, financial and agricultural:
Commercial, financial and agricultural $ - $ 54 $ 19,008 $ 765 $ - $ - $ 19,827 1.56 %
PPP loans - - - - - - - - %
Overdrafts - - - - - - - - %
Commercial real estate - 160 6,508 718 533 - 7,919 0.40 %
Construction real estate:
Commercial - - 8 - - - 8 - %
Retail - - - - - - - - %
Residential real estate:
Commercial - - 136 12 639 - 787 0.12 %
Mortgage - - 574 84 82 - 740 0.05 %
HELOC - - - - - - - - %
Installment - - 232 - 92 - 324 5.39 %
Consumer:
Consumer - - - 14 - - 14 - %
Check loans - - - - - - - - %
Leases - - - - - - - - %
Total $ - $ 214 $ 26,466 $ 1,593 $ 1,346 $ - $ 29,619 0.38 %
Year ended December 31, 2023
(Dollars in thousands) Principal Forgiveness Payment Delay Term Extension Interest Rate Reduction Combination Term Extension and Interest Rate Reduction Other Total Percent of Total Class of Financing Receivable
Commercial, financial and agricultural:
Commercial, financial and agricultural $ - $ - $ 11,866 $ 371 $ 363 $ 9 $ 12,609 0.98 %
PPP loans - - - - - - - - %
Overdrafts - - - - - - - - %
Commercial real estate - - 2,458 - - - 2,458 0.13 %
Construction real estate:
Commercial - - 831 - - - 831 0.40 %
Retail - - - - - - - - %
Residential real estate:
Commercial - - 10 - 144 - 154 0.03 %
Mortgage - - - - 428 - 428 0.03 %
HELOC - - - - - - - - %
Installment - - 448 - 299 - 747 12.65 %
Consumer:
Consumer - - - 32 - - 32 - %
Check loans - - - - - - - - %
Leases - - - - - - - - %
Total $ - $ - $ 15,613 $ 403 $ 1,234 $ 9 $ 17,259 0.23 %
Park has committed to lend additional amounts totaling $7.7 million to the borrowers included in the previous table as of December 31, 2024.
The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the years ended December 31, 2024 and 2023:
Year ended December 31, 2024
(Dollars in thousands) Weighted Average Interest Rate Reduction Weighted Average Term Extension (years) Weighted Average Payment Delay (years)
Commercial, financial and agricultural:
Commercial, financial and agricultural (2.00) % 0.8 0.4
PPP loans - % 0.0 0.0
Overdrafts - % 0.0 0.0
Commercial real estate (1.80) % 3.9 0.4
Construction real estate:
Commercial - % 0.4 0.0
Retail - % 0.0 0.0
Residential real estate:
Commercial (0.77) % 3.1 0.0
Mortgage (2.30) % 3.3 0.0
HELOC - % 0.0 0.0
Installment (1.28) % 9.1 0.0
Consumer:
Consumer (4.09) % 0.0 0.0
Check loans - % 0.0 0.0
Leases - % 0.0 0.0
Total (1.65) % 1.8 0.4
Year ended December 31, 2023
(Dollars in thousands) Weighted Average Interest Rate Reduction Weighted Average Term Extension (years)
Commercial, financial and agricultural:
Commercial, financial and agricultural (1.64) % 0.8
PPP loans - % 0.0
Overdrafts - % 0.0
Commercial real estate - % 4.1
Construction real estate:
Commercial - % 1.6
Retail - % 0.0
Residential real estate:
Commercial (2.75) % 1.4
Mortgage (2.34) % 0.5
HELOC - % 0.0
Installment (1.00) % 12.1
Consumer:
Consumer (2.52) % 0.0
Check loans - % 0.0
Leases - % 0.0
Total (1.82) % 1.8
Park closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of Park's modification efforts. The following tables present the performance of such loans that have been modified in the last 12 months for the years ended December 31, 2024 and 2023:
Year ended December 31, 2024
(In thousands) 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due
Commercial, financial and agricultural:
Commercial, financial and agricultural $ 115 $ - $ 4,611 $ 4,726
PPP loans - - - -
Overdrafts - - - -
Commercial real estate - - - -
Construction real estate: -
Commercial - - - -
Retail - - - -
Residential real estate: -
Commercial - - - -
Mortgage 71 - 84 155
HELOC - - - -
Installment - - - -
Consumer: -
Consumer - - - -
Check loans - - - -
Leases - - - -
Total loans $ 186 $ - $ 4,695 $ 4,881
Year ended December 31, 2023
(In thousands) 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due
Commercial, financial and agricultural:
Commercial, financial and agricultural $ - $ - $ - $ -
PPP loans - - - -
Overdrafts - - - -
Commercial real estate 219 - - 219
Construction real estate: -
Commercial - 205 - 205
Retail - - - -
Residential real estate: -
Commercial - - - -
Mortgage - - - -
HELOC - - - -
Installment 20 - - 20
Consumer: -
Consumer - - - -
Check loans - - - -
Leases - - - -
Total loans $ 239 $ 205 $ - $ 444
The following tables present the amortized cost basis of loans that had a payment default during the years ended December 31, 2024 and 2023 and were modified in the year prior to that default to borrowers experiencing financial difficulty. For this table, a loan is considered to be in default when it becomes 30 days contractually past due under the modified terms:
Year ended December 31, 2024
(In thousands) Payment Delay Term Extension Interest Rate Reduction Combination Term Extension and Interest Rate Reduction
Commercial, financial and agricultural:
Commercial, financial and agricultural $ 54 $ 6,756 $ 115 $ -
PPP loans - - - -
Overdrafts - - - -
Commercial real estate - - - -
Construction real estate:
Commercial - - - -
Retail - - - -
Residential real estate:
Commercial - - - -
Mortgage - 47 84 71
HELOC - - - -
Installment - - - -
Consumer:
Consumer - - - -
Check loans - - - -
Leases - - - -
Total loans $ 54 $ 6,803 $ 199 $ 71
Year ended December 31, 2023
(In thousands) Term Extension Interest Rate Reduction Combination Term Extension and Interest Rate Reduction Other
Commercial, financial and agricultural:
Commercial, financial and agricultural $ - $ - $ - $ 9
PPP loans - - - -
Overdrafts - - - -
Commercial real estate 219 - - -
Construction real estate: - - -
Commercial 205 - - -
Retail - - - -
Residential real estate: - - -
Commercial - - 144 -
Mortgage - - 133 -
HELOC - - - -
Installment 20 - - -
Consumer: - - -
Consumer - - - -
Check loans - - - -
Leases - - - -
Total loans $ 444 $ - $ 277 $ 9
Upon the determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged-off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amounts.
Related Party Loans
Certain of the Corporation’s executive officers, directors and related entities of directors are loan customers of PNB. As of December 31, 2024 and 2023, credit exposure aggregating approximately $29.2 million and $34.7 million, respectively, was outstanding to such parties. Of this total exposure, approximately $25.1 million and $28.0 million was outstanding at December 31, 2024 and 2023, respectively, with the remaining balance representing available credit. During 2024, there were no new loans and advances on existing loans made to these executive officers, directors and related entities of directors totaled $783,000. These extensions of credit were offset by aggregate principal payments of $3.7 million. During 2023, new loans and advances on existing loans were $0.4 million and $3.8 million, respectively. These extensions of credit were offset by aggregate principal payments of $4.6 million.
6. Allowance for Credit Losses
The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors as discussed within Note 1-Summary of Significant Accounting Policies.
During the first quarter of 2023, Park adopted ASU 2022-02. This standard was adopted using a modified retrospective transition method on January 1, 2023, resulting in a $383,000 increase to the ACL. A cumulative effect adjustment resulting in a $303,000 decrease to retained earnings and an $80,000 increase to deferred tax assets was also recorded as a result of the adoption of ASU 2022-02.
Quantitative Considerations
The ACL is primarily calculated utilizing a DCF model. Key inputs and assumptions used in this model are discussed below:
•Forecast model - For each portfolio segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized Park's own FFIEC Call Report data for the commercial, financial and agricultural and residential real estate portfolio segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer portfolio segments. Park updated the LDA in the fourth quarter of 2024. During the COVID pandemic, macroeconomic indicators showed significant deterioration, however, Park, along with most financial institutions, observed little to no meaningful increase in default activity. This can be attributed to external intervention in the form of deferral programs and government stimulus which is unlikely to reoccur in future downturns. For these reasons, management has excluded data from 2020-2022 in the LDA by using indicator variables during this time period.
•Probability of default - PD is the probability that an asset will be in default within a given time frame. Park has defined default to be when a charge-off has occurred, a loan is placed on nonaccrual, or a loan is greater than 90 days past due. Whenever possible, Park utilizes its own loan-level PDs for the reasonable and supportable forecast period. When loan-level data is not available reflecting the forecasted economic conditions, the LDA is utilized to estimate PDs. In all cases, the LDA is then utilized to determine the long-term historical average, which is reached over the reversion period.
•Loss given default - LGD is the percentage of the asset not expected to be collected due to default. Whenever possible, Park utilizes its own loan-level LGDs for the reasonable and supportable forecast period. When it is not possible to use Park's own LGDs, the LGD is derived using a method referred to as Frye Jacobs. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the reversion period and long-term historical average.
•Prepayments and curtailments - Prepayments and curtailments are calculated based on Park’s own data utilizing a three-year average. This analysis is updated annually in the fourth quarter and was last updated in the fourth quarter of 2024.
•Forecast and reversion - Park has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.
•Economic forecast - Park utilizes a third party to provide economic forecasts under various scenarios, which are weighted in order to reflect model risk in the current economic environment. The scenario weighting is evaluated by management on a quarterly basis.
◦As of December 31, 2023, the "most likely" scenario forecasted Ohio unemployment between 4.05% and 4.66% during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2023, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued elevated levels of inflation, volatile levels of consumer confidence, continued elevated interest rates, financial system stress and geopolitical conflict (including the conflicts between Russia and Ukraine and between Israel and Hamas) and stress in the commercial real estate sector, continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2023.
◦As of December 31, 2024, the "most likely" scenario forecasted Ohio unemployment between 4.48% and 4.60% during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2024, management considered the range of forecasted unemployment as well as a number of economic indicators. While some economic indications are showing improvement and stabilization, volatile levels of consumer confidence, higher unemployment rates, the impact of elevated inflation for several years with no immediate indications of sustained decline, the interest rate environment, financial system stress, and geopolitical conflict (including the conflicts between Russia and Ukraine and between Israel and Hamas) and stress in the commercial real estate sector, continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2024. Changes in forecasts, updates to the LDA model and prepayment and curtailment assumptions, as well as changes in the loan mix, resulted in a five basis point increase in the weighted quantitative allowance from December 31, 2023.
Qualitative Considerations
Park reviews various internal and external factors to consider the need for any qualitative adjustments to the quantitative model. Factors considered include the following:
•The nature and volume of Park’s financial assets; the existence, growth, and effect of any concentrations of credit and the volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets. Specifically, management considers:
◦Trends (e.g., growth, reduction) in specific categories of the loan portfolio, as well as adjustments to the types of loans offered by Park.
◦Level of and trend in loan delinquencies, troubled loans, commercial watch list loans and nonperforming loans.
◦Level of and trend in new nonaccrual loans.
◦Level of and trend in loan charge-offs and recoveries.
•Park's lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, charge-offs, and recoveries.
•The quality of Park’s credit review function.
•The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff.
•The effect of other external factors such as the regulatory, legal and technological environments; competition; geopolitical conflict; and events such as natural disasters or pandemics.
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in the markets in which Park operates that affect the collectability of financial assets.
•Where the U.S. economy is within a given credit cycle.
•The extent that there is government assistance (stimulus).
Qualitative adjustments amounted to $1.2 million and $417,000 at December 31, 2024 and December 31, 2023, respectively. Qualitative adjustments at December 31, 2024 included a $757,000 reserve related to Hurricane Helene which impacted borrowers in Park's Carolina region. This reserve considers the overall population of loans to borrowers in this area. Management will continue to evaluate potential losses as a result of Hurricane Helene as additional information becomes available.
ACL Activity
The activity in the allowance for credit losses for the years ended December 31, 2024, 2023, and 2022 is summarized in the following tables.
Year ended December 31, 2024
(In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total
Allowance for credit losses:
Beginning balance $ 15,496 $ 16,374 $ 5,227 $ 18,818 $ 27,713 $ 117 $ 83,745
Charge-offs 5,443 99 - 31 12,753 8 18,334
Recoveries (438) (825) (1,067) (366) (5,315) (1) (8,012)
Net charge-offs (recoveries) 5,005 (726) (1,067) (335) 7,438 7 10,322
Provision for credit losses 2,192 2,471 831 3,202 5,806 41 14,543
Ending balance $ 12,683 $ 19,571 $ 7,125 $ 22,355 $ 26,081 $ 151 $ 87,966
Year ended December 31, 2023
(In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total
Allowance for credit losses:
Beginning balance $ 16,987 $ 17,829 $ 5,550 $ 16,831 $ 28,021 $ 161 $ 85,379
Impact of adopting ASU 2022-02 222 181 - (20) - - 383
Charge-offs 1,226 754 546 44 8,293 - 10,863
Recoveries (292) (240) (548) (482) (4,379) (1) (5,942)
Net charge-offs (recoveries) 934 514 (2) (438) 3,914 (1) 4,921
(Recovery of) provision for credit losses (779) (1,122) (325) 1,569 3,606 (45) 2,904
Ending balance 15,496 16,374 5,227 18,818 27,713 117 83,745
Year ended December 31, 2022
(In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total
Allowance for credit losses:
Beginning balance $ 14,025 $ 25,466 $ 5,758 $ 11,424 $ 26,286 $ 238 $ 83,197
Charge-offs 2,056 1,578 33 81 5,343 42 9,133
Recoveries (826) (627) (1,343) (164) (3,767) (31) (6,758)
Net charge-offs (recoveries) 1,230 951 (1,310) (83) 1,576 11 2,375
Provision for (recovery of) credit losses 4,192 (6,686) (1,518) 5,324 3,311 (66) 4,557
Ending balance $ 16,987 $ 17,829 $ 5,550 $ 16,831 $ 28,021 $ 161 $ 85,379
ACL Summary
Loans collectively evaluated for impairment in the following tables include all performing loans at December 31, 2024 and December 31, 2023, as well as nonperforming loans internally classified as consumer loans. Nonperforming consumer loans are not typically individually evaluated for impairment, but receive a portion of the statistical allocation of the ACL. Loans individually evaluated for impairment include all internally classified commercial nonaccrual loans which are individually evaluated for impairment in accordance with U.S. GAAP. Additionally, accruing collateral dependent commercial loans to borrowers experiencing financial difficulty are individually evaluated. (See Note 1-Significant Accounting Policies).
The composition of the ACL at December 31, 2024 and December 31, 2023 was as follows:
December 31, 2024
(In thousands) Commercial,
financial and
agricultural Commercial
real estate Construction
real estate Residential
real estate Consumer Leases Total
ACL:
Ending allowance balance attributed to loans:
Individually evaluated for impairment - nonaccrual $ 1,259 $ - $ - $ 40 $ - $ - $ 1,299
Individually evaluated for impairment - accrual - - - - - - -
Collectively evaluated for impairment 11,424 19,571 7,125 22,315 26,081 151 86,667
Accruing acquired with deteriorated credit quality - - - - - - -
Total ending allowance balance $ 12,683 $ 19,571 $ 7,125 $ 22,355 $ 26,081 $ 151 $ 87,966
Loan balance:
Individually evaluated for impairment - nonaccrual $ 24,194 $ 23,230 $ 8 $ 5,700 $ - $ 17 $ 53,149
Individually evaluated for impairment - accrual 15,290 - - - - - 15,290
Loans collectively evaluated for impairment 1,230,101 1,969,785 411,988 2,194,457 1,910,372 29,812 7,746,515
Accruing loans acquired with deteriorated credit quality - 1,317 581 276 - - 2,174
Total ending loan balance $ 1,269,585 $ 1,994,332 $ 412,577 $ 2,200,433 $ 1,910,372 $ 29,829 $ 7,817,128
ACL as a percentage of loan balance:
Individually evaluated for impairment - nonaccrual 5.20 % - % - % 0.70 % - % - % 2.44 %
Individually evaluated for impairment - accrual - % - % - % - % - % - % - %
Loans collectively evaluated for impairment 0.93 % 0.99 % 1.73 % 1.02 % 1.37 % 0.51 % 1.12 %
Accruing loans acquired with deteriorated credit quality - % - % - % - % - % - % - %
Total 1.00 % 0.98 % 1.73 % 1.02 % 1.37 % 0.51 % 1.13 %
December 31, 2023
(In thousands) Commercial,
financial and
agricultural Commercial
real estate Construction
real estate Residential
real estate Consumer Leases Total
ACL:
Ending allowance balance attributed to loans:
Individually evaluated for impairment - nonaccrual $ 4,980 $ 3 $ - $ - $ - $ - $ 4,983
Individually evaluated for impairment - accrual - - - - - - -
Collectively evaluated for impairment 10,516 16,371 5,227 18,818 27,713 117 78,762
Accruing acquired with deteriorated credit quality - - - - - - -
Total ending allowance balance $ 15,496 $ 16,374 $ 5,227 $ 18,818 $ 27,713 $ 117 $ 83,745
Loan balance:
Individually evaluated for impairment - nonaccrual $ 21,228 $ 20,740 $ 504 $ 2,670 $ - $ 73 $ 45,215
Individually evaluated for impairment - accrual - - - - - - -
Loans collectively evaluated for impairment 1,274,390 1,853,383 303,969 2,026,537 1,945,936 23,956 7,428,171
Accruing loans acquired with deteriorated credit quality 22 1,870 626 317 - - 2,835
Total ending loan balance $ 1,295,640 $ 1,875,993 $ 305,099 $ 2,029,524 $ 1,945,936 $ 24,029 $ 7,476,221
ACL as a percentage of loan balance:
Individually evaluated for impairment - nonaccrual 23.46 % 0.01 % - % - % - % - % 11.02 %
Individually evaluated for impairment - accrual - % - % - % - % - % - % - %
Loans collectively evaluated for impairment 0.83 % 0.88 % 1.72 % 0.93 % 1.42 % 0.49 % 1.06 %
Accruing loans acquired with deteriorated credit quality - % - % - % - % - % - % - %
Total 1.20 % 0.87 % 1.71 % 0.93 % 1.42 % 0.49 % 1.12 %
7. Loans Held for Sale
Mortgage loans held for sale are carried at their fair value. Mortgage loans held for sale were $5.6 million and $3.2 million at December 31, 2024 and 2023, respectively. These amounts are included in "Loans" on the Consolidated Balance Sheets and in the residential real estate loan segments in Note 5 - Loans and Note 6 - Allowance for Credit Losses. The contractual balance was $5.5 million and $3.2 million at December 31, 2024 and 2023, respectively. The gain expected upon sale was $72,000 and $53,000 at December 31, 2024 and 2023, respectively. None of these loans were 90 days or more past due or on nonaccrual status at December 31, 2024 or 2023.
During 2022, Park transferred certain commercial loans held for investment, previously nonperforming, with an amortized cost of $6.3 million, to the loans held for sale portfolio. The transferred loans were recorded at the lower of cost or fair value, recording a charge-off in each instance where the fair value of an individual loan was deemed to be below the carrying cost at the time the loans were moved to the held for sale portfolio. The sale of $3.9 million in loans held for sale was subsequently completed and Park recognized a gain on sale of $495,000 which is recorded within "Miscellaneous income" on the Consolidated Statements of Income. The remaining $2.4 million in loans held for sale were transferred back to loans held for investment at the lower of cost or fair value. No non-performing loans were held for sale or sold during 2024 or 2023.
8. Goodwill and Other Intangible Assets
The following table shows the activity in goodwill and other intangible assets for the years ended December 31, 2024, 2023 and 2022.
(In thousands) Goodwill Other
Intangible Assets Total
January 1, 2022 $ 159,595 $ 7,462 $ 167,057
Amortization - 1,487 1,487
December 31, 2022 $ 159,595 $ 5,975 $ 165,570
Amortization - 1,323 1,323
December 31, 2023 $ 159,595 $ 4,652 $ 164,247
Amortization - 1,215 1,215
December 31, 2024 $ 159,595 $ 3,437 $ 163,032
Goodwill
Goodwill impairment exists when a reporting unit's carrying value exceeds its fair value. Park evaluates goodwill for impairment on April 1 of each year, with financial data as of March 31. At April 1, 2024, the Company's reporting unit, PNB, had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.
Acquired Intangible Assets
The following table shows the balance of acquired intangible assets as of December 31, 2024 and 2023.
2024 2023
(In thousands) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Other intangible assets:
Core deposit intangibles $ 14,456 $ 11,019 $ 14,456 $ 9,804
Core deposit intangibles are being amortized, on an accelerated basis, over a period of ten years. Amortization expense for the core deposit intangibles was $1.2 million, $1.3 million and $1.5 million for the years ended December 31, 2024, 2023 and 2022, respectively.
The following is a schedule of estimated core deposit intangibles amortization expense for each of the next five years:
(In thousands) Total
2025 $ 1,042
2026 887
2027 754
2028 618
2029 136
9. Premises and Equipment
The major categories of premises and equipment and accumulated depreciation are summarized as follows:
December 31 (In thousands) 2024 2023
Land $ 19,773 $ 22,176
Buildings 97,578 98,472
Equipment, furniture and fixtures 78,865 79,662
Leasehold improvements 6,701 5,684
Software 32,338 29,518
Total $ 235,255 $ 235,512
Less accumulated depreciation (165,733) (161,301)
Premises and equipment, net $ 69,522 $ 74,211
Depreciation expense amounted to $12.2 million, $14.0 million and $13.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.
Park records operating lease assets where Park acts as the lessor within "Other assets" on the Consolidated Balance Sheets. Equipment subject to lease agreements at December 31, 2024 and 2023 is summarized below:
December 31 (In thousands) 2024 2023
Equipment $ 4,277 $ 4,691
Less accumulated depreciation (2,610) (2,385)
Leased assets, net $ 1,667 $ 2,306
Depreciation expense on operating lease assets of $726,000, $693,000, and $1.1 million was recorded for the years ended December 31, 2024, 2023 and 2022, respectively.
10. Investments in Qualified Affordable Housing
Park makes certain equity investments in various limited partnerships that sponsor affordable housing projects. The purposes of these investments are to achieve a satisfactory return on capital, help create affordable housing opportunities, and assist the Company to achieve its goals associated with the Community Reinvestment Act.
As permitted by ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects, Park has elected the proportional amortization method of accounting. Under the proportional amortization method, amortization expense and tax benefits are recognized through the provision for income taxes.
The table below details the balances of Park’s affordable housing tax credit investments and related unfunded commitments as of December 31, 2024 and 2023.
(In thousands) December 31, 2024 December 31, 2023
Affordable housing tax credit investments $ 66,077 $ 62,703
Unfunded commitments 29,677 28,768
Commitments are funded when capital calls are made by the general partner of a limited partnership. Park expects that the commitments as of December 31, 2024 will be funded between 2025 and 2039.
During the years ended December 31, 2024, 2023 and 2022, Park recognized amortization expense of $8.1 million, $8.3 million and $7.7 million, respectively, which was included within the provision for income taxes on the Consolidated Statements of Income and within investment in qualified affordable housing tax credits amortization on the Consolidated Statements of Cash Flows. For the years ended December 31, 2024, 2023 and 2022, Park recognized tax credits and other benefits from its affordable housing tax credit investments of $10.0 million, $9.8 million and $9.3 million, respectively.
11. Foreclosed and Repossessed Assets
Park typically transfers a loan to OREO at the time that Park takes deed/title to the real estate property asset. The carrying amount of foreclosed real estate properties held at December 31, 2024 and December 31, 2023 are listed below, as well as the recorded investment of loans secured by residential real estate properties for which formal foreclosure proceedings were in process at those dates.
(In thousands) December 31, 2024 December 31, 2023
OREO:
Commercial real estate $ 938 $ 983
Total OREO $ 938 $ 983
Loans in process of foreclosure:
Residential real estate $ 2,225 $ 1,957
Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value, less costs to sell, when acquired.
During the years ended December 31, 2023 and 2022, Park recognized $46,000 and $12.0 million, respectively, in OREO valuation markups related to the foreclosure and subsequent sale of properties collateralizing former Vision Bank relationships. This income is included in "OREO valuation markup" on the Consolidated Statements of Income. There was no OREO valuation markup related to former Vision Bank relationships during the year ended December 31, 2024.
During the years ended December 31, 2024 and 2022, Park recognized $115,000 and $5.6 million, respectively, in net gains on the sale of OREO related to former Vision Bank relationships. This income is included in "Gain (loss) on the sale of OREO, net" on the Consolidated Statements of Income. There was no gain or loss on the sale of OREO related to former Vision Bank relationships during the years ended December 31, 2023.
In addition to real estate, Park may also repossess different types of collateral. As of December 31, 2024 and December 31, 2023, Park had $1.2 million and $1.1 million in other repossessed assets which are included in "Other assets" on the Consolidated Balance Sheets.
12. Loan Servicing
Park serviced sold mortgage loans of $1,858 million at December 31, 2024, compared to $1,934 million at December 31, 2023 and $2,051 million at December 31, 2022. At December 31, 2024, $2.5 million of the sold mortgage loans were sold with recourse compared to $2.9 million at December 31, 2023 and $3.2 million at December 31, 2022. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. As of December 31, 2024 and 2023, management had established reserves of $50,000 and $54,000, respectively, to account for future loan repurchases. Custodial escrow balances maintained in connection with serviced sold mortgage loans were $19.7 million and $19.2 million at December 31, 2024 and 2023, respectively.
When Park sells mortgage loans with servicing rights retained, servicing rights are initially recorded at fair value. Park selected the “amortization method” as permissible within U.S. GAAP, whereby the servicing rights capitalized are amortized in proportion to and over the period of estimated future servicing income of the underlying loan. At the end of each reporting period, the carrying value of MSRs is assessed for impairment with a comparison to fair value. MSRs are carried at the lower of their amortized cost or fair value. The amortization of MSRs is included within "Other service income" in the Consolidated Statements of Income.
Activity for MSRs and the related valuation allowance follows:
December 31 (In thousands) 2024 2023 2022
MSRs:
Carrying amount, net, beginning of year $ 14,656 $ 15,792 $ 15,264
Additions 963 535 1,455
Amortization (1,776) (1,759) (2,313)
Change in valuation allowance 75 88 1,386
Carrying amount, net, end of year $ 13,918 $ 14,656 $ 15,792
Valuation allowance:
Beginning of year $ 94 $ 182 $ 1,568
Change in valuation allowance (75) (88) (1,386)
End of year $ 19 $ 94 $ 182
The fair value of MSRs was $16.5 million and $16.7 million at December 31, 2024 and 2023, respectively. The fair value of MSRs at December 31, 2024 was established using a discount rate of 12.5% and constant prepayment speeds ranging from 5.76% to 29.76%. The fair value of MSRs at December 31, 2023 was established using a discount rate of 12% and constant prepayment speeds ranging from 6.12% to 27.50%.
Servicing fees included in "Other service income" were $4.9 million, $5.2 million and $5.4 million for the years ended December 31, 2024, 2023 and 2022, respectively.
13. Leases
Park is a lessee in several noncancellable operating lease arrangements, primarily for retail branches, administrative and warehouse buildings, ATMs, and certain office equipment within its Ohio, North Carolina, South Carolina, and Kentucky markets. Certain of these leases contain renewal options for periods ranging from one year to five years. Park’s leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. Payments due under the lease arrangements include fixed payments plus, for many of Park’s real estate leases, variable payments such as Park's proportionate share of property taxes, insurance and common area maintenance.
Park's operating lease ROU asset and lease liability are presented in “Operating lease right-of-use asset" and "Operating lease liability," respectively, on Park's Consolidated Balance Sheets. The carrying amounts of Park's ROU asset and lease liability at December 31, 2024 were $15.7 million and $16.5 million, respectively. At December 31, 2023, the carrying amounts of Park's ROU assets and lease liability were $15.7 million and $16.6 million, respectively. Park's operating lease expense is recorded in "Occupancy expense" on the Company's Consolidated Statements of Income.
Other information related to operating leases for the years ended December 31, 2024, 2023 and 2022 follows:
(In thousands) Year ended December 31, 2024 Year ended December 31, 2023 Year ended December 31, 2022
Lease cost
Operating lease cost $ 2,511 $ 2,874 $ 3,073
Sublease income (10) (273) (252)
Total lease cost $ 2,501 $ 2,601 $ 2,821
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 2,530 $ 3,630 $ 3,116
ROU assets obtained in exchange for new operating lease liabilities $ 2,718 $ 545 $ 7,867
Reductions to ROU assets resulting from reductions to lease obligations $ (1,970) $ (3,062) $ (2,812)
Park's operating leases had a weighted average remaining term of 9.8 years and 10.1 years at December 31, 2024 and 2023, respectively. The weighted average discount rate of Park's operating leases was 3.8% and 3.5% at December 31, 2024 and 2023, respectively.
Undiscounted cash flows included in lease liabilities at December 31, 2024 have expected contractual payments as follows:
(In thousands) December 31, 2024
2025 (1)
$ 1,882
2026 2,422
2027 2,325
2028 2,278
2029 2,281
Thereafter 9,334
Total undiscounted minimum lease payments $ 20,522
Less: imputed interest (4,017)
Total lease liabilities $ 16,505
(1) Includes a tenant improvement allowance of $524,000 related to the reimbursement of leasehold expenditures.
14. Deposits
At December 31, 2024 and 2023, non-interest bearing and interest bearing deposits were as follows:
December 31 (In thousands) 2024 2023
Non-interest bearing $ 2,612,708 $ 2,628,234
Interest bearing 5,530,818 5,414,332
Total $ 8,143,526 $ 8,042,566
The table below details the maturities of time deposits at December 31, 2024. Time deposits below include $176.5 million of brokered and BID CD deposits.
(In thousands)
2025 $ 776,464
2026 90,965
2027 20,700
2028 11,689
2029 11,955
After 5 years 10
Total $ 911,783
At December 31, 2024 and 2023, respectively, Park had approximately $22.0 million and $13.7 million of deposits received from Park's executive officers, Park directors and related entities of Park directors.
Time deposits that met or exceeded the FDIC insurance limit of $250,000 at December 31, 2024 and 2023 were $255.3 million and $132.8 million, respectively. Time deposits that met or exceeded the FDIC insurance limit of $250,000 included $76.5 million and $15.0 million of BID CD deposits at December 31, 2024 and 2023, respectively.
15. Repurchase Agreement Borrowings
Securities sold under agreements to repurchase ("repurchase agreements") with customers represent funds deposited by customers, generally on an overnight basis, that are collateralized by investment securities owned by Park. Repurchase agreements with customers are included in "Short-term borrowings" on the Consolidated Balance Sheets.
All repurchase agreements are subject to the terms and conditions of repurchase/security agreements between Park and the customer and are accounted for as secured borrowings. Park's repurchase agreements consisted of customer accounts and securities which are pledged on an individual security basis.
At December 31, 2024 and December 31, 2023, Park's repurchase agreement borrowings totaled $90.4 million and $108.2 million, respectively. These borrowings were collateralized with U.S. government sponsored entities' asset-backed securities with a fair value of $124.1 million and $180.8 million at December 31, 2024 and December 31, 2023, respectively. Declines in the value of the collateral would require Park to pledge additional securities. As of December 31, 2024 and December 31, 2023, Park had $440.2 million and $847.5 million, respectively, of available unpledged securities.
The following table presents the carrying value of Park's repurchase agreement borrowings by remaining contractual maturity and collateral pledged at December 31, 2024 and December 31, 2023:
December 31, 2024
(In thousands) Remaining Contractual Maturity of the Agreements
Overnight and Continuous Up to 30 days 30 - 90 days Greater than 90 days Total
U.S. government sponsored entities' asset-backed securities $ 90,432 $ - $ - $ - $ 90,432
December 31, 2023
(In thousands) Remaining Contractual Maturity of the Agreements
Overnight and Continuous Up to 30 days 30 - 90 days Greater than 90 days Total
U.S. government sponsored entities' asset-backed securities $ 108,182 $ - $ - $ - $ 108,182
See Note 16 - Short-Term Borrowings for additional information related to repurchase agreements.
16. Short-Term Borrowings
Short-term borrowings were as follows:
December 31 (In thousands) 2024 2023
Securities sold under agreements to repurchase
$ 90,432 $ 108,182
FHLB advances - 220,000
Total short-term borrowings $ 90,432 $ 328,182
The outstanding balances for all short-term borrowings as of December 31, 2024 and 2023 and the weighted-average interest rates as of and paid during each of the years then ended were as follows:
(In thousands) Repurchase agreements FHLB Advances
Ending balance $ 90,432 $ -
Highest month-end balance 108,858 185,000
Average daily balance 95,803 24,794
Weighted-average interest rate:
As of year-end 1.49 % - %
Paid during the year 1.83 % 5.58 %
Ending balance $ 108,182 $ 220,000
Highest month-end balance 218,126 247,000
Average daily balance 146,388 36,634
Weighted-average interest rate:
As of year-end 1.88 % 5.44 %
Paid during the year 1.76 % 5.83 %
During 2023 and 2024, outstanding FHLB advances were collateralized by investment securities owned by PNB and by various loans pledged under a blanket agreement by PNB. At December 31, 2024 and December 31, 2023, $3.9 million and $5.2 million, respectively, of investment securities were pledged as collateral for FHLB advances. At December 31, 2024 and December 31, 2023, $2,112 million and $1,959 million, respectively, of commercial real estate and residential mortgage loans were pledged under a blanket agreement to the FHLB by PNB. See Note 15 - Repurchase Agreement Borrowings for information related to investment securities collateralizing repurchase agreements.
17. Subordinated Notes
As part of the acquisition of Vision's parent bank holding company ("Vision Parent") on March 9, 2007, Park became the successor to Vision Parent under (i) the Amended and Restated Trust Agreement of Vision Bancshares Trust I (the “Trust”), dated as of December 5, 2005, (ii) the Junior Subordinated Indenture, dated as of December 5, 2005, and (iii) the Guarantee Agreement, also dated as of December 5, 2005.
On December 1, 2005, Vision Parent formed a wholly-owned Delaware statutory business trust, Vision Bancshares Trust I (“Trust I”), which issued $15.0 million of Trust I's floating rate preferred securities (the “Trust Preferred Securities”) to institutional investors. These Trust Preferred Securities qualify as Tier I capital under FRB guidelines. All of the common securities of Trust I are owned by Park. The proceeds from the issuance of the common securities and the Trust Preferred Securities were used by Trust I to purchase $15.5 million of junior subordinated notes, which, following the cessation of LIBOR on June 30, 2023, carry a floating rate based on three-month CME Term SOFR plus 174 basis points. The junior subordinated notes represent the sole asset of Trust I. The Trust Preferred Securities accrue and pay distributions at a floating rate of three-month CME Term SOFR plus 174 basis points per annum. The Trust Preferred Securities are mandatorily redeemable upon maturity of the junior subordinated notes in December 2035, or upon earlier redemption as provided in the junior subordinated notes. Since December 30, 2010, Park has had the right to redeem the junior subordinated notes purchased by Trust I in whole or in part. As specified in the indenture, if the junior subordinated notes are redeemed prior to maturity, the redemption price will be the principal amount, plus any unpaid accrued interest. In accordance with U.S. GAAP, Trust I is not consolidated with Park’s financial statements, but rather the subordinated notes are reflected as a liability.
On August 20, 2020, Park completed the issuance and sale of $175 million aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030 (the "Subordinated Notes"). The Subordinated Notes initially bear a fixed interest rate of 4.50% per year, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on March 1, 2021. Commencing on September 1, 2025, the Subordinated Notes will bear interest at a floating rate per annum equal to the Benchmark rate, which is expected to be Three-Month Term SOFR, plus a spread of 439 basis points for each quarterly interest period during the floating rate period, payable quarterly in arrears; provided, however, that if the Benchmark rate is less than zero, then the Benchmark rate will be deemed to be zero. The Company may, at its option, beginning with the interest payment date of September 1, 2025 and on any interest payment date thereafter, redeem the Subordinated Notes, in whole or in part,
subject to obtaining the prior approval of the holders of the Company’s senior indebtedness and of the Federal Reserve Board, if required, at a redemption price equal to 100% of the principal amount of the Subordinated Notes being redeemed, plus accrued and unpaid interest thereon to but excluding the date of redemption. The issuance costs of the Subordinated Notes totaled $2.4 million, which amount is being amortized through the Subordinated Note call date. At December 31, 2024 and 2023, the Subordinated Notes, net of unamortized issuance costs, totaled $174.7 million and $174.1 million, and qualify as Tier 2 capital for Park under the Federal Reserve Board capital adequacy rules.
18. Derivatives
Park uses certain derivative financial instruments (or "derivatives") to meet the needs of its customers while managing the interest rate risk associated with certain transactions. Park does not use derivatives for speculative purposes. A summary of derivative financial instruments utilized by Park follows.
Interest Rate Swaps
Park utilizes interest rate swap agreements (or "interest rate swaps") as part of its asset-liability management strategy to help manage its interest rate risk position and as a means to meet the financing, interest rate and other risk management needs of qualifying commercial banking customers. The notional amount of the interest rate swaps does not represent the amount exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.
Borrowing Derivatives: At each of December 31, 2024 and 2023, Park had no borrowing derivatives.
Loan Derivatives: In conjunction with the Carolina Alliance acquisition, Park acquired interest rate swaps related to certain commercial loans. Simultaneously with borrowers entering into interest rate swaps, Carolina Alliance entered into offsetting interest rate swaps executed with a third party, such that Carolina Alliance minimized its net interest rate risk exposure resulting from such transactions. These interest rate swaps had a notional amount totaling $15.4 million and $18.2 million at December 31, 2024 and December 31, 2023, respectively.
All of the Company's interest rate swaps were determined to be fully effective during the years ended December 31, 2024 and 2023. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in "Other assets" and "Other liabilities" with changes in fair value recorded in "Other comprehensive income (loss)". The amount included in "Accumulated other comprehensive loss, net of tax" would be reclassified to net income should the hedges no longer be considered effective. During the year ended December 31, 2022, Park recognized expense of $66,000, or $52,000, net of taxes, as the result of the early termination of a borrowing interest rate swap. No expense related to early termination was recognized during the years ended December 31, 2024 and 2023. Park expects the outstanding hedges to remain fully effective during the remaining respective terms of the swaps.
Summary information about Park's interest rate swaps as of December 31, 2024 and December 31, 2023 was as follows:
December 31, 2024 December 31, 2023
(In thousands, except weighted average data) Loan
Derivatives Loan
Derivatives
Notional amounts $ 15,445 $ 18,199
Weighted average pay rates 4.504 % 4.517 %
Weighted average receive rates 4.504 % 4.517 %
Weighted average maturity (years) 5.4 6.5
Unrealized losses $ - $ -
Park recognized a gain of $154,000, net of income taxes, related to borrowing swaps that was recorded in "Other comprehensive income (loss)" on the Consolidated Statements of Comprehensive Income (Loss) during the year ended December 31, 2022. No gain or loss related to borrowing swaps was recorded during the years ended December 31, 2024 and 2023.
The following table reflects the interest rate swaps included in the Consolidated Balance Sheets as of December 31, 2024 and 2023:
(In thousands) December 31, 2024 December 31, 2023
Notional Amount Fair Value Notional Amount Fair Value
Included in "Other assets":
Loan derivatives - instruments associated with loans
Matched interest rate swaps with borrower $ - $ - $ - $ -
Matched interest rate swaps with counterparty 15,445 1,009 18,199 1,069
Total included in "Other assets" $ 15,445 $ 1,009 $ 18,199 $ 1,069
Included in "Other liabilities":
Loan derivatives - instruments associated with loans
Matched interest rate swaps with borrower $ 15,445 $ (1,009) $ 18,199 $ (1,069)
Matched interest rate swaps with counterparty - - - -
Total included in "Other liabilities" $ 15,445 $ (1,009) $ 18,199 $ (1,069)
Mortgage Banking Derivatives
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. In order to hedge the change in interest rates resulting from its commitments to fund the loans, the Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into. These mortgage banking derivatives are not designated as hedge relationships. The fair value of an interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Fair values of these mortgage banking derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in "Other service income" in the Consolidated Statements of Income.
At December 31, 2024 and December 31, 2023, Park had $4.2 million and $4.0 million, respectively, of interest rate lock commitments. The fair value of these mortgage banking derivatives was reflected by a derivative asset of $85,000 and $87,000 at December 31, 2024 and December 31, 2023, respectively.
Other Derivatives
In connection with the sale of Park’s Class B Visa shares during 2009, Park entered into a swap agreement with the purchaser of the shares. The swap agreement adjusts for dilution in the conversion ratio of Class B Visa shares resulting from certain Visa litigation. At December 31, 2024 and 2023, the fair value of the swap liability of $103,000 and $123,000, respectively, represented an estimate of the exposure based upon probability-weighted potential Visa litigation losses.
19. Share-Based Compensation
The Park National Corporation 2017 Long-Term Incentive Plan for Employees (the "2017 Employees LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. The 2017 Employees LTIP makes equity-based awards and cash-based awards available for grant to employee participants in the form of incentive stock options, nonqualified stock options, SARs, Restricted Stock, Restricted Stock Units, Other Stock-Based Awards and cash-based awards. Under the 2017 Employees LTIP, 750,000 common shares are authorized to be delivered in connection with grants under the 2017 Employees LTIP. The common shares to be delivered under the 2017 Employees LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At December 31, 2024, 225,000 common shares were available for future grants under the 2017 Employee LTIP.
The Park National Corporation 2017 Long-Term Incentive Plan for Non-Employee Directors (the "2017 Non-Employee Directors LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. The 2017 Non-Employee Directors LTIP makes equity-based awards and cash-based awards available for grant to non-employee director participants in the form of nonqualified stock options, SARs, Restricted Stock, Restricted Stock Units, Other Stock-Based Awards, and cash-based awards. Under the 2017 Non-
Employee Directors LTIP, 150,000 common shares are authorized to be delivered in connection with grants under the 2017 Non-Employee Directors LTIP. The common shares to be delivered under the 2017 Non-Employee Directors LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At December 31, 2024, 45,000 common shares were available for future grants under the 2017 Non-Employee Directors LTIP.
During 2024, 2023 and 2022, Park granted 7,342, 13,054 and 9,789 common shares, respectively, to directors of Park and to directors of PNB (and its divisions) under the 2017 Non-Employee Directors LTIP. The common shares granted to directors were not subject to a vesting period and resulted in expense of $1.2 million, $1.2 million, and $1.3 million in 2024, 2023, and 2022, respectively, which is included in "Professional fees and services" on the Consolidated Statements of Income.
During 2024, 2023 and 2022, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 59,165, 54,698 and 52,335 common shares, respectively, to certain employees of Park and its subsidiaries. As of December 31, 2024, Park reported 186,020 nonvested PBRSUs. The number of PBRSUs earned or settled will depend on the level of achievement with respect to certain performance criteria and will also be subject to subsequent service-based vesting.
A summary of changes in the common shares subject to nonvested PBRSUs for the years ended December 31, 2024 and 2023 follows. PBRSUs herein represent the maximum number of nonvested PBRSUs. The fair value of the PBRSUs was determined using the quoted price of Park stock on the date of grant.
Common shares subject to PBRSUs Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2023 199,650 $ 108.97
Granted 54,698 140.53
Vested (62,815) 94.09
Forfeited (4,597) 130.20
Adjustment for performance conditions of PBRSUs (1)
- -
Nonvested at December 31, 2023 186,936 $ 122.68
Granted 59,165 $ 131.30
Vested (58,056) 103.70
Forfeited (2,025) 135.55
Adjustment for performance conditions of PBRSUs (1)
- -
Nonvested at December 31, 2024 (2)
186,020 $ 131.20
(1) The number of PBRSUs earned depends on the level of achievement with respect to certain performance criteria. Adjustment herein represents the difference between the maximum number of common shares which could be earned and the actual number earned for those PBRSUs as to which the performance period was completed.
(2) Nonvested amount herein represents the maximum number of nonvested PBRSUs. As of December 31, 2024, an aggregate of 184,186 PBRSUs are expected to vest.
A summary of awards that vested during the twelve months ended December 31, 2024 and 2023 follows:
Twelve Months Ended
December 31,
2024 2023
PBRSUs and TBRSUs vested 58,056 62,815
Common shares withheld to satisfy employee income tax withholding obligations 22,895 23,973
Net common shares issued 35,161 38,842
Share-based compensation expense of $6.4 million, $6.8 million and $5.9 million was recognized for the years ended December 31, 2024, 2023 and 2022, respectively, related to PBRSU and TBRSU awards to employees. The following table details expected additional share-based compensation expense related to PBRSUs outstanding at December 31, 2024:
(In thousands)
2025 $ 4,978
2026 3,284
2027 1,376
2028 222
Total $ 9,860
20. Benefit Plans
The Corporation has a noncontributory Defined Benefit Pension Plan (the “Pension Plan”) covering substantially all of the employees of Park National Corporation and its subsidiaries. The Pension Plan provides benefits based on an employee’s years of service and compensation.
There was no pension contribution in 2024 or 2023 and no contribution is expected to be made in 2025.
Using accrual measurement dates of December 31, 2024 and 2023, plan assets and benefit obligation activity for the Pension Plan are listed below:
(In thousands) 2024 2023
Change in fair value of plan assets
Fair value at beginning of measurement period $ 232,894 $ 209,138
Actual return on plan assets 31,116 34,764
Benefits paid (38,239) (11,008)
Fair value at end of measurement period $ 225,771 $ 232,894
Change in benefit obligation
Projected benefit obligation at beginning of measurement period $ 139,217 $ 127,394
Service cost 6,916 6,236
Interest cost 6,443 6,523
Actuarial (gain) loss (9,804) 10,072
Benefits paid (38,239) (11,008)
Projected benefit obligation at the end of measurement period $ 104,533 $ 139,217
Funded status at end of year (fair value of plan assets less benefit obligation) $ 121,238 $ 93,677
The decrease in the projected benefit obligation ("PBO") from $139.2 million as of December 31, 2023 to $104.5 million as of December 31, 2024, was the result of an increase in benefits paid, an increase in the discount rate from 5.14% to 5.89% and assumption updates for a change in the mortality table for lump sum distributions, reflecting updates for the 2024 assumption study, partially offset by demographic losses and an increase in the interest credit rate.
The asset allocation for the Pension Plan as of each measurement date, by asset category, was as follows:
Percentage of Plan Assets
Asset category Target Allocation 2024 2023
Equity securities 50% - 100% 61 % 85 %
Fixed income and cash equivalents remaining balance 39 % 15 %
Total 100 % 100 %
The investment policy, as established by the Retirement Plan Committee, is to invest assets according to the target allocation stated above. Assets will be reallocated periodically based on the investment strategy of the Retirement Plan Committee. The investment policy is reviewed periodically.
The expected long-term rate of return on plan assets used to measure the benefit obligation was 6.92% at both December 31, 2024 and December 31, 2023. This return was estimated based on historical returns, current trends in the plan assets as well as projected future rates of returns on those assets.
The accumulated benefit obligation for the Pension Plan was $82.1 million and $113.4 million at December 31, 2024 and 2023, respectively.
On November 17, 2009, the Park Pension Plan completed the purchase of 115,800 common shares of Park for $7.0 million or $60.45 per share. At December 31, 2024 and 2023, the fair value of the 115,800 common shares held by the Pension Plan was $19.9 million, or $171.43 per share and $15.4 million, or $132.86 per share, respectively.
The weighted average assumptions used to determine benefit obligations at December 31, 2024, 2023 and 2022 were as follows:
2024 2023 2022
Discount rate 5.89 % 5.14 % 5.32 %
Rate of compensation increase
Under age 25 (under age 30 for 2022) 7.50 % 7.50 % 8.25 %
Ages 25-29 (ages 30-39 for 2022) 7.00 % 7.00 % 6.00 %
Ages 30-34 (ages 40-49 for 2022) 6.75 % 6.75 % 5.00 %
Ages 35-39 (ages 50-54 for 2022) 6.00 % 6.00 % 4.25 %
Ages 40-44 (ages 55-59 for 2022) 5.25 % 5.25 % 3.75 %
Ages 45-54 (ages 60-64 for 2022) 4.75 % 4.75 % 3.50 %
Ages 55-69 (ages 65 and over for 2022) 3.75 % 3.75 % 3.25 %
Ages 70 and over (for 2023 and 2024) 3.00 % 3.00 % N/A
Interest crediting rate 4.64 % 3.89 % 4.07 %
The estimated future pension benefit payments reflecting expected future service for the next ten years are shown below (in thousands):
2025 $ 8,469
2026 8,450
2027 8,283
2028 8,239
2029 8,816
2030-2034 43,780
Total $ 86,037
The following table shows ending balances of accumulated other comprehensive income at December 31, 2024 and 2023.
(In thousands) 2024 2023
Prior service cost $ (340) $ (388)
Net actuarial gain 21,547 2,529
Total 21,207 2,141
Deferred tax liability (4,453) (449)
Accumulated other comprehensive income $ 16,754 $ 1,692
Using actuarial measurement dates of December 31 for 2024, 2023 and 2022, components of net periodic benefit income and other amounts recognized in other comprehensive income (loss) were as follows:
(In thousands) 2024 2023 2022 Affected Line Item in the Consolidated Statements of Income
Components of net periodic benefit income and other amounts recognized in other comprehensive income (loss)
Service cost $ (6,916) $ (6,236) $ (9,749) Employee benefits
Interest cost (6,443) (6,523) (5,705) Other components of net periodic benefit income
Expected return on plan assets 15,754 14,143 17,798 Other components of net periodic benefit income
Recognized prior service cost (48) (48) 15 Other components of net periodic benefit income
Settlement income 6,148 - - Pension settlement gain
Net periodic benefit income $ 8,495 $ 1,336 $ 2,359
Net actuarial gain (loss) $ 25,166 $ 10,549 $ (1,109)
Amortization of actuarial gain (6,148) - -
Amortization of prior service cost (credit) 48 48 (15)
Total recognized in other comprehensive income (loss) 19,066 10,597 (1,124)
Total recognized in net benefit income and other comprehensive income (loss) $ 27,561 $ 11,933 $ 1,235
During the year ended December 31, 2024, Park recognized a $6.1 million pension settlement gain due to a combination of lump sum payouts as well as the purchase of a nonparticipating annuity contract which will provide ongoing benefits to vested participants. To calculate the gain, the PBO was remeasured as of September 30, 2024 as well as December 31, 2024. In calculating the September 30, 2024 PBO, a discount rate of 5.17% was used which was a 3 basis point increase from the discount rate utilized to calculate the December 31, 2023 PBO. There were no changes from December 31, 2023 to the assumptions utilized for the long-term rate of return on plan assets, salaries increases, turnover rates or mortality. There was no pension settlement gain recognized during the year ended December 31, 2023.
The weighted average assumptions used to determine net periodic benefit income for the years ended December 31, 2024, 2023 and 2022 are listed below:
2024 2023 2022
Discount rate 5.14 % 5.32 % 3.23 %
Rate of compensation increase
Under age 25 (under age 30 for 2023 and 2022) 7.50 % 8.25 % 8.25 %
Ages 25-29 (ages 30-39 for 2023 and 2022) 7.00 % 6.00 % 6.00 %
Ages 30-34 (ages 40-49 for 2023 and 2022) 6.75 % 5.00 % 5.00 %
Ages 35-39 (ages 50-54 for 2023 and 2022) 6.00 % 4.25 % 4.25 %
Ages 40-44 (ages 55-59 for 2023 and 2022) 5.25 % 3.75 % 3.75 %
Ages 45-54 (ages 60-64 for 2023 and 2022) 4.75 % 3.50 % 3.50 %
Ages 55-69 (ages 65 and over for 2023 and 2022) 3.75 % 3.25 % 3.25 %
Ages 70 and over (for 2024) 3.00 % N/A N/A
Interest crediting rate 3.89 % 4.07 % N/A
Expected long-term return on plan assets 6.92 % 6.92 % 6.92 %
U.S. GAAP defines fair value as the price that would be received by Park for an asset or paid by Park to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date, using the most advantageous market for the asset or liability. The fair values of equity securities, consisting of mutual fund investments and common stock held by the Pension Plan, are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). Additionally, due to their short-term nature, the fair value of interest bearing demand deposits is determined by reference to their face value (Level 1 inputs). Interest bearing time deposits, United States treasury notes, United States Government agency obligations and corporate bonds are valued by the trustee based on yields available on comparable securities of issuers with similar credit ratings as of the end of the year (Level 2 inputs). No investments were categorized as Level 3 inputs.
The fair value of the plan assets at December 31, 2024 and December 31, 2023, by asset class, is as follows.
Fair Value Measurements Fair Value Measurements
at December 31, 2024, Using at December 31, 2023, Using
(In thousands) (Level 1) (Level 2) (Level 1) (Level 2)
Interest-bearing account $ 3,529 $ 3,671 $ 1,395 $ 4,758
Mutual funds 34,973 - 49,740 -
U.S. Treasury Notes - 55,062 - -
U.S. Government agency obligations - 11,237 - 12,466
Corporate bonds - 14,003 - 15,572
Common stocks 103,296 - 148,963 -
Total $ 141,798 $ 83,973 $ 200,098 $ 32,796
Salary Deferral Plan
The Corporation has a voluntary salary deferral plan (the Corporation's Employees Stock Ownership Plan) covering substantially all of the employees of the Corporation and its subsidiaries. Eligible employees may contribute a portion of their compensation subject to a maximum statutory limitation. The Corporation provides a matching contribution established annually by the Corporation. Contribution expense for the Corporation was $5.3 million, $5.0 million, and $4.6 million for 2024, 2023 and 2022, respectively.
Supplemental Executive Retirement Plan
The Corporation has entered into Supplemental Executive Retirement Plan Agreements (the "SERP Agreements") with certain key officers of Park National Corporation and its subsidiaries which provide defined pension benefits in excess of limits imposed by federal income tax law. The accrued benefit cost for the SERP Agreements totaled $15.5 million and $15.2 million
for 2024 and 2023, respectively, and is recorded within "Other liabilities" on the Consolidated Balance Sheet. The expense for the Corporation was as follows:
(In thousands) 2024 2023 2022 Affected Line Item in the Consolidated
Statements of Income
Service cost $ 1,297 $ 1,224 $ 1,091 Employee benefits
Interest cost 658 567 564 Miscellaneous expense
Total SERP expense $ 1,955 $ 1,791 $ 1,655
21. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation’s deferred tax assets and liabilities are as follows:
December 31 (In thousands) 2024 2023
Deferred tax assets:
Allowance for credit losses $ 19,144 $ 18,248
Allowance for unfunded credit losses 1,288 1,125
Accumulated other comprehensive loss - Unrealized losses on debt securities AFS 16,728 18,045
Deferred compensation 6,811 6,177
Net deferred loan fees 581 1,384
Nonvested equity-based compensation 3,130 3,019
Net operating loss ("NOL") carryforward 2,173 2,222
Fixed assets 1,728 1,243
Operating lease liability 3,592 3,620
Other 1,009 939
Total deferred tax assets before valuation allowance $ 56,184 $ 56,022
Valuation allowance (562) -
Total deferred tax assets $ 55,622 $ 56,022
Deferred tax liabilities:
Accumulated other comprehensive gain - Pension Plan $ 4,453 $ 449
Deferred investment income 1,226 2,455
Pension Plan 21,776 19,962
MSRs 3,030 3,196
Partnership adjustments 1,080 1,540
Purchase accounting adjustments 791 807
Operating lease right-of-use asset 3,427 3,426
Lessor adjustments 2,287 2,308
Other 1,199 614
Total deferred tax liabilities $ 39,269 $ 34,757
Net deferred tax asset $ 16,353 $ 21,265
As of December 31, 2024 and 2023, Park had a net deferred tax asset balance related to federal NOL carryforwards of approximately $1.6 million and $2.0 million, respectively, which expire at various dates from 2030-2039. Park also had a net deferred tax asset balance related to state NOL carryforwards of approximately $0.6 million and $0.2 million at December 31, 2024 and 2023, respectively, which expire at various dates from 2030-2039.
Park performs an analysis to determine if a valuation allowance against deferred tax assets is required in accordance with U.S. GAAP. At December 31, 2024, management determined that it was required to establish a $0.6 million state tax valuation allowance against certain deferred tax assets generated by one of its non-bank subsidiaries since it was not more likely than not
that the deferred tax assets would be fully utilized in future periods. No valuation allowance was required for the year ended December 31, 2023.
The components of the provision for federal income taxes are shown below:
December 31, (In thousands) 2024 2023 2022
Currently payable
Federal
$ 23,905 $ 18,118 $ 22,574
State
1,360 1,190 1,180
Amortization of qualified affordable housing projects and historic tax credits 8,449 8,265 7,743
Deferred
Federal
(517) (708) 464
State
108 5 147
Total $ 33,305 $ 26,870 $ 32,108
The following is a reconciliation of income tax expense to the amount computed at the statutory federal corporate income tax rate of 21% for the years ended December 31, 2024, 2023 and 2022.
2024 2023 2022
Statutory federal corporate income tax rate 21.0 % 21.0 % 21.0 %
Changes in rates resulting from:
Tax exempt interest income, net of disallowed interest (1.0) % (1.9) % (1.6) %
Bank owned life insurance (0.9) % (0.7) % (0.7) %
Investments in qualified affordable housing projects, net of tax benefits (1.0) % (1.0) % (0.8) %
KSOP dividend deduction (0.5) % (0.6) % (0.5) %
Other 0.4 % 0.7 % 0.4 %
Effective Tax Rate 18.0 % 17.5 % 17.8 %
Park National Corporation and its subsidiaries do not pay state income tax to the state of Ohio, but pay a franchise tax based on equity. The franchise tax expense is included in "State tax expense" on Park’s Consolidated Statements of Income. Park is also subject to state income tax in various states, including North Carolina and South Carolina. State income tax expense is included in “Income taxes” on Park’s Consolidated Statements of Income. Park’s state income tax expense was $1.5 million, $1.2 million and $1.3 million for the years ended December 31, 2024, 2023 and 2022, respectively.
Unrecognized Tax Benefits
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits.
(In thousands) 2024 2023 2022
January 1 Balance $ 145 $ 69 $ 339
Additions based on tax positions related to the current year 5 47 -
Additions for tax positions of prior years - 52 25
Reductions for tax positions of prior years (28) - -
Reductions due to statute of limitations (24) (23) (295)
December 31 Balance $ 98 $ 145 $ 69
The amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in the future periods at December 31, 2024, 2023 and 2022 was $87,000, $123,000 and $62,000, respectively. Park does not expect the total amount of unrecognized tax benefits to significantly increase or decrease during 2024.
The expense (income) related to interest and penalties recorded on unrecognized tax benefits in the Consolidated Statements of Income for the years ended December 31, 2024, 2023, and 2022 was $1,500, $1,500, and $(56,000), respectively. The amount accrued for interest and penalties at December 31, 2024, 2023 and 2022 was $12,500, $11,000 and $9,500, respectively.
Park National Corporation and its subsidiaries are subject to U.S. federal income tax and income tax in various state jurisdictions. The Corporation is subject to routine audits of tax returns by the Internal Revenue Service and states in which we conduct business. No material adjustments have been made on closed federal and state tax audits. Generally, all tax years ended prior to December 31, 2021 are closed to examination by federal and state taxing authorities.
22. Accumulated Other Comprehensive Income (Loss)
Other comprehensive income (loss) components, net of income tax, are shown in the following table for the years ended December 31, 2024, 2023 and 2022.
(in thousands) Changes in Pension Plan assets and benefit obligations Unrealized (losses) gains on AFS debt securities Unrealized net holding loss on cash flow hedge Total
Beginning balance at January 1, 2024 $ 1,692 $ (67,883) $ - $ (66,191)
Other comprehensive income before reclassifications 19,881 4,539 - 24,420
Amounts reclassified from accumulated other comprehensive loss (4,819) 415 - (4,404)
Net current period other comprehensive income $ 15,062 $ 4,954 $ - $ 20,016
Ending balance at December 31, 2024 $ 16,754 $ (62,929) $ - $ (46,175)
Beginning balance at January 1, 2023 $ (6,680) $ (95,714) $ - $ (102,394)
Other comprehensive income before reclassifications 8,334 21,610 - 29,944
Amounts reclassified from accumulated other comprehensive loss 38 6,221 - 6,259
Net current period other comprehensive income $ 8,372 $ 27,831 $ - $ 36,203
Ending balance at December 31, 2023 $ 1,692 $ (67,883) $ - $ (66,191)
Beginning balance at January 1, 2022 $ (5,792) $ 21,153 $ (206) $ 15,155
Other comprehensive (loss) income before reclassifications (876) (116,867) 154 (117,589)
Amounts reclassified from accumulated other comprehensive loss (12) - 52 40
Net current period other comprehensive (loss) income $ (888) $ (116,867) $ 206 $ (117,549)
Ending balance at December 31, 2022 $ (6,680) $ (95,714) $ - $ (102,394)
The following table provides information concerning amounts reclassified out of accumulated other comprehensive income (loss) for the years ended December 31, 2024, 2023 and 2022:
Amount Reclassified from Accumulated Other Comprehensive (Loss) Income Affected Line Item in the Consolidated Statements of Income
(In thousands) 2024 2023 2022
Amortization of defined benefit pension items
Amortization of prior service cost (credit) $ 48 $ 48 $ (15) Other components of net periodic pension benefit income
Gain recognition on partial settlement of vested benefits (6,148) - - Pension settlement gain
(Income) loss before income taxes (6,100) 48 (15) Income before income taxes
Income tax effect (1,281) 10 (3) Income taxes
Net of income tax $ (4,819) $ 38 $ (12) Net income
Unrealized losses on AFS debt securities
Net loss on the sale of debt securities $ 526 $ 7,875 $ - Loss on the sale of debt securities, net
Loss before income taxes 526 7,875 - Income before income taxes
Income tax effect 111 1,654 - Income taxes
Net of income tax $ 415 $ 6,221 $ - Net income
Unrealized net holding loss on cash flow hedge
Loss due to early termination of borrowing interest rate swap $ - $ - $ 66 Miscellaneous expense
Loss before income taxes - - 66 Income before income taxes
Income tax effect - - 14 Income taxes
Net of income tax $ - $ - $ 52 Net income
23. Earnings Per Common Share
U.S. GAAP requires the reporting of basic and diluted earnings per common share. Basic earnings per common share excludes any dilutive effects of PBRSUs and TBRSUs.
The following table sets forth the computation of basic and diluted earnings per common share:
Year ended December 31
(In thousands, except share data) 2024 2023 2022
Numerator:
Net income $ 151,420 $ 126,734 $ 148,351
Denominator:
Weighted-average common shares outstanding
16,143,708 16,163,500 16,246,009
Effect of dilutive PBRSUs and TBRSUs
101,089 86,519 119,300
Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs
16,244,797 16,250,019 16,365,309
Earnings per common share:
Basic earnings per common share $ 9.38 $ 7.84 $ 9.13
Diluted earnings per common share $ 9.32 $ 7.80 $ 9.06
Park awarded 59,165, 54,698 and 52,335 PBRSUs to certain employees during the years ended December 31, 2024, 2023 and 2022, respectively.
During the year ended December 31, 2023, Park repurchased 199,000 common shares, to fund the PBRSUs, TBRSUs and common shares awarded to directors of Park and to directors of PNB (and its divisions) as well as pursuant to Park's previously announced stock repurchase authorizations. There were no common shares repurchased during the years ended December 31, 2024 or December 31, 2022.
24. Dividend Restrictions
Bank regulators limit the amount of dividends a subsidiary bank can declare in any calendar year without obtaining prior approval. At December 31, 2024, approximately $133.8 million of the total shareholders’ equity of PNB was available for the payment of dividends to Park National Corporation, without approval by the applicable regulatory authorities.
25. Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk
The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Financial Statements.
The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those financial instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.
The total amounts of off-balance sheet financial instruments with credit risk were as follows:
December 31 (In thousands) 2024 2023
Loan commitments $ 1,525,435 $ 1,527,577
Standby letters of credit 33,545 31,261
The loan commitments are generally for variable rates of interest. Commitments to originate new loans are generally made for periods of 180 days or less.
The Corporation grants retail, commercial and commercial real estate loans to customers primarily located in Ohio, Kentucky, North Carolina and South Carolina with the exception of nationwide aircraft loans and nationwide asset-based lending to consumer finance companies. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon the extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and real estate.
Although the Corporation has a diversified loan portfolio, a substantial portion of the borrowers’ ability to honor their contracts is dependent upon the economic conditions of the borrowers' respective geographic locations and industries.
26. Fair Value
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that Park uses to measure fair value are as follows:
•Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that Park has the ability to access as of the measurement date.
•Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3: Significant unobservable inputs that reflect Park's own assumptions about the assumptions that market participants would use in pricing an asset or liability. This could include the use of internally developed models, financial forecasting and similar inputs.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the balance sheet
date. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and Park must use other valuation methods to develop a fair value. The fair value of individually evaluated collateral dependent loans is typically based on the fair value of the underlying collateral, which is estimated through third-party appraisals in accordance with Park's valuation requirements under its commercial and real estate loan policies.
Assets and Liabilities Measured at Fair Value on a Recurring Basis:
The following tables present assets and liabilities measured at fair value on a recurring basis:
Fair Value Measurements at December 31, 2024 using:
(In thousands) Level 1 Level 2 Level 3 Balance at December 31, 2024
Assets
Investment securities:
Obligations of U.S. Government sponsored entities $ - $ 249 $ - $ 249
Obligations of states and political subdivisions - 186,883 - 186,883
U.S. Government sponsored entities’ asset-backed securities - 518,576 - 518,576
Collateralized loan obligations - 271,833 - 271,833
Corporate debt securities - 12,419 6,664 19,083
Equity securities 10,885 - 603 11,488
Mortgage loans held for sale - 5,550 - 5,550
Mortgage IRLCs - 85 - 85
Loan interest rate swaps - 1,009 - 1,009
Liabilities
Fair value swap $ - $ - $ 103 $ 103
Loan interest rate swaps - 1,009 - 1,009
Fair Value Measurements at December 31, 2023 using:
(In thousands) Level 1 Level 2 Level 3 Balance at December 31, 2023
Assets
Investment securities:
Obligations of states and political subdivisions $ - $ 241,184 $ - $ 241,184
U.S. Government sponsored entities’ asset-backed securities - 635,475 - 635,475
Collateralized loan obligations - 438,286 - 438,286
Corporate debt securities - 11,548 6,349 17,897
Equity securities 1,616 - 473 2,089
Mortgage loans held for sale - 3,235 - 3,235
Mortgage IRLCs - 87 - 87
Loan interest rate swaps - 1,069 - 1,069
Liabilities
Fair value swap $ - $ - $ 123 $ 123
Loan interest rate swaps - 1,069 - 1,069
The following methods and assumptions were used by the Company in determining the fair value of the financial assets and financial liabilities discussed above:
Fair value swap: The fair value of the swap agreement entered into with the purchaser of the Visa Class B shares represents an internally developed estimate of the exposure based upon probability-weighted potential Visa litigation losses and is classified as Level 3.
Interest rate swaps: The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2).
Investment securities: Fair values for investment securities are based on quoted market prices, where available (Level 1). If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using DCF (Level 3).
Mortgage interest rate lock commitments: Mortgage IRLCs are based on current secondary market pricing and are classified as Level 2.
Mortgage loans held for sale: Mortgage loans held for sale are carried at their fair value. Mortgage loans held for sale are estimated using market prices for similar product types and, therefore, are classified in Level 2.
The following tables present a reconciliation of the beginning and ending balances of the Level 3 inputs for the years ended December 31, 2024 and 2023, for financial instruments measured on a recurring basis and classified as Level 3:
Level 3 Fair Value Measurements
(In thousands) Corporate debt securities Equity securities Fair value swap
Balance at January 1, 2024 $ 6,349 $ 473 $ (123)
Transfers into (out of) level 3, net - - -
Total gains / (losses)
Included in other income / other (expense) - 130 (500)
Included in other comprehensive income 315 - -
Purchases, sales, issuances and settlements, other, net - - 520
Balance at December 31, 2024 $ 6,664 $ 603 $ (103)
Balance at January 1, 2023 $ 7,000 $ 439 $ (243)
Transfers into level 3 11 - -
Total gains / (losses)
Included in other income / other (expense) - 34 (175)
Included in other comprehensive income (662) - -
Purchases, sales, issuances and settlements, other, net - - 295
Balance at December 31, 2023 $ 6,349 $ 473 $ (123)
Level 3 corporate debt securities consist of a single debt security at both December 31, 2024 and 2023 which was valued using a discounted cash flow calculation. Significant unobservable inputs include the credit spread assumption which was 3.67% and 3.84% at December 31, 2024 and 2023, respectively.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis:
The following methods and assumptions were used by the Company in determining the fair value of assets and liabilities measured at fair value on a nonrecurring basis as described below:
Individually evaluated collateral dependent loans: When a loan is individually evaluated, it is valued at the lower of cost or fair value. Collateral dependent loans which are individually evaluated and carried at fair value have been partially charged off or receive allocations of the allowance for credit losses. For collateral dependent loans, fair value is generally based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value. Collateral is then adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the customer and the customer’s business, resulting in a Level 3 fair value classification. Individually evaluated loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Additionally, valuations for all collateral dependent loans are updated annually, either through independent valuations by a licensed appraiser or a VOV performed by an internal licensed appraiser, in accordance with Company policy. A VOV can only be used in select circumstances and verifies that the original appraised value has not deteriorated through property inspection, consideration of market conditions, and performance of all valuation methods utilized in a prior valuation.
Loans individually evaluated for impairment include all internally classified commercial nonaccrual loans and accruing collateral dependent loans to borrowers experiencing financial difficulty.
OREO: Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs. Fair value is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal
process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value.
Appraisals for both individually evaluated collateral dependent loans and OREO are performed by licensed appraisers. Appraisals are generally obtained to support the fair value of collateral. In general, there are three types of appraisals received by the Company: real estate appraisals, income approach appraisals, and lot development loan appraisals. These are discussed below:
•Real estate appraisals typically incorporate measures such as recent sales prices for comparable properties. Appraisers may make adjustments to the sales prices of the comparable properties as deemed appropriate based on the age, condition or general characteristics of the subject property. Management generally applies a 15% discount to real estate appraised values which management expects will cover all disposition costs (including selling costs). This 15% discount is based on historical discounts to appraised values on sold OREO.
•Income approach appraisals typically incorporate the annual net operating income of the business divided by an appropriate capitalization rate, as determined by the appraiser. Management generally applies a 15% discount to income approach appraised values which management expects will cover all disposition costs (including selling costs).
•Lot development loan appraisals are typically performed using a discounted cash flow analysis. Appraisers determine an anticipated absorption period and a discount rate that takes into account an investor’s required rate of return based on recent comparable sales. Management generally applies a 6% discount to lot development appraised values, which is an additional discount above the net present value calculation included in the appraisal, to account for selling costs.
MSRs: MSRs are carried at the lower of cost or fair value. MSRs do not trade in active, open markets with readily observable prices. For example, sales of MSRs do occur, but precise terms and conditions typically are not readily available. As such, management, with the assistance of a third-party specialist, determines fair value based on the discounted value of the future cash flows estimated to be received. Significant inputs include the discount rate and assumed prepayment speeds. The calculated fair value is then compared to market values where possible to ascertain the reasonableness of the valuation in relation to current market expectations for similar products. Accordingly, MSRs are classified as Level 2.
The following tables present assets and liabilities measured at fair value on a nonrecurring basis. Individually evaluated collateral dependent loans secured by real estate are carried at fair value if they have been charged down to fair value or if a specific valuation allowance has been established. As of December 31, 2024 and 2023, there were no PCD loans carried at fair value. Additionally, there were no accruing individually evaluated collateral dependent loans carried at fair value. A new cost basis is established at the time a property is initially recorded in OREO. OREO properties are carried at fair value if a devaluation has been taken with respect to the property's value subsequent to the initial measurement.
Fair Value Measurements at December 31, 2024 Using:
(In thousands) Level 1 Level 2 Level 3 Balance at December 31, 2024
Nonaccrual individually evaluated collateral dependent loans recorded at fair value:
Commercial real estate $ - $ - $ 1,022 $ 1,022
Residential real estate - - 1,924 1,924
Total nonaccrual individually evaluated collateral dependent loans recorded at fair value $ - $ - $ 2,946 $ 2,946
MSRs $ - $ 371 $ - $ 371
OREO recorded at fair value:
Commercial real estate $ - $ - $ 938 $ 938
Total OREO recorded at fair value $ - $ - $ 938 $ 938
Fair Value Measurements at December 31, 2023 Using:
(In thousands) Level 1 Level 2 Level 3 Balance at December 31, 2023
Nonaccrual individually evaluated collateral dependent loans recorded at fair value:
Commercial real estate $ - $ - $ 2,315 $ 2,315
Residential real estate - - 182 182
Total nonaccrual individually evaluated collateral dependent loans recorded at fair value $ - $ - $ 2,497 $ 2,497
MSRs $ - $ 866 $ - $ 866
OREO recorded at fair value:
Commercial real estate $ - $ - $ 938 $ 938
Total OREO recorded at fair value $ - $ - $ 938 $ 938
The tables below provide additional detail on those nonaccrual individually evaluated loans which are recorded at fair value as well as the remaining nonaccrual individually evaluated loan portfolio not included above. The remaining nonaccrual individually evaluated loans consist of 1) loans which are not collateral dependent, 2) loans which are not secured by real estate, and 3) loans carried at cost as the fair value of the underlying collateral or the present value of expected future cash flows on each of the loans exceeded the book value for each respective credit.
December 31, 2024
(In thousands) Loan
Balance Prior Charge-Offs Specific Valuation Allowance Carrying Balance
Total nonaccrual individually evaluated collateral dependent loans recorded at fair value $ 2,986 $ 488 $ 40 $ 2,946
Remaining nonaccrual individually evaluated loans 50,163 4,521 1,259 48,904
Total nonaccrual individually evaluated loans $ 53,149 $ 5,009 $ 1,299 $ 51,850
December 31, 2023
(In thousands) Recorded Investment Prior Charge-Offs Specific Valuation Allowance Carrying Balance
Total nonaccrual individually evaluated collateral dependent loans recorded at fair value $ 2,499 $ 2,048 $ 2 $ 2,497
Remaining nonaccrual individually evaluated loans 42,716 301 4,981 37,735
Total nonaccrual individually evaluated loans $ 45,215 $ 2,349 $ 4,983 $ 40,232
The expense from credit adjustments related to nonaccrual individually evaluated loans carried at fair value for the years ended December 31, 2024, 2023 and 2022 was $0.2 million, $1.0 million, and $0.9 million, respectively.
MSRs totaled $13.9 million at December 31, 2024. Of this $13.9 million MSR carrying balance, $0.4 million was recorded at fair value and included a valuation allowance of $19,000. The remaining $13.5 million was recorded at cost, as the fair value exceeded cost at December 31, 2024. At December 31, 2023, MSRs totaled $14.7 million. Of this $14.7 million MSR carrying balance, $0.9 million was recorded at fair value and included a valuation allowance of $0.1 million. The remaining $13.8 million was recorded at cost, as the fair value exceeded cost at December 31, 2023. The income related to MSRs carried at fair value for the years ended December 31, 2024, 2023 and 2022 was $0.1 million, $0.1 million and $1.4 million, respectively.
Total OREO held by Park at December 31, 2024 and 2023 was $0.9 million and $1.0 million, respectively. At both December 31, 2024 and 2023, there was $938,000 of OREO held by Park that was carried at fair value due to fair value adjustments made subsequent to the initial OREO measurement. The net income (expense) related to OREO fair value
adjustments was $30,000, $(0.4) million and $11.3 million for the years ended December 31, 2024, 2023 and 2022, respectively.
The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2024 and December 31, 2023:
December 31, 2024
(In thousands) Fair Value Valuation Technique Unobservable Input(s) Range (Weighted Average)
Nonaccrual individually evaluated collateral dependent loans:
Commercial real estate $ 1,022 Sales comparison approach Adj to comparables 0.0% - 30.0% (15.2%)
Income approach Capitalization rate 9.5% - 10.0% (9.6%)
Residential real estate $ 1,924 Sales comparison approach Adj to comparables 4.7% - 45.5% (21.6%)
Income approach Capitalization rate 6.3% (6.3%)
Other real estate owned:
Commercial real estate $ 938 Sales comparison approach Adj to comparables 5.0% - 10.0% (7.5%)
Cost approach Entrepreneurial profit 5.0% (5.0%)
Cost approach Accumulated depreciation 50.0% (50.0%)
December 31, 2023
(In thousands) Fair Value Valuation Technique Unobservable Input(s) Range (Weighted Average)
Nonaccrual individually evaluated collateral dependent loans:
Commercial real estate $ 2,315 Sales comparison approach Adj to comparables 0.2% - 89.0% (21.2%)
Income approach Capitalization rate 7.5% - 9.5% (8.9%)
Residential real estate $ 182 Sales comparison approach Adj to comparables 1.2% - 78.6% (7.6%)
Other real estate owned:
Commercial real estate $ 938 Sales comparison approach Adj to comparables 5.0% - 10.0% (7.5%)
Cost approach Entrepreneurial profit 5.0% (5.0%)
Cost approach Accumulated depreciation 50.0% (50.0%)
Assets Measured at Net Asset Value:
Park's portfolio of Partnership Investments are valued using the NAV practical expedient in accordance with ASC 820.
At December 31, 2024 and December 31, 2023, Park had Partnership Investments with a NAV of $32.6 million and $27.5 million, respectively. At December 31, 2024 and December 31, 2023, Park had $17.6 million and $18.4 million in unfunded
commitments related to these Partnership Investments. For the years ended December 31, 2024, 2023 and 2022, Park recognized income of $0.5 million, $0.4 million and $2.4 million, respectively, related to these Partnership Investments.
The fair value of certain financial instruments at December 31, 2024 and December 31, 2023 was as follows:
December 31, 2024
Fair Value Measurements
(In thousands) Carrying value Level 1 Level 2 Level 3 Total fair value
Financial assets:
Cash and money market instruments $ 160,566 $ 160,566 $ - $ - $ 160,566
Investment securities (1)
996,624 - 989,960 6,664 996,624
Other investment securities (2)
11,488 10,885 - 603 11,488
Mortgage loans held for sale 5,550 - 5,550 - 5,550
Mortgage IRLCs 85 - 85 - 85
Individually evaluated loans carried at fair value 2,946 - - 2,946 2,946
Other loans, net 7,720,581 - - 7,586,111 7,586,111
Loans receivable, net $ 7,729,162 $ - $ 5,635 $ 7,589,057 $ 7,594,692
Financial liabilities:
Time deposits $ 735,297 $ - $ 736,188 $ - $ 736,188
Brokered deposits and Bid Ohio CDs 176,486 - 176,522 - 176,522
Other 1,265 1,265 - - 1,265
Deposits (excluding demand deposits) $ 913,048 $ 1,265 $ 912,710 $ - $ 913,975
Short-term borrowings $ 90,432 $ - $ 90,432 $ - $ 90,432
Subordinated notes 189,651 - 185,599 - 185,599
Derivative financial instruments - assets:
Loan interest rate swaps $ 1,009 $ - $ 1,009 $ - $ 1,009
Derivative financial instruments - liabilities:
Fair value swap $ 103 $ - $ - $ 103 $ 103
Loan interest rate swaps 1,009 - 1,009 - 1,009
(1) Includes debt securities AFS.
(2) Excludes FHLB stock and FRB stock which are carried at their respective redemption values, investment securities accounted for at modified cost as these investments do not have a readily determinable fair value, and Partnership Investments valued using the NAV practical expedient.
December 31, 2023
Fair Value Measurements
(In thousands) Carrying value Level 1 Level 2 Level 3 Total fair value
Financial assets:
Cash and money market instruments $ 218,268 $ 218,268 $ - $ - $ 218,268
Investment securities (1)
1,332,842 - 1,326,493 6,349 1,332,842
Other investment securities (2)
2,089 1,616 - 473 2,089
Mortgage loans held for sale 3,235 - 3,235 - 3,235
Mortgage IRLCs 87 - 87 - 87
Individually evaluated loans carried at fair value 2,497 - - 2,497 2,497
Other loans, net 7,386,657 - - 7,200,851 7,200,851
Loans receivable, net $ 7,392,476 $ - $ 3,322 $ 7,203,348 $ 7,206,670
Financial liabilities:
Time deposits $ 641,615 $ - $ 641,180 $ - $ 641,180
Brokered deposits and Bid Ohio CDs 164,985 - 165,059 - 165,059
Other 1,261 1,261 - - 1,261
Deposits (excluding demand deposits) $ 807,861 $ 1,261 $ 806,239 $ - $ 807,500
Short-term borrowings $ 328,182 $ - $ 328,182 $ - $ 328,182
Subordinated notes 189,147 - 172,059 - 172,059
Derivative financial instruments - assets:
Loan interest rate swaps $ 1,069 $ - $ 1,069 $ - $ 1,069
Derivative financial instruments - liabilities:
Fair value swap $ 123 $ - $ - $ 123 $ 123
Loan interest rate swaps 1,069 - 1,069 - 1,069
(1) Includes debt securities AFS.
(2) Excludes FHLB stock and FRB stock which are carried at their respective redemption values, investment securities accounted for at modified cost as these investments do not have a readily determinable fair value, and Partnership Investments valued using the NAV practical expedient.
27. Capital Ratios
Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies. Park has elected not to include the net unrealized gain or loss on debt securities AFS in computing regulatory capital. Park has adopted the Basel III regulatory capital framework as approved by the federal banking agencies. Under the Basel III regulatory capital framework, in order to avoid limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers, Park must hold a capital conservation buffer of 2.50% above the adequately capitalized risk-based capital ratios. The amounts shown below as the adequately capitalized ratio plus capital conservation buffer include the 2.50% buffer. The Federal Reserve Board has also adopted requirements Park must maintain to be deemed "well-capitalized" and to remain a financial holding company.
Each of PNB and Park met all of the well-capitalized ratio guidelines applicable to it at December 31, 2024. The following table indicates the capital ratios for PNB and Park at December 31, 2024 and 2023.
As of December 31, 2024
Leverage Tier 1
Risk-Based Common Equity Tier 1 Total
Risk-Based
PNB 9.80 % 11.44 % 11.44 % 12.85 %
Park 11.51 % 13.46 % 13.28 % 16.63 %
Adequately capitalized ratio 4.00 % 6.00 % 4.50 % 8.00 %
Adequately capitalized ratio plus capital conservation buffer 4.00 % 8.50 % 7.00 % 10.50 %
Well-capitalized ratio - PNB 5.00 % 8.00 % 6.50 % 10.00 %
Well-capitalized ratio - Park N/A 6.00 % N/A 10.00 %
As of December 31, 2023
Leverage Tier 1
Risk-Based Common Equity Tier 1 Total
Risk-Based
PNB 9.11 % 10.95 % 10.95 % 12.35 %
Park 10.74 % 12.97 % 12.79 % 16.19 %
Adequately capitalized ratio 4.00 % 6.00 % 4.50 % 8.00 %
Adequately capitalized ratio plus capital conservation buffer 4.00 % 8.50 % 7.00 % 10.50 %
Well-capitalized ratio - PNB 5.00 % 8.00 % 6.50 % 10.00 %
Well-capitalized ratio - Park N/A 6.00 % N/A 10.00 %
The following table reflects various measures of capital for Park and PNB:
To Be Adequately Capitalized To Be Well-Capitalized
(In thousands) Actual Amount Ratio Amount Ratio Amount Ratio
At December 31, 2024
Total Risk-Based Capital
(to risk-weighted assets)
PNB $ 1,081,979 12.85 % $ 673,671 8.00 % $ 842,089 10.00 %
Park 1,408,999 16.63 % 677,966 8.00 % 847,458 10.00 %
Tier 1 Risk-Based Capital
(to risk-weighted assets)
PNB $ 963,148 11.44 % $ 505,253 6.00 % $ 673,671 8.00 %
Park 1,140,517 13.46 % 508,475 6.00 % 508,475 6.00 %
Leverage Ratio
(to average total assets)
PNB $ 963,148 9.80 % $ 393,256 4.00 % $ 491,570 5.00 %
Park 1,140,517 11.51 % 396,519 4.00 % N/A N/A
Common Equity Tier 1
(to risk-weighted assets)
PNB $ 963,148 11.44 % $ 378,940 4.50 % $ 547,358 6.50 %
Park 1,125,517 13.28 % 381,356 4.50 % N/A N/A
At December 31, 2023
Total Risk-Based Capital
(to risk-weighted assets)
PNB $ 1,005,211 12.35 % $ 651,130 8.00 % $ 813,913 10.00 %
Park 1,323,588 16.19 % 654,197 8.00 % 817,747 10.00 %
Tier 1 Risk-Based Capital
(to risk-weighted assets)
PNB $ 891,363 10.95 % $ 488,348 6.00 % $ 651,130 8.00 %
Park 1,060,593 12.97 % 490,648 6.00 % 490,648 6.00 %
Leverage Ratio
(to average total assets)
PNB $ 891,363 9.11 % $ 391,376 4.00 % $ 489,220 5.00 %
Park 1,060,593 10.74 % 395,131 4.00 % N/A N/A
Common Equity Tier 1
(to risk-weighted assets)
PNB 891,363 10.95 % 366,261 4.50 % 529,043 6.50 %
Park 1,045,593 12.79 % 367,986 4.50 % N/A N/A
28. Segment Information
Park's chief operating decision maker is Park's Chairman and Chief Executive Officer. While the chief decision maker monitors the operating results of its lines of business, operations are managed and financial performance is evaluated on a consolidated basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.
The segment is determined by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products, and services are similar. The chief operating decision maker will evaluate the financial performance of Park's business components such as by evaluating interest income, interest expense, other revenue streams, significant expenses, and budget to actual results in assessing Park's segment and in the determination of allocation resources. The chief operating
decision maker uses consolidated net income to benchmark Park against its peers. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessment of performance and in establishing compensation. Loans, investments, deposits, and fiduciary income provide the revenues in the banking operation. Interest expense, provisions for credit losses, and payroll/benefits provide the significant expenses in the banking operation. All operations are domestic.
Accounting policies for Park's reportable segment are the same as described in Note 1 - Summary of Significant Accounting Policies. Segment performance is evaluated using consolidated net income. Information reported internally for performance assessment by the chief operating decision maker follows, inclusive of reconciliations of significant segment totals to the financial statements.
Banking Segment
(in thousands) 2024 2023 2022
Interest Income $ 522,965 $ 471,670 $ 378,247
Reconciliation of Revenue
Other revenues $ 122,588 $ 92,634 $ 135,935
Total consolidated revenues $ 645,553 $ 564,304 $ 514,182
Less:
Interest expense $ 124,946 $ 98,557 $ 31,188
Segment net interest income and noninterest income $ 520,607 $ 465,747 $ 482,994
Less:
Provision for credit losses 14,543 2,904 4,557
Salaries 147,311 139,237 133,299
Employee benefits 41,724 42,264 40,490
Occupancy expense 12,816 13,114 13,866
Furniture and equipment expense 9,983 12,233 11,901
Data processing fees 40,564 37,637 32,627
Professional fees and services 31,146 29,173 30,837
Marketing 6,318 5,471 5,335
Insurance 6,735 7,640 5,413
Communication 4,097 4,210 3,891
State tax expense 4,500 4,657 4,585
Amortization of intangible assets 1,215 1,323 1,487
Foundation contributions 2,000 1,000 4,000
Miscellaneous 12,930 11,280 10,247
Income taxes 33,305 26,870 32,108
Segment net income/consolidated net income $ 151,420 $ 126,734 $ 148,351
(in thousands) 2024 2023 2022
Other segment disclosures
Interest income 522,965 471,670 378,247
Interest expense 124,946 98,557 31,188
Depreciation 12,192 14,015 13,819
Amortization 1,215 1,323 1,487
Other significant noncash items:
Provision for credit losses 14,543 2,904 4,557
Segment assets 9,805,350 9,836,453 9,854,993
Reconciliation of assets
Total assets for reportable segments $ 9,805,350 9,836,453 9,854,993
Other assets - - -
Total consolidated assets $ 9,805,350 9,836,453 9,854,993
29. Parent Company Statements
The Parent Company statements should be read in conjunction with the consolidated financial statements and the information set forth below. Investments in subsidiaries are accounted for using the equity method of accounting.
Cash represents non-interest bearing deposits with PNB. Net cash provided by operating activities reflects cash payments (received from subsidiaries) partially offset by cash payments to government entities for income taxes of $3.0 million, $6.1 million and $2.2 million in 2024, 2023 and 2022, respectively.
Condensed Balance Sheets
December 31, 2024 and 2023
(In thousands) 2024 2023
Assets:
Cash $ 277,808 $ 282,151
Investment in subsidiaries 1,095,701 1,007,342
Debentures receivable from PNB 25,000 25,000
Other receivables from subsidiaries 1,261 1,160
Other investments 10,523 1,170
Other assets 41,363 35,610
Total assets $ 1,451,656 $ 1,352,433
Liabilities:
Subordinated notes $ 189,651 $ 189,147
Other payables to subsidiaries 1 455
Other liabilities 18,156 17,538
Total liabilities $ 207,808 $ 207,140
Total shareholders’ equity $ 1,243,848 $ 1,145,293
Total liabilities and shareholders’ equity $ 1,451,656 $ 1,352,433
Condensed Statements of Income
for the years ended December 31, 2024, 2023 and 2022
(In thousands) 2024 2023 2022
Income:
Dividends from subsidiaries $ 93,000 $ 110,000 $ 120,000
Interest and dividends 2,188 1,678 1,250
Other 2,418 163 2,478
Total income 97,606 111,841 123,728
Expense:
Interest expense $ 9,428 $ 9,383 $ 8,833
Other, net 8,976 9,536 10,504
Total expense 18,404 18,919 19,337
Income before income taxes and equity in undistributed income of subsidiaries $ 79,202 $ 92,922 $ 104,391
Income tax benefit 3,876 4,196 5,142
Income before equity in undistributed income of subsidiaries 83,078 97,118 109,533
Equity in undistributed income of subsidiaries 68,342 29,616 38,818
Net income $ 151,420 $ 126,734 $ 148,351
Other comprehensive income (loss) (1)
20,016 36,203 (117,549)
Comprehensive income $ 171,436 $ 162,937 $ 30,802
(1) See Consolidated Statements of Comprehensive Income for other comprehensive income (loss) detail.
Statements of Cash Flows
for the years ended December 31, 2024, 2023 and 2022
(In thousands) 2024 2023 2022
Operating activities:
Net income $ 151,420 $ 126,734 $ 148,351
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed income of subsidiaries (68,342) (29,616) (38,818)
Compensation expense for issuance of treasury shares to directors 1,223 1,223 1,320
Share-based compensation expense 6,446 6,787 5,879
(Gain) loss on equity securities, net (1,872) 151 207
(Increase) decrease in other assets (23) 828 (2,514)
(Decrease) increase in other liabilities (1,770) (2,752) 4,896
Net cash provided by operating activities 87,082 103,355 119,321
Investing activities:
Proceeds from sales of securities - 1,370 -
Purchase of equity securities (10,213) (2,195) (9,165)
Other, net (600) (31) 144
Net cash used in investing activities (10,813) (856) (9,021)
Financing activities:
Cash dividends paid (77,496) (68,951) (76,604)
Repurchase of common shares to be held as treasury shares - (23,017) -
Cash payment for fractional shares - - (2)
Value of common shares withheld to pay employee income taxes (3,116) (2,844) (2,761)
Net cash used in financing activities (80,612) (94,812) (79,367)
(Decrease) increase in cash (4,343) 7,687 30,933
Cash at beginning of year 282,151 274,464 243,531
Cash at end of year $ 277,808 $ 282,151 $ 274,464
30. Revenue from Contracts with Customers
All of Park's revenue from contracts with customers within the scope of ASC 606 is recognized within "Other income" in the Consolidated Statements of Income. All of Park's operations are considered by management to be aggregated in one reportable segment.
The following table presents the Corporation's sources of other income by revenue stream for the years ended December 31, 2024, 2023, and 2022:
Year ended December 31, 2024 Year ended December 31, 2023 Year ended December 31, 2022
Revenue by Operating Segment (in thousands) PRK PRK PRK
Income from fiduciary activities
Personal trust and agency accounts $ 12,825 10,297 10,091
Employee benefit and retirement-related accounts 11,093 9,894 9,698
Investment management and investment advisory agency accounts 16,184 13,242 12,442
Other 2,387 2,041 1,860
Service charges on deposit accounts
Non-sufficient funds (NSF) fees 3,236 3,744 6,095
Demand deposit account (DDA) charges 5,286 4,229 3,439
Other 479 472 557
Other service income (1)
Credit card 2,652 2,799 2,808
HELOC 389 369 397
Installment 161 177 163
Real estate 7,091 5,795 9,952
Commercial 1,450 1,160 1,975
Debit card fee income 25,873 26,522 26,046
Bank owned life insurance income (2)
7,770 5,338 6,100
ATM fees 1,840 2,178 2,273
Pension settlement gain (2)
6,148 - -
Gain (loss) on the sale of OREO, net 42 (3) 5,611
OREO valuation markup 30 60 12,039
Loss on the sale of debt securities, net (2)
(526) (7,875) -
Gain on equity securities, net (2)
3,080 971 2,955
Other components of net periodic pension benefit income (2)
9,263 7,572 12,108
Miscellaneous (3)
5,835 3,652 9,326
Total other income $ 122,588 $ 92,634 $ 135,935
(1) "Other Service Income" totaled $11.7 million, $10.3 million, and $15.3 million for the years ended December 31, 2024, 2023, and 2022, respectively. Of this aggregate service revenue, approximately, $5.7 million, $5.2 million, and $5.6 million is within the scope of ASC 606, with the remaining $6.0 million, $5.1 million, and $9.7 million consisting primarily of residential real estate loan fees which are out of scope for each respective year.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, gains/losses on asset sales, and miscellaneous bank fees totaling $5.8 million, $3.7 million, and $9.3 million for the years ended December 31, 2024, 2023, and 2022, respectively, all of which are within the scope of ASC 606.
A description of Park's material revenue streams accounted for under ASC 606 follows:
Income from fiduciary activities (gross): Park earns fiduciary fee income and investment brokerage fees from its contracts with wealth management customers for various fiduciary and investment-related services. These fees are earned over time as the Company provides the contracted monthly and quarterly services and are generally assessed based on the market value of the trust assets.
Service charges on deposit accounts and ATM fees: The Corporation earns fees from the Corporation's deposit customers for transaction-based, account maintenance, and overdraft services. Fees for transaction-based services, which include services such as ATM use fees, stop payment charges, statement rendering fees, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are generally recognized at the end of the month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.
Other service income: Other service income includes income from (1) the sale and servicing of loans sold to the secondary market, (2) incentive income from third-party credit card issuers, and (3) loan customers for various loan-related activities and services. Income related to the sale and servicing of loans sold to the secondary market is included within "Other service income", but is not within the scope of ASC 606. Services that fall within the scope of ASC 606 are recognized as revenue when the Company satisfies the Company's performance obligation to the customer.
Debit card fee income: Park earns interchange fees from debit cardholder transactions conducted primarily through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, net of card network fees, concurrently with the transaction processing services provided to the cardholder.
Gain or loss on sale of OREO, net: The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of delivery of an executed deed. When Park finances the sale of OREO to the buyer, the Corporation assesses whether the buyer is committed to perform the buyer's obligation under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Corporation adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.
OREO valuation markup: The Corporation records an OREO valuation markup immediately prior to the transfer of a loan to OREO when the fair market value of the property less costs to sell exceeds the principal balance of the loan.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
No response required.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A.CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
With the participation of the Chairman of the Board and Chief Executive Officer (the principal executive officer) and the Chief Financial Officer, Secretary and Treasurer (the principal financial officer) of Park, Park’s management has evaluated the effectiveness of Park’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the fiscal year covered by this Annual Report on Form 10-K. Based on that evaluation, Park’s Chairman of the Board and Chief Executive Officer and Park’s Chief Financial Officer, Secretary and Treasurer have concluded that:
•information required to be disclosed by Park in this Annual Report on Form 10-K and the other reports that Park files or submits under the Exchange Act would be accumulated and communicated to Park’s management, including Park's principal executive officer and Park's principal financial officer, as appropriate to allow timely decisions regarding required disclosure;
•information required to be disclosed by Park in this Annual Report on Form 10-K and the other reports that Park files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and
•Park’s disclosure controls and procedures were effective as of the end of the fiscal year covered by this Annual Report on Form 10-K.
Management’s Annual Report on Internal Control over Financial Reporting
The “MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING” is included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
Audit Report of the Registered Public Accounting Firm
The “REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” is included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in Park’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Park’s quarter ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, Park’s internal control over financial reporting.

---

ITEM 9B. OTHER INFORMATION
ITEM 9B.OTHER INFORMATION.
During the three months (the quarterly period) ended December 31, 2024, no director and no officer of Park (as defined in Rule 16a-1(f) under the Exchange Act) of Park adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of SEC Regulation S-K.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors, Executive Officers and Persons Nominated or Chosen to Become Directors or Executive Officers
The information required by Item 401 of SEC Regulation S-K concerning the directors of Park and the nominees for election as directors of Park at the Annual Meeting of Shareholders to be held on April 28, 2025 (the “2025 Annual Meeting”) is incorporated herein by reference from the disclosure to be included under the caption “ELECTION OF DIRECTORS (Proposal 1)” in Park’s definitive Proxy Statement relating to the 2025 Annual Meeting to be filed pursuant to SEC Regulation 14A (“Park’s 2025 Proxy Statement”).
The information required by Item 401 of SEC Regulation S-K concerning the executive officers of Park is incorporated herein by reference from the disclosure to be included under the caption “EXECUTIVE OFFICERS” in Park’s 2025 Proxy Statement.
Compliance with Section 16(a) of the Exchange Act
The information required by Item 405 of SEC Regulation S-K regarding delinquent reports required under Section 16(a) of the Securities Exchange Act of 1934, as amended, with respect to the 2024 fiscal year, is incorporated by reference from the disclosure to be included under the caption "BENEFICIAL OWNERSHIP OF PARK COMMON SHARES - Delinquent Section 16(a) Reports" in Park's 2025 Proxy Statement.
Committee Charters; Corporate Governance Guidelines; Code of Business Conduct and Ethics
Park’s Board of Directors has adopted charters for each of the Audit Committee, the Compensation Committee, the Executive Committee, the Nominating and Corporate Governance Committee and the Risk Committee. Park's Board of Directors has also adopted Corporate Governance Guidelines which are included as Exhibit A to the charter of the Nominating and Corporate Governance Committee.
In accordance with the requirements of Section 807 of the NYSE American Company Guide, the Board of Directors of Park has adopted a Code of Business Conduct and Ethics covering the directors, officers and employees of Park and Park's subsidiaries, including Park’s Chairman of the Board and Chief Executive Officer (the principal executive officer), Park's President, Park’s Chief Financial Officer, Secretary and Treasurer (the principal financial officer) and Park’s Chief Accounting Officer (the principal accounting officer). Park intends to disclose the following events, if they occur, in a current report on Form 8-K within four business days following their occurrence: (A) the date and nature of any amendment to a provision of Park’s Code of Business Conduct and Ethics that (i) applies to Park’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, (ii) relates to any element of the code of
ethics definition enumerated in Item 406(b) of SEC Regulation S-K, and (iii) is not a technical, administrative or other non-substantive amendment; and (B) a description of any waiver (including the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver), including an implicit waiver, from a provision of the Code of Business Conduct and Ethics granted to Park’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions that relates to one or more of the elements of the code of ethics definition set forth in Item 406(b) of SEC Regulation S-K. In addition, Park will disclose any waivers from the provisions of the Code of Business Conduct and Ethics granted to a director or an executive officer of Park in a current report on Form 8-K within four business days following their occurrence in accordance with the requirements of the Commentary to Section 807 of the NYSE American Company Guide.
Park has adopted an Insider Trading Policy governing the purchase, sale, and/or other dispositions of Park’s securities by directors, officers, employees, and by Park itself that are reasonably designed to promote compliance with insider trading laws, rules, regulations and applicable listing standards. The Insider Trading Policy is attached as Exhibit 19 to this Annual Report on Form 10-K.
The text of each of the Code of Business Conduct and Ethics, the Audit Committee Charter, the Compensation Committee Charter, the Executive Committee Charter, the Nominating and Corporate Governance Committee Charter (including the Corporate Governance Guidelines) and the Risk Committee Charter is posted on the “Governance - Governance Documents” section of the “Investor Relations” page of Park’s Internet site located at http://www.parknationalcorp.com, which website and its contents are not incorporated by reference into this Annual Report on Form 10-K. Interested persons may also obtain copies of the Code of Business Conduct and Ethics, the Audit Committee Charter, the Compensation Committee Charter, the Executive Committee Charter, the Nominating and Corporate Governance Committee Charter and the Risk Committee Charter, without charge, by writing to the Chief Financial Officer, Secretary and Treasurer of Park at Park National Corporation, 51 North Third Street, P.O. Box 3500, Newark, Ohio 43058-3500, Attention: Brady T. Burt.
Procedures for Recommending Director Nominees
Information concerning the procedures by which shareholders of Park may recommend nominees to Park's Nominating and Corporate Governance Committee and Park’s full Board of Directors is incorporated herein by reference from the disclosure to be included under the caption “CORPORATE GOVERNANCE - Nominating Procedures” in Park’s 2025 Proxy Statement. These procedures have not materially changed from those described in Park’s definitive Proxy Statement for the 2024 Annual Meeting of Shareholders held on April 22, 2024.
Audit Committee
The information required by Items 407(d)(4) and 407(d)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “STRUCTURE AND MEETINGS OF BOARD OF DIRECTORS - Committees of the Board - Audit Committee” in Park’s 2025 Proxy Statement.

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11.EXECUTIVE COMPENSATION.
The information required by Item 402 of SEC Regulation S-K, with the exception of Item 402(v) of SEC Regulation S-K, is incorporated herein by reference from the disclosure to be included under the captions “EXECUTIVE COMPENSATION” and “DIRECTOR COMPENSATION” in Park’s 2025 Proxy Statement. The information required by Item 402(v) of SEC Regulation S-K to be included in Park's 2025 Proxy Statement is not incorporated into this Annual Report on Form 10-K and will not deemed to be incorporated by reference into any filing under the Securities Act, or the Exchange Act.
The information required by Item 407(e)(4) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION” in Park’s 2025 Proxy Statement.
The information required by Item 407(e)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “EXECUTIVE COMPENSATION - Compensation Committee Report” in Park’s 2025 Proxy Statement.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Beneficial Ownership of Common Shares of Park
The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “BENEFICIAL OWNERSHIP OF PARK COMMON SHARES” in Park’s 2025 Proxy Statement.
Equity Compensation Plan Information
The information required by Item 201(d) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption "EQUITY COMPENSATION PLAN INFORMATION" in Park's 2025 Proxy Statement.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Certain Relationships and Related Person Transactions
The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the captions “CORPORATE GOVERNANCE - Independence of Directors,” “CORPORATE GOVERNANCE - Transactions with Related Persons” and “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION” in Park’s 2025 Proxy Statement.
Director Independence
The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “CORPORATE GOVERNANCE - Independence of Directors” in Park’s 2025 Proxy Statement.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information called for in this Item 14 is incorporated herein by reference from the disclosure to be included under the captions “AUDIT COMMITTEE MATTERS - Pre-Approval of Services Performed by Independent Registered Public Accounting Firm” and “AUDIT COMMITTEE MATTERS - Fees of Independent Registered Public Accounting Firm” in Park’s 2025 Proxy Statement.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm (Crowe LLP) -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
Consolidated Balance Sheets at December 31, 2024 and 2023 -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
Consolidated Statements of Income for the years ended December 31, 2024, 2023 and 2022 -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
Consolidated Statements of Comprehensive Income for the years ended December 31, 2024, 2023 and 2022 -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2024, 2023 and 2022 -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022 -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
Notes to Consolidated Financial Statements -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
(2) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and have been omitted.
(3) Exhibits.
The documents listed in the Index to Exhibits that immediately precedes the "Signatures" pages of this Annual Report on Form 10-K are filed or furnished with this Annual Report on Form 10-K as exhibits or incorporated into this Annual Report on Form 10-K by reference, in each case as noted. Each management contract or compensatory plan or arrangement is identified as such in the Index to Exhibits.
(b) The documents listed in the Index to Exhibits that immediately precedes the "Signatures" pages of this Annual Report on Form 10-K are filed or furnished with this Annual Report on Form 10-K as exhibits or incorporated into this Annual Report on Form 10-K by reference.
(c) Financial Statement Schedules.
None.