UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20212022
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________________ to __________________________
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Commission File Number | 1-13006 |
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PARK NATIONAL CORPORATION |
(Exact name of registrant as specified in its charter) |
| | | | | | | | |
Ohio | | 31-1179518 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | | | | | | | | | | | |
50 North Third Street, | P.O. Box 3500 | Newark, | Ohio | 43058-3500 |
(Address of principal executive offices) (Zip Code) |
| | | | | |
(740) | 349-8451 |
(Registrant’s telephone number, including area code) |
| | |
N/A |
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common shares, without par value | PRK | NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”,
“smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 16,219,57216,263,583 Common Shares, no par value per share, outstanding at November 2, 2021.7, 2022.
PARK NATIONAL CORPORATION
CONTENTS | | | | | |
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PART I. FINANCIAL INFORMATION | |
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Item 1. Financial Statements | |
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Glossary of Abbreviations and Acronyms
Park has identified the following list of abbreviations and acronyms that are used in the Unaudited Consolidated Condensed Financial Statements, Notes to Unaudited Consolidated Condensed Financial Statements, and Management's Discussion and Analysis of Financial Condition and Results of Operations.
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AFS | Available-for-sale | | LIBOR | London Inter-Bank Offered Rate |
ACL | Allowance for credit losses | | MSRs | Mortgage servicing rights |
Allowance | Allowance for credit losses | | NAV | Net asset value |
AOCI | Accumulated other comprehensive (loss) income | | NewDominion | NewDominion Bank |
ASC | Accounting Standards Codification | | OCI | Other comprehensive (loss) income |
ASU | Accounting Standards Update | | OREO | Other real estate owned |
AUCL | Allowance for unfunded credit losses | | OWS | One-way sell |
CABF | CAB Financial Corporation and its subsidiaries | | Park | Park National Corporation and its subsidiaries |
CARES Act | Coronavirus Aid, Relief, and Economic Security Act | | PBRSUsPark | Performance-based restricted stock unitsPark National Corporation and its subsidiaries |
Carolina Alliance | CAB Financial Corporation and its subsidiaries | | PCDPBRSUs | Purchased credit deterioratedPerformance-based restricted stock units |
CECL | Current expected credit loss | | PCIPCD | Purchased credit impaireddeteriorated |
COVID-19 | Novel coronavirus | | PD | Probability of default |
DCF | Discounted cash flow | | PNB | The Park National Bank |
FASB | Financial Accounting Standards Board | | PPP | CARES Act Paycheck Protection Program |
FHLB | Federal Home Loan Bank | | ROU | Right-of-use |
FRB | Federal Reserve Bank | | SARs | Stock appreciation rights |
GDP | Gross domestic product | | SBA | Small Business Administration |
GFSC | Guardian Financial Services Company | | SEC | U.S. Securities and Exchange Commission |
HPI | Home price index | | SEPH | SE Property Holdings, LLC |
HPIHTM | Home price indexHeld-to-maturity | | TBRSUs | Time-based restricted stock units |
HTMIRLC | Held-to-maturityInterest rate lock commitment | | TDRs | Troubled debt restructurings |
IRLCKSOP | Interest rate lock commitmentPark's qualified retirement plan that combines an employee stock ownership plan (ESOP) with a 401(k) plan | | U.S. GAAP | United States Generally Accepted Accounting Principles |
LDA | Loss driver analysis | | U.S. | United States |
LGD | Loss given default | | | |
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands, except share and per share data)
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
Assets: | Assets: | | | | Assets: | | | |
Cash and due from banks | Cash and due from banks | $ | 127,685 | | | $ | 155,596 | | Cash and due from banks | $ | 149,136 | | | $ | 144,507 | |
Money market instruments | Money market instruments | 749,710 | | | 214,878 | | Money market instruments | 58,297 | | | 74,673 | |
Cash and cash equivalents | Cash and cash equivalents | 877,395 | | | 370,474 | | Cash and cash equivalents | 207,433 | | | 219,180 | |
| Investment securities: | Investment securities: | | | | Investment securities: | | | |
Debt securities available-for-sale, at fair value (amortized cost of $1,519,098 and $1,007,834 at September 30, 2021 and December 31, 2020, respectively, and no allowance for credit losses at September 30, 2021) | 1,553,218 | | | 1,059,341 | | |
Debt securities available-for-sale, at fair value (amortized cost of $1,893,453 and $1,727,363 at September 30, 2022 and December 31, 2021, respectively, and no allowance for credit losses at September 30, 2022 and December 31, 2021) | | Debt securities available-for-sale, at fair value (amortized cost of $1,893,453 and $1,727,363 at September 30, 2022 and December 31, 2021, respectively, and no allowance for credit losses at September 30, 2022 and December 31, 2021) | 1,742,123 | | | 1,754,140 | |
Other investment securities | Other investment securities | 56,085 | | | 65,465 | | Other investment securities | 85,945 | | | 61,268 | |
Total investment securities | Total investment securities | 1,609,303 | | | 1,124,806 | | Total investment securities | 1,828,068 | | | 1,815,408 | |
| Loans | Loans | 6,908,417 | | | 7,177,785 | | Loans | 7,103,246 | | | 6,871,122 | |
Allowance for credit losses | Allowance for credit losses | (88,129) | | | (85,675) | | Allowance for credit losses | (83,961) | | | (83,197) | |
Net loans | Net loans | 6,820,288 | | | 7,092,110 | | Net loans | 7,019,285 | | | 6,787,925 | |
| Bank owned life insurance | Bank owned life insurance | 215,401 | | | 216,225 | | Bank owned life insurance | 219,909 | | | 215,792 | |
Prepaid assets | Prepaid assets | 116,228 | | | 103,523 | | Prepaid assets | 158,301 | | | 144,124 | |
Goodwill | Goodwill | 159,595 | | | 159,595 | | Goodwill | 159,595 | | | 159,595 | |
Other intangible assets | Other intangible assets | 7,882 | | | 9,260 | | Other intangible assets | 6,316 | | | 7,462 | |
Premises and equipment, net | Premises and equipment, net | 88,909 | | | 88,660 | | Premises and equipment, net | 84,669 | | | 89,008 | |
Affordable housing tax credit investments | Affordable housing tax credit investments | 60,457 | | | 56,024 | | Affordable housing tax credit investments | 62,771 | | | 58,711 | |
OREO | OREO | 813 | | | 1,431 | | OREO | 1,354 | | | 775 | |
Accrued interest receivable | Accrued interest receivable | 23,628 | | | 24,926 | | Accrued interest receivable | 29,144 | | | 23,413 | |
Operating lease right-of-use asset | Operating lease right-of-use asset | 13,426 | | | 15,078 | | Operating lease right-of-use asset | 15,536 | | | 13,446 | |
Mortgage loan servicing rights | Mortgage loan servicing rights | 14,556 | | | 12,210 | | Mortgage loan servicing rights | 16,191 | | | 15,264 | |
Other | Other | 26,137 | | | 4,699 | | Other | 46,475 | | | 10,151 | |
Total assets | Total assets | $ | 10,034,018 | | | $ | 9,279,021 | | Total assets | $ | 9,855,047 | | | $ | 9,560,254 | |
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (Unaudited) (Continued)
(in thousands, except share and per share data)
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Liabilities and Shareholders' Equity: | | | |
Deposits: | | | |
Non-interest bearing | $ | 2,981,928 | | | $ | 2,727,100 | |
Interest bearing | 5,382,457 | | | 4,845,258 | |
Total deposits | 8,364,385 | | | 7,572,358 | |
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Short-term borrowings | 235,979 | | | 342,230 | |
Long-term debt | — | | | 32,500 | |
Subordinated notes | 188,099 | | | 187,774 | |
Unfunded commitments in affordable housing tax credit investments | 33,116 | | | 29,298 | |
Operating lease liability | 14,480 | | | 16,053 | |
Allowance for credit losses on off-balance sheet commitments | 4,642 | | | 116 | |
Accrued interest payable | 1,330 | | | 3,860 | |
Unsettled investment commitments | 52,508 | | | — | |
Other | 71,567 | | | 54,576 | |
Total liabilities | $ | 8,966,106 | | | $ | 8,238,765 | |
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Shareholders' equity: | | | |
Preferred shares (200,000 shares authorized; 0 shares issued) | $ | — | | | $ | — | |
Common shares (No par value; 20,000,000 shares authorized; 17,623,132 shares issued at September 30, 2021 and 17,623,163 shares issued at December 31, 2020) | 459,953 | | | 460,687 | |
Retained earnings | 759,619 | | | 704,764 | |
Treasury shares (1,416,955 shares at September 30, 2021 and 1,308,966 shares at December 31, 2020) | (143,850) | | | (130,766) | |
Accumulated other comprehensive (loss) income, net of taxes | (7,810) | | | 5,571 | |
Total shareholders' equity | 1,067,912 | | | 1,040,256 | |
Total liabilities and shareholders’ equity | $ | 10,034,018 | | | $ | 9,279,021 | |
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Liabilities and Shareholders' Equity: | | | |
Deposits: | | | |
Non-interest bearing | $ | 3,138,417 | | | $ | 3,066,419 | |
Interest bearing | 5,171,510 | | | 4,838,109 | |
Total deposits | 8,309,927 | | | 7,904,528 | |
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Short-term borrowings | 189,493 | | | 238,786 | |
Subordinated notes | 188,551 | | | 188,210 | |
Unfunded commitments in affordable housing tax credit investments | 28,480 | | | 28,484 | |
Operating lease liability | 16,414 | | | 14,339 | |
Allowance for credit losses on off-balance sheet commitments | 4,451 | | | 4,282 | |
Accrued interest payable | 1,295 | | | 3,116 | |
Other | 80,264 | | | 67,750 | |
Total liabilities | $ | 8,818,875 | | | $ | 8,449,495 | |
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Shareholders' equity: | | | |
Preferred shares (200,000 shares authorized; No shares issued) | $ | — | | | $ | — | |
Common shares (No par value; 20,000,000 shares authorized; 17,623,104 shares issued at September 30, 2022 and 17,623,118 shares issued at December 31, 2021) | 461,321 | | | 461,800 | |
Retained earnings | 839,207 | | | 776,294 | |
Treasury shares (1,369,310 shares at September 30, 2022 and 1,403,555 shares at December 31, 2021) | (139,013) | | | (142,490) | |
Accumulated other comprehensive (loss) income, net of taxes | (125,343) | | | 15,155 | |
Total shareholders' equity | 1,036,172 | | | 1,110,759 | |
Total liabilities and shareholders’ equity | $ | 9,855,047 | | | $ | 9,560,254 | |
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited)
(in thousands, except share and per share data)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Interest and dividend income: | | | | | | | |
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Interest and fees on loans | $ | 78,127 | | | $ | 82,617 | | | $ | 238,040 | | | $ | 243,459 | |
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Interest and dividends on: | | | | | | | |
Obligations of U.S. Government sponsored entities' and other securities - taxable | 4,904 | | | 4,841 | | | 13,760 | | | 15,398 | |
Obligations of states and political subdivisions - tax-exempt | 2,029 | | | 2,045 | | | 6,098 | | | 6,396 | |
Other interest income | 360 | | | 63 | | | 689 | | | 667 | |
Total interest and dividend income | 85,420 | | | 89,566 | | | 258,587 | | | 265,920 | |
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Interest expense: | | | | | | | |
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Interest on deposits: | | | | | | | |
Demand and savings deposits | 435 | | | 803 | | | 1,222 | | | 8,652 | |
Time deposits | 1,011 | | | 2,662 | | | 3,880 | | | 10,293 | |
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Interest on borrowings: | | | | | | | |
Short-term borrowings | 187 | | | 217 | | | 552 | | | 912 | |
Long-term debt | 2,185 | | | 2,044 | | | 6,746 | | | 4,754 | |
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Total interest expense | 3,818 | | | 5,726 | | | 12,400 | | | 24,611 | |
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Net interest income | 81,602 | | | 83,840 | | | 246,187 | | | 241,309 | |
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Provision for (recovery of) credit loss | 1,972 | | | 13,836 | | | (6,923) | | | 31,213 | |
Net interest income after provision for (recovery of) credit loss | 79,630 | | | 70,004 | | | 253,110 | | | 210,096 | |
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Other income: | | | | | | | |
Income from fiduciary activities | 8,820 | | | 7,335 | | | 25,562 | | | 21,241 | |
Service charges on deposit accounts | 2,389 | | | 2,118 | | | 6,475 | | | 6,322 | |
Other service income | 6,668 | | | 13,047 | | | 23,444 | | | 25,571 | |
Debit card fee income | 6,453 | | | 5,853 | | | 19,297 | | | 16,373 | |
Bank owned life insurance income | 1,462 | | | 1,192 | | | 3,776 | | | 3,619 | |
ATM fees | 622 | | | 491 | | | 1,807 | | | 1,341 | |
Gain (loss) on sale of OREO, net | 3 | | | 569 | | | (26) | | | 1,214 | |
Net (loss) gain on sale of debt securities | — | | | (27) | | | — | | | 3,286 | |
Gain (loss) on equity securities, net | 609 | | | 1,201 | | | 2,886 | | | (749) | |
Other components of net periodic pension benefit income | 2,038 | | | 1,988 | | | 6,114 | | | 5,964 | |
Miscellaneous | 3,347 | | | 2,791 | | | 8,403 | | | 5,826 | |
Total other income | 32,411 | | | 36,558 | | | 97,738 | | | 90,008 | |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Interest and dividend income: | | | | | | | |
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Interest and fees on loans | $ | 83,522 | | | $ | 78,127 | | | $ | 233,725 | | | $ | 238,040 | |
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Interest and dividends on: | | | | | | | |
Debt securities - taxable | 10,319 | | | 4,904 | | | 24,073 | | | 13,760 | |
Debt securities - tax-exempt | 2,923 | | | 2,029 | | | 8,046 | | | 6,098 | |
Other interest income | 3,180 | | | 360 | | | 3,593 | | | 689 | |
Total interest and dividend income | 99,944 | | | 85,420 | | | 269,437 | | | 258,587 | |
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Interest expense: | | | | | | | |
| | | | | | | |
Interest on deposits: | | | | | | | |
Demand and savings deposits | 5,757 | | | 435 | | | 7,441 | | | 1,222 | |
Time deposits | 825 | | | 1,011 | | | 2,253 | | | 3,880 | |
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Interest on borrowings: | | | | | | | |
Short-term borrowings | 306 | | | 187 | | | 740 | | | 552 | |
Long-term debt | 2,228 | | | 2,185 | | | 6,550 | | | 6,746 | |
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Total interest expense | 9,116 | | | 3,818 | | | 16,984 | | | 12,400 | |
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Net interest income | 90,828 | | | 81,602 | | | 252,453 | | | 246,187 | |
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Provision for (recovery of) credit losses | 3,190 | | | 1,972 | | | 1,576 | | | (6,923) | |
Net interest income after provision for (recovery of) credit losses | $ | 87,638 | | | $ | 79,630 | | | 250,877 | | | 253,110 | |
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Other income: | | | | | | | |
Income from fiduciary activities | $ | 8,216 | | | $ | 8,820 | | | 25,872 | | | 25,562 | |
Service charges on deposit accounts | 2,859 | | | 2,389 | | | 7,496 | | | 6,475 | |
Other service income | 2,956 | | | 6,668 | | | 12,715 | | | 23,444 | |
Debit card fee income | 6,514 | | | 6,453 | | | 19,371 | | | 19,297 | |
Bank owned life insurance income | 1,185 | | | 1,462 | | | 4,734 | | | 3,776 | |
ATM fees | 610 | | | 622 | | | 1,725 | | | 1,807 | |
Gain (loss) on sale of OREO, net | 5,607 | | | 3 | | | 5,611 | | | (26) | |
OREO valuation markup | 12,009 | | | — | | | 12,039 | | | 13 | |
Gain on equity securities, net | 58 | | | 609 | | | 3,120 | | | 2,886 | |
Other components of net periodic pension benefit income | 3,027 | | | 2,038 | | | 9,081 | | | 6,114 | |
Miscellaneous | 3,653 | | | 3,347 | | | 7,779 | | | 8,390 | |
Total other income | $ | 46,694 | | | $ | 32,411 | | | $ | 109,543 | | | $ | 97,738 | |
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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited) (Continued)
(in thousands, except share and per share data)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Other expense: | | | | | | | |
Salaries | $ | 29,433 | | | $ | 31,632 | | | $ | 89,632 | | | $ | 90,760 | |
Employee benefits | 10,640 | | | 10,676 | | | 30,897 | | | 29,799 | |
Occupancy expense | 3,211 | | | 3,835 | | | 9,878 | | | 10,571 | |
Furniture and equipment expense | 2,797 | | | 4,687 | | | 8,163 | | | 13,856 | |
Data processing fees | 7,817 | | | 3,275 | | | 22,679 | | | 8,344 | |
Professional fees and services | 6,973 | | | 7,977 | | | 19,610 | | | 21,944 | |
Marketing | 1,574 | | | 1,454 | | | 4,355 | | | 4,076 | |
Insurance | 1,403 | | | 1,541 | | | 4,370 | | | 4,568 | |
Communication | 796 | | | 958 | | | 2,688 | | | 2,987 | |
State tax expense | 1,113 | | | 1,125 | | | 3,324 | | | 3,386 | |
Amortization of intangible assets | 420 | | | 525 | | | 1,378 | | | 1,738 | |
Foundation contribution | — | | | — | | | 4,000 | | | — | |
Miscellaneous | 2,312 | | | 2,174 | | | 6,780 | | | 8,905 | |
Total other expense | 68,489 | | | 69,859 | | | 207,754 | | | 200,934 | |
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Income before income taxes | 43,552 | | | 36,703 | | | 143,094 | | | 99,170 | |
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Income taxes | 8,118 | | | 5,857 | | | 25,697 | | | 16,447 | |
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Net income | $ | 35,434 | | | $ | 30,846 | | | $ | 117,397 | | | $ | 82,723 | |
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Earnings per common share: | | | | | | | |
Basic | $ | 2.17 | | | $ | 1.89 | | | $ | 7.20 | | | $ | 5.07 | |
Diluted | $ | 2.16 | | | $ | 1.88 | | | $ | 7.14 | | | $ | 5.04 | |
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Weighted average common shares outstanding: | | | | | | | |
Basic | 16,292,312 | | | 16,300,720 | | | 16,315,996 | | | 16,300,250 | |
Diluted | 16,423,912 | | | 16,393,792 | | | 16,445,568 | | | 16,398,350 | |
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Cash dividends declared per common share | $ | 1.03 | | | $ | 1.02 | | | $ | 3.29 | | | $ | 3.26 | |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Other expense: | | | | | | | |
Salaries | $ | 37,889 | | | $ | 29,433 | | | $ | 99,462 | | | $ | 89,632 | |
Employee benefits | 9,897 | | | 10,640 | | | 30,595 | | | 30,897 | |
Occupancy expense | 3,455 | | | 3,211 | | | 9,709 | | | 9,878 | |
Furniture and equipment expense | 2,912 | | | 2,797 | | | 8,783 | | | 8,163 | |
Data processing fees | 8,170 | | | 7,817 | | | 24,090 | | | 22,679 | |
Professional fees and services | 8,359 | | | 6,973 | | | 20,992 | | | 19,610 | |
Marketing | 1,595 | | | 1,574 | | | 3,931 | | | 4,355 | |
Insurance | 1,237 | | | 1,403 | | | 3,887 | | | 4,370 | |
Communication | 1,098 | | | 796 | | | 2,923 | | | 2,688 | |
State tax expense | 1,186 | | | 1,113 | | | 3,545 | | | 3,324 | |
Amortization of intangible assets | 341 | | | 420 | | | 1,146 | | | 1,378 | |
Foundation contribution | 4,000 | | | — | | | 4,000 | | | 4,000 | |
Miscellaneous | 2,764 | | | 2,312 | | | 7,261 | | | 6,780 | |
Total other expense | $ | 82,903 | | | $ | 68,489 | | | $ | 220,324 | | | $ | 207,754 | |
| | | | | | | |
Income before income taxes | $ | 51,429 | | | $ | 43,552 | | | $ | 140,096 | | | $ | 143,094 | |
| | | | | | | |
Income taxes | 9,361 | | | 8,118 | | | 24,829 | | | 25,697 | |
| | | | | | | |
Net income | $ | 42,068 | | | $ | 35,434 | | | $ | 115,267 | | | $ | 117,397 | |
| | | | | | | |
Earnings per common share: | | | | | | | |
Basic | $ | 2.59 | | | $ | 2.17 | | | $ | 7.10 | | | $ | 7.20 | |
Diluted | $ | 2.57 | | | $ | 2.16 | | | $ | 7.05 | | | $ | 7.14 | |
| | | | | | | |
Weighted average common shares outstanding: | | | | | | | |
Basic | 16,253,704 | | | 16,292,312 | | | 16,240,966 | | | 16,315,996 | |
Diluted | 16,374,982 | | | 16,423,912 | | | 16,355,790 | | | 16,445,568 | |
| | | | | | | |
Regular cash dividends declared per common share | $ | 1.04 | | | $ | 1.03 | | | $ | 3.12 | | | $ | 3.09 | |
Special cash dividends declared per common share | $ | — | | | $ | — | | | — | | | $ | 0.20 | |
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive (Loss) Income (Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| 2021 | | 2020 | | 2021 | | 2020 | |
Net income | $ | 35,434 | | | $ | 30,846 | | | $ | 117,397 | | | $ | 82,723 | | |
| | | | | | | | |
Other comprehensive (loss) income, net of tax: | | | | | | | | |
Net loss (gain) realized on sale of securities, net of income tax effect of $6 for the three months ended September 30, 2020, and $(690) for the nine months ended September 30, 2020 | — | | | 21 | | | — | | | (2,596) | | |
Unrealized net holding (loss) gain on debt securities available-for-sale, net of income tax effect of $(1,328) and $55 for the three months ended September 30, 2021 and 2020, respectively, and $(3,650) and $7,109 for the nine months ended September 30, 2021 and 2020, respectively | (4,997) | | | 207 | | | (13,736) | | | 26,742 | | |
Unrealized gain (loss) on cash flow hedging derivatives, net of income tax effect of $31 and $30 for the three months ended September 30, 2021 and 2020, respectively, and $94 and $(94) for the nine months ended September 30, 2021 and 2020, respectively | 117 | | | 111 | | | 355 | | | (357) | | |
Other comprehensive (loss) income | $ | (4,880) | | | $ | 339 | | | $ | (13,381) | | | $ | 23,789 | | |
| | | | | | | | |
Comprehensive income | $ | 30,554 | | | $ | 31,185 | | | $ | 104,016 | | | $ | 106,512 | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income | $ | 42,068 | | | $ | 35,434 | | | $ | 115,267 | | | $ | 117,397 | |
| | | | | | | |
Other comprehensive (loss) income, net of tax: | | | | | | | |
Unrealized net holding loss on debt securities available-for-sale, net of income tax effect of $(10,617) and $(1,328) for the three months ended September 30, 2022 and 2021, respectively, and $(37,403) and $(3,650) for the nine months ended September 30, 2022 and 2021, respectively. | (39,939) | | | (4,997) | | | (140,704) | | | (13,736) | |
Reclassification adjustment for losses included in net income on cash flow hedging derivatives, net of income tax effect of $14 for the nine months ended September 30, 2022. | — | | | — | | | 52 | | | — | |
Unrealized gain on cash flow hedging derivatives, net of income tax effect of $31 for the three months ended September 30, 2021, and $41 and $94 for the nine months ended September 30, 2022 and 2021, respectively. | — | | | 117 | | | 154 | | | 355 | |
Other comprehensive loss | $ | (39,939) | | | $ | (4,880) | | | $ | (140,498) | | | $ | (13,381) | |
| | | | | | | |
Comprehensive income (loss) | $ | 2,129 | | | $ | 30,554 | | | $ | (25,231) | | | $ | 104,016 | |
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited)
(in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Shares | | Common Shares | | Retained Earnings | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) |
Balance at December 31, 2020 | | $ | — | | | $ | 460,687 | | | $ | 704,764 | | | $ | (130,766) | | | $ | 5,571 | |
Cumulative change in accounting principle | | | | | | (7,956) | | | | | |
Balance at January 1, 2021 | | $ | — | | | $ | 460,687 | | | $ | 696,808 | | | $ | (130,766) | | | $ | 5,571 | |
Net income | | | | | | 42,831 | | | | | |
Other comprehensive loss, net of tax | | | | | | | | | | (13,472) | |
Dividends on common shares at $1.23 per share | | | | | | (20,365) | | | | | |
Cash payment for fractional common shares in dividend reinvestment plan | | | | (1) | | | | | | | |
Issuance of 21,764 common shares under share-based compensation awards, net of 14,108 common shares withheld to pay employee income taxes | | | | (3,988) | | | (44) | | | 2,174 | | | |
Share-based compensation expense | | | | 1,836 | | | | | | | |
Balance at March 31, 2021 | | $ | — | | | $ | 458,534 | | | $ | 719,230 | | | $ | (128,592) | | | $ | (7,901) | |
Net income | | | | | | 39,132 | | | | | |
Other comprehensive income, net of tax | | | | | | | | | | 4,971 | |
Dividends on common shares at $1.03 per share | | | | | | (17,081) | | | | | |
Cash payment for fractional common shares in dividend reinvestment plan | | | | (2) | | | | | | | |
Issuance of 4,834 common shares under share-based compensation awards, net of 2,973 common shares withheld to pay employee income taxes | | | | (743) | | | (126) | | | 483 | | | |
Share-based compensation expense | | | | 1,487 | | | | | | | |
Balance at June 30, 2021 | | $ | — | | | $ | 459,276 | | | $ | 741,155 | | | $ | (128,109) | | | $ | (2,930) | |
Net income | | | | | | 35,434 | | | | | |
Other comprehensive loss, net of tax | | | | | | | | | | (4,880) | |
Dividends on common shares at $1.03 per share | | | | | | (16,999) | | | | | |
Cash payment for fractional common shares in dividend reinvestment plan | | | | (1) | | | | | | | |
Issuance of 3,079 common shares under share-based compensation awards, net of 1,348 common shares withheld to pay employee income taxes | | | | (495) | | | 29 | | | 307 | | | |
Repurchase of 137,659 common shares to be held as treasury shares | | | | | | | | (16,048) | | | |
Share-based compensation expense | | | | 1,173 | | | | | | | |
Balance at September 30, 2021 | | $ | — | | | $ | 459,953 | | | $ | 759,619 | | | $ | (143,850) | | | $ | (7,810) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Shares | | Common Shares | | Retained Earnings | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) |
Balance at December 31, 2021 | | $ | — | | | $ | 461,800 | | | $ | 776,294 | | | $ | (142,490) | | | $ | 15,155 | |
Net income | | | | | | 38,875 | | | | | |
Other comprehensive loss, net of tax | | | | | | | | | | (55,624) | |
Dividends on common shares at $1.04 per share | | | | | | (17,172) | | | | | |
Cash payment for fractional common shares in dividend reinvestment plan | | | | (2) | | | | | | | |
Issuance of 29,757 common shares under share-based compensation awards, net of 18,658 common shares withheld to pay employee income taxes | | | | (4,508) | | | (964) | | | 3,021 | | | |
Share-based compensation expense | | | | 1,981 | | | | | | | |
Balance at March 31, 2022 | | $ | — | | | $ | 459,271 | | | $ | 797,033 | | | $ | (139,469) | | | $ | (40,469) | |
Net income | | | | | | 34,324 | | | | | |
Other comprehensive loss, net of tax | | | | | | | | | | (44,935) | |
Dividends on common shares at $1.04 per share | | | | | | (17,116) | | | | | |
Share-based compensation expense | | | | 1,374 | | | | | | | |
Balance at June 30, 2022 | | $ | — | | | $ | 460,645 | | | $ | 814,241 | | | $ | (139,469) | | | $ | (85,404) | |
Net income | | | | | | 42,068 | | | | | |
Other comprehensive loss, net of tax | | | | | | | | | | (39,939) | |
Dividends on common shares at $1.04 per share | | | | | | (17,101) | | | | | |
Issuance of 4,490 common shares under share-based compensation awards, net of 2,559 common shares withheld to pay employee income taxes | | | | (765) | | | (1) | | | $ | 456 | | | |
Share-based compensation expense | | | | 1,441 | | | | | | | |
Balance at September 30, 2022 | | $ | — | | | $ | 461,321 | | | $ | 839,207 | | | $ | (139,013) | | | $ | (125,343) | |
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited) (Continued)
(in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Shares | | Common Shares | | Retained Earnings | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) |
Balance at January 1, 2020 | | $ | — | | | $ | 459,389 | | | $ | 646,847 | | | $ | (127,633) | | | $ | (9,589) | |
Net income | | | | | | 22,372 | | | | | |
Other comprehensive income, net of tax | | | | | | | | | | 17,693 | |
Dividends on common shares at $1.22 per share | | | | | | (20,111) | | | | | |
Cash payment for fractional common shares in dividend reinvestment plan | | | | (1) | | | | | | | |
Issuance of 25,028 common shares under share-based compensation awards, net of 11,646 common shares withheld to pay employee income taxes | | | | (3,865) | | | 528 | | | 2,500 | | | |
Repurchase of 76,000 common shares to be held as treasury shares | | | | | | | | (7,507) | | | |
Share-based compensation expense | | | | 1,254 | | | | | | | |
Balance at March 31, 2020 | | $ | — | | | $ | 456,777 | | | $ | 649,636 | | | $ | (132,640) | | | $ | 8,104 | |
Net income | | | | | | 29,505 | | | | | |
Other comprehensive income, net of tax | | | | | | | | | | 5,757 | |
Dividends on common shares at $1.02 per share | | | | | | (16,837) | | | | | |
Issuance of 970 common shares under share-based compensation awards, net of 530 common shares withheld to pay employee income taxes | | | | (142) | | | 7 | | | 96 | | | |
Share-based compensation expense | | | | 1,331 | | | | | | | |
Balance at June 30, 2020 | | $ | — | | | $ | 457,966 | | | $ | 662,311 | | | $ | (132,544) | | | $ | 13,861 | |
Net income | | | | | | 30,846 | | | | | |
Other comprehensive income, net of tax | | | | | | | | | | 339 | |
Dividends on common shares at $1.02 per share | | | | | | (16,821) | | | | | |
Issuance of 4,345 common shares under share-based compensation awards, net of 1,860 common shares withheld to pay employee income taxes | | | | (690) | | | 129 | | | 435 | | | |
Share-based compensation expense | | | | 1,164 | | | | | | | |
Balance at September 30, 2020 | | $ | — | | | $ | 458,440 | | | $ | 676,465 | | | $ | (132,109) | | | $ | 14,200 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Shares | | Common Shares | | Retained Earnings | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) |
Balance at December 31, 2020 | | $ | — | | | $ | 460,687 | | | $ | 704,764 | | | $ | (130,766) | | | $ | 5,571 | |
Cumulative change in accounting principle | | | | | | (7,956) | | | | | |
Balance at January 1, 2021 | | $ | — | | | $ | 460,687 | | | $ | 696,808 | | | $ | (130,766) | | | $ | 5,571 | |
Net income | | | | | | 42,831 | | | | | |
Other comprehensive loss, net of tax | | | | | | | | | | (13,472) | |
Dividends on common shares at $1.23 per share | | | | | | (20,365) | | | | | |
Cash payment for fractional common shares in dividend reinvestment plan | | | | (1) | | | | | | | |
Issuance of 21,764 common shares under share-based compensation awards, net of 14,108 common shares withheld to pay employee income taxes | | | | (3,988) | | | (44) | | | 2,174 | | | |
Share-based compensation expense | | | | 1,836 | | | | | | | |
Balance at March 31, 2021 | | $ | — | | | $ | 458,534 | | | $ | 719,230 | | | $ | (128,592) | | | $ | (7,901) | |
Net income | | | | | | 39,132 | | | | | |
Other comprehensive income, net of tax | | | | | | | | | | 4,971 | |
Dividends on common shares at $1.03 per share | | | | | | (17,081) | | | | | |
Cash payment for fractional common shares in dividend reinvestment plan | | | | (2) | | | | | | | |
Issuance of 4,834 common shares under share-based compensation awards, net of 2,973 common shares withheld to pay employee income taxes | | | | (743) | | | (126) | | | 483 | | | |
Share-based compensation expense | | | | 1,487 | | | | | | | |
Balance at June 30, 2021 | | $ | — | | | $ | 459,276 | | | $ | 741,155 | | | $ | (128,109) | | | $ | (2,930) | |
Net income | | | | | | 35,434 | | | | | |
Other comprehensive loss, net of tax | | | | | | | | | | (4,880) | |
Dividends on common shares at $1.03 per share | | | | | | (16,999) | | | | | |
Cash payment for fractional common shares in dividend reinvestment plan | | | | (1) | | | | | | | |
Issuance of 3,079 common shares under share-based compensation awards, net of 1,348 common shares withheld to pay employee income taxes | | | | (495) | | | 29 | | | 307 | | | |
Repurchase of 137,659 common shares to be held as treasury shares | | | | | | | | (16,048) | | | |
Share-based compensation expense | | | | 1,173 | | | | | | | |
Balance at September 30, 2021 | | $ | — | | | $ | 459,953 | | | $ | 759,619 | | | $ | (143,850) | | | $ | (7,810) | |
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
(in thousands)
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Operating activities: | Operating activities: | | | | Operating activities: | | | |
Net income | Net income | $ | 117,397 | | | $ | 82,723 | | Net income | $ | 115,267 | | | $ | 117,397 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | |
(Recovery of) provision for credit losses | (6,923) | | | 31,213 | | |
Provision for (recovery of) credit losses | | Provision for (recovery of) credit losses | 1,576 | | | (6,923) | |
Accretion of loan fees and costs, net | Accretion of loan fees and costs, net | (20,601) | | | (12,191) | | Accretion of loan fees and costs, net | (9,869) | | | (20,601) | |
Depreciation of premises and equipment | Depreciation of premises and equipment | 9,951 | | | 7,888 | | Depreciation of premises and equipment | 10,341 | | | 9,951 | |
Amortization of investment securities, net | Amortization of investment securities, net | 1,442 | | | 1,064 | | Amortization of investment securities, net | 2,596 | | | 1,442 | |
Net accretion of purchase accounting adjustments | Net accretion of purchase accounting adjustments | (1,375) | | | (2,005) | | Net accretion of purchase accounting adjustments | (402) | | | (1,375) | |
Realized net debt securities gains | — | | | (3,286) | | |
(Gain) loss on equity securities, net | (2,886) | | | 749 | | |
Gain on equity securities, net | | Gain on equity securities, net | (3,120) | | | (2,886) | |
Loan originations to be sold in secondary market | Loan originations to be sold in secondary market | (465,278) | | | (697,555) | | Loan originations to be sold in secondary market | (157,868) | | | (465,278) | |
Proceeds from sale of loans in secondary market | Proceeds from sale of loans in secondary market | 503,032 | | | 676,275 | | Proceeds from sale of loans in secondary market | 169,212 | | | 503,032 | |
Gain on sale of loans in secondary market | Gain on sale of loans in secondary market | (15,032) | | | (14,707) | | Gain on sale of loans in secondary market | (3,885) | | | (15,032) | |
Share-based compensation expense | Share-based compensation expense | 4,496 | | | 3,749 | | Share-based compensation expense | 4,796 | | | 4,496 | |
Loss (gain) on sale of OREO, net | 26 | | | (1,214) | | |
(Gain) loss on sale of OREO, net | | (Gain) loss on sale of OREO, net | (5,611) | | | 26 | |
OREO valuation markup | | OREO valuation markup | (12,039) | | | (13) | |
Gain on sale of non-mortgage loans | | Gain on sale of non-mortgage loans | (495) | | | — | |
Bank owned life insurance income | Bank owned life insurance income | (3,776) | | | (3,619) | | Bank owned life insurance income | (4,734) | | | (3,776) | |
Investment in qualified affordable housing tax credits amortization | Investment in qualified affordable housing tax credits amortization | 5,567 | | | 5,487 | | Investment in qualified affordable housing tax credits amortization | 5,940 | | | 5,567 | |
| Changes in assets and liabilities: | Changes in assets and liabilities: | | | | Changes in assets and liabilities: | |
Increase in prepaid dealer premiums | Increase in prepaid dealer premiums | (3,370) | | | (7,889) | | Increase in prepaid dealer premiums | (10,827) | | | (3,370) | |
Increase in other assets | Increase in other assets | (11,021) | | | (5,794) | | Increase in other assets | (2,302) | | | (11,021) | |
Increase (decrease) in other liabilities | 986 | | | (8,452) | | |
(Decrease) increase in other liabilities | | (Decrease) increase in other liabilities | (8,963) | | | 986 | |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 112,635 | | | $ | 52,436 | | Net cash provided by operating activities | $ | 89,613 | | | $ | 112,622 | |
| Investing activities: | Investing activities: | | | | Investing activities: | | | |
Proceeds from the redemption/repurchase of Federal Home Loan Bank stock | Proceeds from the redemption/repurchase of Federal Home Loan Bank stock | $ | 8,677 | | | $ | 7,639 | | Proceeds from the redemption/repurchase of Federal Home Loan Bank stock | $ | 2,216 | | | $ | 8,677 | |
Proceeds from sales of investment securities | Proceeds from sales of investment securities | 934 | | | 312,159 | | Proceeds from sales of investment securities | — | | | 934 | |
Proceeds from calls and maturities of: | Proceeds from calls and maturities of: | | | | Proceeds from calls and maturities of: | | | |
Debt securities AFS | Debt securities AFS | 176,926 | | | 164,725 | | Debt securities AFS | 148,192 | | | 176,926 | |
Purchases of: | Purchases of: | | | | Purchases of: | | | |
Debt securities AFS | Debt securities AFS | (637,123) | | | (267,210) | | Debt securities AFS | (316,878) | | | (637,123) | |
Equity securities | Equity securities | — | | | (3,567) | | Equity securities | (9,165) | | | — | |
Net decrease in other investments | Net decrease in other investments | 2,655 | | | 201 | | Net decrease in other investments | 392 | | | 2,655 | |
Net loan paydowns (originations), portfolio loans | 269,353 | | | (727,387) | | |
Net loan (originations) paydowns, portfolio loans | | Net loan (originations) paydowns, portfolio loans | (234,239) | | | 269,366 | |
Proceeds from the sale of non-mortgage loans | Proceeds from the sale of non-mortgage loans | 3,688 | | | — | | Proceeds from the sale of non-mortgage loans | 4,345 | | | 3,688 | |
Investment in qualified affordable housing tax credits | Investment in qualified affordable housing tax credits | (6,182) | | | (4,301) | | Investment in qualified affordable housing tax credits | (10,004) | | | (6,182) | |
Proceeds from the sale of OREO | Proceeds from the sale of OREO | 659 | | | 5,595 | | Proceeds from the sale of OREO | 17,684 | | | 659 | |
Life insurance death benefits | Life insurance death benefits | 4,862 | | | 1,196 | | Life insurance death benefits | 8,380 | | | 4,862 | |
Purchases of bank owned life insurance | | Purchases of bank owned life insurance | (7,500) | | | — | |
Purchases of premises and equipment | Purchases of premises and equipment | (10,670) | | | (20,820) | | Purchases of premises and equipment | (6,576) | | | (10,670) | |
Net cash used in investing activities | Net cash used in investing activities | $ | (186,221) | | | $ | (531,770) | | Net cash used in investing activities | $ | (403,153) | | | $ | (186,208) | |
Table of Contents
| | | | | | | | | | | |
PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued) (in thousands) |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Financing activities: | | | |
Net increase in deposits | $ | 900,305 | | | $ | 1,196,684 | |
Net increase in OWS deposits | (108,239) | | | (773,273) | |
Net (decrease) increase in short-term borrowings | (106,251) | | | 89,778 | |
Proceeds from issuance of subordinated notes | — | | | 172,620 | |
Repayment of long-term debt | (32,500) | | | (57,500) | |
Value of common shares withheld to pay employee income taxes | (2,403) | | | (1,002) | |
Repurchase of common shares to be held as treasury shares | (16,048) | | | (7,507) | |
Cash dividends paid | (54,357) | | | (53,713) | |
Net cash provided by financing activities | $ | 580,507 | | | $ | 566,087 | |
| | | |
Increase in cash and cash equivalents | 506,921 | | | 86,753 | |
| | | |
Cash and cash equivalents at beginning of year | 370,474 | | | 159,956 | |
| | | |
Cash and cash equivalents at end of period | $ | 877,395 | | | $ | 246,709 | |
| | | |
Supplemental disclosures of cash flow information: | | | |
| | | |
Cash paid for: | | | |
Interest | $ | 14,930 | | | $ | 24,600 | |
| | | |
Federal income tax | 16,430 | | | 17,400 | |
| | | |
Non-cash items: | | | |
Loans transferred to OREO | $ | 78 | | | $ | 1,124 | |
| | | |
Right-of-use assets obtained in exchange for lease obligations | 547 | | | 7,794 |
| | | |
New commitments in affordable housing tax credit investments | 10,000 | | | 10,000 | |
| | | |
Debt securities AFS purchase commitment | 52,508 | | | — | |
| | | | | | | | | | | |
PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued) (in thousands) |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
Financing activities: | | | |
Net increase in deposits | $ | 188,536 | | | $ | 900,305 | |
Net decrease (increase) in off-balance sheet deposits | 216,869 | | | (108,239) | |
Net decrease in short-term borrowings | (49,293) | | | (106,251) | |
Repayment of long-term debt | — | | | (32,500) | |
Value of common shares withheld to pay employee income taxes | (2,761) | | | (2,403) | |
Repurchase of common shares to be held as treasury shares | — | | | (16,048) | |
Cash dividends paid | (51,558) | | | (54,357) | |
Net cash provided by financing activities | $ | 301,793 | | | $ | 580,507 | |
| | | |
(Decrease) increase in cash and cash equivalents | (11,747) | | | 506,921 | |
| | | |
Cash and cash equivalents at beginning of year | 219,180 | | | 370,474 | |
| | | |
Cash and cash equivalents at end of period | $ | 207,433 | | | $ | 877,395 | |
| | | |
Supplemental disclosures of cash flow information: | | | |
| | | |
Cash paid for: | | | |
Interest | $ | 18,805 | | | $ | 14,930 | |
| | | |
Federal income tax | 16,070 | | | 16,430 | |
| | | |
Non-cash items: | | | |
Loans transferred to OREO | $ | 13,418 | | | $ | 78 | |
| | | |
Right-of-use assets obtained in exchange for lease obligations | 4,270 | | | 547 | |
| | | |
New commitments in affordable housing tax credits | 10,000 | | | 10,000 | |
| | | |
AFS debt securities purchase commitment | — | | | 52,508 | |
| | | |
New commitments in other investment securities | 15,000 | | | — | |
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
PARK NATIONAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation
The accompanying unaudited consolidated condensed financial statements included in this report have been prepared for Park National Corporation (sometimes also referred to as the “Registrant”) and its subsidiaries. Unless the context otherwise requires, references to "Park", the "Corporation" or the "Company" and similar terms mean Park National Corporation and its subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the interim periods included herein have been made. The results of operations for the three-month and the nine-month periods ended September 30, 20212022 are not necessarily indicative of the operating results to be anticipated for the year ending December 31, 2021.2022.
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Quarterly Reports on Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of the consolidated condensed balance sheets, consolidated condensed statements of income, consolidated condensed statements of comprehensive (loss) income, consolidated condensed statements of changes in shareholders’ equity and consolidated condensed statements of cash flows in conformity with U.S. GAAP. These financial statements should be read in conjunction with the consolidated financial statements included in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA in the Annual Report on Form 10-K of Park National Corporation for the fiscal year ended December 31, 20202021 ("Park's 20202021 Form 10-K"). Certain prior period amounts have been reclassified to conform to the current period presentation.
Park’s significant accounting policies are described in Note 1. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 20202021 Form 10-K. For interim reporting purposes, Park follows the same basic accounting policies, as updated by the information contained in this report, and considers each interim period an integral part of an annual period.
The COVID-19 pandemic has caused significant, unprecedented disruption around the world that has affected daily living and negatively impacted the global economy. Additionally, geopolitical conflict (including the conflict in Ukraine) and inflationary pressures have added uncertainty to the overall economic environment. The effects of the COVID-19 pandemic, geopolitical conflict, and inflationary pressures may meaningfully impact significant estimates such as the allowance for credit losses, goodwill, mortgage servicing rights, and pension plan obligations and related expenses. Additionally, the COVID-19 pandemic mayhas particularly impactimpacted certain loan concentrations in the hotels and accommodations, restaurants and food service, and strip shopping centers industries.
Note 2 - Adoption of New Accounting Pronouncements and Issued But Not Yet Effective Accounting Standards
The following is a summary of new accounting pronouncements impacting Park's consolidated financial statements:
Adoption of New Accounting Pronouncements
ASU 2016-13Staff Accounting Bulletin ("SAB") No. 121 - Financial Instruments - Credit Losses (Topic 326): MeasurementIn March 2022, the SEC issued SAB No. 121. This SAB adds interpretive guidance for entities to consider when they have obligations to safeguard crypto-assets held for their platform users. Specifically, this SAB provides interpretive guidance on the accounting and disclosure of Credit Losses on Financial Instruments: Effective January 1, 2021, Park adoptedASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") ("ASC 326"), as amended. The new accounting guidance in ASU 2016-13 replaces the incurred loss methodology with an expected loss methodology, which is referredobligations to as the current expected credit loss ("CECL") methodology. The CECL methodology is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, HTM debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accountedsafeguard crypto-assets held for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments), and net investments in leases recognized by a lessor. The CECL methodology requires an entity to estimate credit losses over the life of an asset or off-balance sheet credit exposure. The new accountingplatform users. This guidance was to have originally been effective for Park for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019.
Section 4014 ofapplicable no later than the CARES Act provided financial institutions with optional temporary relief from having to comply with ASU 2016-13, including the CECL methodology for estimating the allowance for credit losses. This temporary relief was set to expire on the earlier of the date on which the national emergency concerning COVID-19 terminated or December 31, 2020, with adoption being effective retrospectively as of January 1, 2020.
Section 540 of the Consolidated Appropriations Act, 2021, amended Section 4014 of the CARES Act by extending the relief period provided in the CARES Act. The Consolidated Appropriations Act, 2021, modifies the CARES Act so that temporary
relief will expire on the earlier ofstatement covering the first day of the fiscal year that beginsinterim or annual period ending after the date on which the national emergency concerning COVID-19 terminates or January 1,June 15, 2022.
Park elected to delay the implementation of ASU 2016-13 following the approval of the CARES Act and continued to use the incurred loss methodology for estimating the allowance for credit losses in 2020. ASU 2016-13 requires financial institutions to calculate an allowance utilizing a reasonable and supportable forecast period which Park has established as a one-year period. In the unprecedented circumstances surrounding the COVID-19 pandemic and the response thereto, Park believed that adopting ASU 2016-13 in the first quarter of 2020 would have added an unnecessary level of subjectivity and volatility to the calculation of the allowance for credit losses. With the approval of the Consolidated Appropriations Act, 2021, management elected to further delay adoption of ASU 2016-13 to January 1, 2021. This allowed Park to utilize the CECL standard for the entire year of adoption.
Park adopted ASU 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with the then applicable U.S. GAAP. Park recorded a net decrease to retained earnings of $8.0 million as of January 1, 2021 for the cumulative effect of adopting ASC 326.
Park adopted ASC 326 using the prospective transition approach for financial assets PCD that were previously classified as PCI and accounted for under ASC 310-30. In accordance with ASC 326, management did not reassess whether PCI assets met the criteria of PCD assets Management reviewed its business activities as of the date of adoption. On January 1, 2021, the amortized cost basis of the PCD assets was adjusted to reflect the addition of $52,000adoption, June 30, 2022, and determined that SAB 121 is not materially impactful to the allowance for credit losses. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2021.
As permitted by ASC 326, Park electedfinancial statements. Management has continued to maintain pools of loans accounted for under ASC 310-30. In accordance with ASC 326, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were TDRs as of the date of adoption.
The following table illustrates the impact of ASC 326:
| | | | | | | | | | | | | | |
| | January 1, 2021 |
(In thousands) | | As Reported Under ASC 326 | Pre-ASC 326 Adoption | Impact of ASC 326 Adoption |
Assets: | | | | |
Loans | | $ | 7,177,666 | | $ | 7,177,785 | | $ | (119) | |
| | | | |
ACL on loans | | | | |
Commercial, financial and agricultural | | 17,351 | | 25,608 | | (8,257) | |
Commercial real estate | | 25,599 | | 23,480 | | 2,119 | |
Construction real estate | | 5,390 | | 7,288 | | (1,898) | |
Residential real estate | | 14,484 | | 11,363 | | 3,121 | |
Consumer | | 28,343 | | 17,418 | | 10,925 | |
Leases | | 598 | | 518 | | 80 | |
Total ACL on loans | | $ | 91,765 | | $ | 85,675 | | $ | 6,090 | |
| | | | |
Liabilities: | | | | |
ACL on off-balance sheet commitments | | $ | 3,982 | | $ | 116 | | $ | 3,866 | |
| | | | |
Net deferred tax liability | | $ | 777 | | $ | 2,892 | | $ | (2,115) | |
| | | | |
Shareholders' equity: | | $ | 1,032,300 | | $ | 1,040,256 | | $ | (7,956) | |
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 it 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 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, 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 $5.3 million at September 30, 2021 and is excluded from the estimate of credit losses.
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 - 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 do not 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 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.
Accrued interest receivable on loans totaled $18.4 million at September 30, 2021 and is excluded from the estimate of credit losses.
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 | 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 |
GFSC | 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 either of the following applies: management has a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower or the extension or 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 has 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 September 30, 2021, whenever possible. Park and peer FFIEC call report data are utilized when there are not sufficient 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, and 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 current economic environment. The weighting of the scenarios is evaluatedmonitor on a quarterly basis considering the various scenarios in the context of the 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 flow.
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;
•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;
•Park’s lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, write-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, 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 which Park operates that affect the collectibility of financial assets;
•Where the U.S. economy is within a given credit cycle; and
•The extent that there is government assistance (stimulus).
ACL - 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 or classified as TDRs will be individually evaluated and are labeled as impaired. Individual analysis establishes a specific reserve for loans in scope. Specific reserves on impaired 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.
ACL - Purchased Credit Deteriorated 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 addedSAB 121 is not materially impactful to the pool's carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balancefinancial statements as 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 loss expense.
ACL - 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 as a provision for credit loss expense. 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.
ASU 2019-20 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes: In December 2019, the FASB issued ASU 2019-20 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-20 includes amendments to simplify accounting for income taxes by removing certain exceptions and adding requirements with the intention of simplifying and clarifying existing guidance. The amendments in ASU 2019-20 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The adoption of this guidance on January 1, 2021, did not have a material impact on Park's consolidated financial statements.
ASU 2020-01 - Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815: In January 2020, the FASB issued ASU 2020-01 - Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 represents changes to clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815. These amendments improve current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting for these transactions. The amendments in ASU 2020-01 are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The adoption of this guidance on January 1, 2021 did not have a material impact on Park's consolidated financial statements.
ASU 2020-08 - Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs: In October 2020, the FASB issued ASU 2020-08 - Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs. ASU 2020-08 clarifies that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. The amendments in ASU 2020-08 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The adoption of this guidance on January 1, 2021, did not have a material impact on Park's consolidated financial statements.September 30, 2022.
Issued But Not Yet Effective Accounting Standards
ASU 2021-062022-02 - Presentation of Financial StatementsInstruments - Credit Losses (Topic 205), Financial Services—Depository326) Troubled Debt Restructurings and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946):Vintage Disclosures: In August 2021,March 2022, FASB issued ASU 2021-062022-02 - Presentation of Financial StatementsInstruments - Credit Losses (Topic 205), Financial Services—Depository326) Troubled Debt Restructuring and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946)Vintage Disclosures. ASU 2021-06 updates2022-02 eliminates the codificationaccounting guidance for TDRs by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the amendments
in this ASU require that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost.
For entities, like Park, that have adopted the amendments in ASU 2016-13, the amendments in ASU 2022-02 are effective for fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted, including adoption in an interim period. An entity may elect to align with SEC Final Rule Releases No. 33-10786adopt the loan modification guidance and No. 33-10835. Specificrelated disclosure enhancements separately from the amendments related to financial institutions, these SEC releases updated required annual statisticalvintage disclosures. The amendments in ASU 2021-06 were effective immediately. Park will update the statistical disclosures in its Annual Report on Form 10-K2022-02 should be applied prospectively, except for the fiscal year ending December 31, 2021,amendments related to align with this guidance.the recognition and measurement of TDRs which may be applied prospectively, or using a modified retrospective transition method. Management intends to adopt ASU 2022-02 effective January 1, 2023. The adoption of ASU 2022-02 is not expected to have a material impact on the financial statements but will impact disclosure requirements and reduce individually evaluated loan totals.
Note 3 – Investment Securities
Investment securities at September 30, 20212022 and December 31, 2020,2021, were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities AFS (In thousands) | | Amortized Cost | | Gross Unrealized Holding Gains | | Gross Unrealized Holding Losses | | Fair Value |
September 30, 2021: | | | | | | | | |
Obligations of states and political subdivisions | | $ | 277,527 | | | $ | 21,567 | | | $ | — | | | $ | 299,094 | |
U.S. Government sponsored entities' asset-backed securities | | 844,128 | | | 17,876 | | | 4,855 | | | 857,149 | |
Collateralized loan obligations | | 388,193 | | | 146 | | | 657 | | | 387,682 | |
Corporate debt securities | | 9,250 | | | 43 | | | — | | | 9,293 | |
Total | | $ | 1,519,098 | | | $ | 39,632 | | | $ | 5,512 | | | $ | 1,553,218 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities AFS (In thousands) | | Amortized Cost | | Gross Unrealized Holding Gains | | Gross Unrealized Holding Losses | | Fair Value |
December 31, 2020: | | | | | | | | |
Obligations of states and political subdivisions | | $ | 279,245 | | | $ | 25,973 | | | $ | — | | | $ | 305,218 | |
U.S. Government sponsored entities' asset-backed securities | | 726,589 | | | 26,248 | | | 728 | | | 752,109 | |
Corporate debt securities | | 2,000 | | | 14 | | | — | | | 2,014 | |
Total | | $ | 1,007,834 | | | $ | 52,235 | | | $ | 728 | | | $ | 1,059,341 | |
Park’s U.S. Government sponsored entities' asset-backed securities consist primarily of 15-year residential mortgage-backed securities and collateralized mortgage obligations. | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities AFS (In thousands) | | Amortized Cost | | Gross Unrealized Holding Gains | | Gross Unrealized Holding Losses | | Fair Value |
September 30, 2022: | | | | | | | | |
Obligations of U.S. Treasury and other U.S. Government sponsored entities | | $ | 39,000 | | | $ | — | | | $ | 878 | | | $ | 38,122 | |
Obligations of states and political subdivisions | | 424,193 | | | 100 | | | 30,375 | | | 393,918 | |
U.S. Government sponsored entities' asset-backed securities | | 877,435 | | | — | | | 92,572 | | | 784,863 | |
Collateralized loan obligations | | 535,575 | | | — | | | 26,517 | | | 509,058 | |
Corporate debt securities | | 17,250 | | | — | | | 1,088 | | | 16,162 | |
Total | | $ | 1,893,453 | | | $ | 100 | | | $ | 151,430 | | | $ | 1,742,123 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities AFS (In thousands) | | Amortized Cost | | Gross Unrealized Holding Gains | | Gross Unrealized Holding Losses | | Fair Value |
December 31, 2021: | | | | | | | | |
Obligations of states and political subdivisions | | $ | 366,933 | | | $ | 22,682 | | | $ | 24 | | | $ | 389,591 | |
U.S. Government sponsored entities' asset-backed securities | | 849,114 | | | 13,437 | | | 8,088 | | | 854,463 | |
Collateralized loan obligations | | 500,066 | | | 3 | | | 1,395 | | | 498,674 | |
Corporate debt securities | | 11,250 | | | 169 | | | 7 | | | 11,412 | |
Total | | $ | 1,727,363 | | | $ | 36,291 | | | $ | 9,514 | | | $ | 1,754,140 | |
Investment securities in an unrealized loss position at September 30, 2021,2022, were as follows:
| | | Unrealized loss position for less than 12 months | | Unrealized loss position for 12 months or longer | | Total | | Unrealized loss position for less than 12 months | | Unrealized loss position for 12 months or longer | | Total |
(In thousands) | (In thousands) | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses | (In thousands) | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses |
Debt securities AFS | | | |
Debt securities AFS: | | Debt securities AFS: | | |
Obligations of U.S. Treasury and other U.S. Government sponsored entities | | Obligations of U.S. Treasury and other U.S. Government sponsored entities | | $ | 38,122 | | | $ | 878 | | | $ | — | | | $ | — | | | $ | 38,122 | | | $ | 878 | |
Obligations of states and political subdivisions | | Obligations of states and political subdivisions | | 369,881 | | | 30,375 | | | — | | | — | | | 369,881 | | | 30,375 | |
U.S. Government sponsored entities' asset-backed securities | U.S. Government sponsored entities' asset-backed securities | | $ | 296,586 | | | $ | 4,855 | | | $ | — | | | $ | — | | | $ | 296,586 | | | $ | 4,855 | | U.S. Government sponsored entities' asset-backed securities | | 548,839 | | | 46,623 | | | 236,024 | | | 45,949 | | | 784,863 | | | 92,572 | |
Collateralized loan obligations | Collateralized loan obligations | | 239,804 | | | 657 | | | — | | | — | | | 239,804 | | | 657 | | Collateralized loan obligations | | 361,935 | | | 19,046 | | | 147,123 | | | 7,471 | | | 509,058 | | | 26,517 | |
Corporate debt securities | | Corporate debt securities | | 9,162 | | | 1,088 | | | — | | | — | | | 9,162 | | | 1,088 | |
Total | Total | | $ | 536,390 | | | $ | 5,512 | | | $ | — | | | $ | — | | | $ | 536,390 | | | $ | 5,512 | | Total | | $ | 1,327,939 | | | $ | 98,010 | | | $ | 383,147 | | | $ | 53,420 | | | $ | 1,711,086 | | | $ | 151,430 | |
Investment securities in an unrealized loss position at December 31, 2020,2021, were as follows:
| | | Unrealized loss position for less than 12 months | | Unrealized loss position for 12 months or longer | | Total | | Unrealized loss position for less than 12 months | | Unrealized loss position for 12 months or longer | | Total |
(In thousands) | (In thousands) | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses | (In thousands) | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses |
Debt securities AFS | | | |
Debt securities AFS: | | Debt securities AFS: | |
Obligations of states and political subdivisions | | Obligations of states and political subdivisions | | $ | 1,834 | | | $ | 24 | | | $ | — | | | $ | — | | | $ | 1,834 | | | $ | 24 | |
U.S. Government sponsored entities' asset-backed securities | U.S. Government sponsored entities' asset-backed securities | | $ | 86,393 | | | $ | 695 | | | $ | 4,727 | | | $ | 33 | | | $ | 91,120 | | | $ | 728 | | U.S. Government sponsored entities' asset-backed securities | | 333,653 | | | 4,996 | | | 73,431 | | | 3,092 | | | 407,084 | | | 8,088 | |
Collateralized loan obligations | | Collateralized loan obligations | | 429,671 | | | 1,395 | | | — | | | — | | | 429,671 | | | 1,395 | |
Corporate debt securities | | Corporate debt securities | | 2,243 | | | 7 | | | — | | | — | | | 2,243 | | | 7 | |
Total | Total | | $ | 86,393 | | | $ | 695 | | | $ | 4,727 | | | $ | 33 | | | $ | 91,120 | | | $ | 728 | | Total | | $ | 767,401 | | | $ | 6,422 | | | $ | 73,431 | | | $ | 3,092 | | | $ | 840,832 | | | $ | 9,514 | |
UnrealizedAt September 30, 2022, Park’s debt securities portfolio consisted of $1.74 billion of securities, $1.71 billion of which were in an unrealized loss position with unrealized losses onof $151.4 million. Of the $1.71 billion of securities in an unrealized loss position, $383.1 million were in an unrealized loss position for 12 months or longer. Of the $151.4 million in unrealized losses, an aggregate of $93.5 million were related to Park's "Obligations of U.S. Treasury and other U.S. Government sponsored entities" portfolio and Park's "U.S. Government sponsored entities' asset-basedasset-backed securities" portfolio. For non-agency debt securities, and collateralized loan obligationsPark verified that the current credit ratings remain above investment grade. Unrealized losses have not been recognized into incomeearnings as they represent negative adjustments to fair value relative to the rate of interest paid on the securities and not losses related to the creditworthiness of the respective issuers. 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.recovery in respect of the unrealized losses. Management believes the value will recover as the securities approach maturity or market ratesconditions change.
There was no allowance for credit losses recorded for debt securities AFS at either September 30, 2022 or December 31, 2021. Additionally, for the three-monthsthree months and nine-monthsthe nine months ended September 30, 20212022 and 2020,2021, there were no credit-related investment impairment losses recognized.
The amortized cost and estimated fair value of investments in debt securities AFS at September 30, 2021,2022, are shown in the following table by contractual maturity, except for asset-backed securities and collateral loan obligations, which are shown as a single total, due to the unpredictability of the timing of 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.
| Debt securities AFS (In thousands) | | Amortized cost | | Fair value | | Tax equivalent yield (1) | |
(In thousands) | | (In thousands) | | Amortized cost | | Fair value | | Tax equivalent yield (1) |
Debt Securities AFS | | Debt Securities AFS | | | | | | |
Obligations of U.S. Treasury and other U.S. Government sponsored entities | | Obligations of U.S. Treasury and other U.S. Government sponsored entities | |
Due one through five years | | Due one through five years | | $ | 39,000 | | | $ | 38,122 | | | 2.37 | % |
| Obligations of state and political subdivisions: | | Obligations of state and political subdivisions: | |
Due five through ten years | | Due five through ten years | | $ | 257,514 | | | $ | 251,544 | | | 3.67 | % |
Due over ten years | | Due over ten years | | 166,679 | | | 142,374 | | | 3.20 | % |
Total (1) | | Total (1) | | $ | 424,193 | | | $ | 393,918 | | | 3.49 | % |
| U.S. Government sponsored entities' asset-backed securities | U.S. Government sponsored entities' asset-backed securities | | $ | 844,128 | | | $ | 857,149 | | | 1.73 | % | U.S. Government sponsored entities' asset-backed securities | | $ | 877,435 | | | $ | 784,863 | | | 1.92 | % |
| Collateralized loan obligations | Collateralized loan obligations | | $ | 388,193 | | | $ | 387,682 | | | 1.45 | % | Collateralized loan obligations | | $ | 535,575 | | | $ | 509,058 | | | 4.54 | % |
| Corporate debt securities | Corporate debt securities | | Corporate debt securities | |
Due five through ten years | Due five through ten years | | $ | 9,250 | | | $ | 9,293 | | | 4.10 | % | Due five through ten years | | $ | 15,250 | | | $ | 14,393 | | | 3.88 | % |
| Obligations of state and political subdivisions: | | |
Due five through ten years | | $ | 136,029 | | | $ | 146,481 | | | 3.71 | % | |
Due over ten years | Due over ten years | | 141,498 | | | 152,613 | | | 3.68 | % | Due over ten years | | $ | 2,000 | | | $ | 1,769 | | | 3.13 | % |
Total (1) | | $ | 277,527 | | | $ | 299,094 | | | 3.70 | % | |
Total | | Total | | $ | 17,250 | | | $ | 16,162 | | | 3.79 | % |
(1) The tax equivalent yield for certain obligations of state and political subdivisions includes the effectseffect of a taxable equivalent adjustment using a 21% federal corporate income tax rate.
There were no sales of debt securities AFS during the three-month or the nine-month periods ended September 30, 2022 or 2021. During the three months ended September 30, 2020, Park sold certain debt securities AFS with a book value of $140.9 million at a gross gain of $37,000 and sold certain debt securities AFS with a book value of $112.5 million at a gross loss of $64,000. During the nine months ended September 30, 2020, Park sold certain debt securities AFS with a book value of $196.4 million at a gross gain of $3.4 million and sold certain debt securities AFS with a book value of $112.5 million at a gross loss of $64,000.
Investment securities having an amortized cost of $717.5$764.0 million and $691.0$733.7 million at September 30, 20212022 and December 31, 2020,2021, respectively, were pledged to collateralize government and trust department deposits in accordance with federal and state requirements, to secure repurchase agreements sold and as collateral for FHLB advance borrowings.
Note 4 – Other Investment Securities
Other investment securities consist of restricted stock investments in the FHLB, the FRB, and equity securities. The restricted FHLB and FRB 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 NAV practical expedient in accordance with ASC 820.
The carrying amounts of other investment securities at September 30, 20212022 and December 31, 20202021 were as follows:
| (In thousands) | (In thousands) | | September 30, 2021 | | December 31, 2020 | (In thousands) | | September 30, 2022 | | December 31, 2021 |
FHLB stock | FHLB stock | | $ | 13,413 | | | $ | 22,090 | | FHLB stock | | $ | 11,197 | | | $ | 13,413 | |
FRB stock | FRB stock | | 14,653 | | | 14,653 | | FRB stock | | 14,653 | | | 14,653 | |
Equity investments carried at fair value | Equity investments carried at fair value | | 2,070 | | | 2,511 | | Equity investments carried at fair value | | 1,746 | | | 2,129 | |
Equity investments carried at modified cost (1) | Equity investments carried at modified cost (1) | | 4,689 | | | 4,689 | | Equity investments carried at modified cost (1) | | 14,726 | | | 4,689 | |
Equity investments carried at NAV | Equity investments carried at NAV | | 21,260 | | | 21,522 | | Equity investments carried at NAV | | 43,623 | | | 26,384 | |
Total other investment securities | Total other investment securities | | $ | 56,085 | | | $ | 65,465 | | Total other investment securities | | $ | 85,945 | | | $ | 61,268 | |
(1) There have been no impairments downward adjustments, or upwarddownward adjustments made to equity investments carried at modified cost. An upward adjustment of $871,000 was recorded in the nine months ended September 30, 2022 as a result of observable price changes.
TableDuring the three months and the nine months ended September 30, 2022, the FHLB repurchased 22,160 shares of Contents
FHLB stock with a book value of $2.2 million. During the three months ended September 30, 2021, and 2020, the FHLB repurchased 21,286 and 13,971 shares respectively, of FHLB stock with a book value of $2.1 million and $1.4 million, respectively.million. During the nine months ended September 30, 2021, and 2020, the FHLB repurchased 86,770 and 76,394 shares respectively, of FHLB stock with a book value of $8.7 million and $7.6 million, respectively.million. No shares of FRB stock were purchased or sold during the three months or the nine months ended September 30, 20212022 or 2020.2021.
During the three months ended September 30, 2022 and 2021, $(39,000) and 2020, $97,000, and $(89,000), respectively, of (losses) gains (losses) on equity investments carried at fair value or modified cost were recorded within "Gain (loss) on equity securities, net" on the Consolidated Condensed Statements of Income. During the nine months ended September 30, 2022 and 2021, $488,000 and 2020, $492,000, and $(708,000), respectively, of gains (losses) on equity investments carried at fair value or modified cost were recorded within "Gain (loss) on equity securities, net" on the Consolidated Condensed Statements of Income.
During the three months ended September 30, 2022 and 2021, $97,000 and 2020, $0.5 million and $1.3 million,$512,000, respectively, of gains on equity investments carried at NAV were recorded within “Gain (loss) on equity securities, net” on the Consolidated Condensed Statements of Income. During the nine months ended September 30, 2022 and 2021, $2.6 million and 2020, $2.4 million, and $(41,000), respectively, of gains (losses) on equity investments carried at NAV were recorded within “Gain (loss) on equity securities, net” on the Consolidated Condensed Statements of Income.
Note 5 – Loans
The composition of the loan portfolio at September 30, 20212022 and December 31, 20202021 was as follows:
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
(In thousands) | (In thousands) | Amortized Cost | | | Amortized Cost | Accrued Interest Receivable | Recorded Investment | (In thousands) | Amortized Cost | | Amortized Cost |
Commercial, financial and agricultural: (1) | Commercial, financial and agricultural: (1) | | | $ | 1,588,989 | | $ | 6,528 | | $ | 1,595,517 | | Commercial, financial and agricultural: (1) | |
Commercial, financial and agricultural (1) | Commercial, financial and agricultural (1) | $ | 1,179,354 | | | | (2) | Commercial, financial and agricultural (1) | $ | 1,270,321 | | | $ | 1,223,079 | |
PPP loans | PPP loans | 131,483 | | | | (2) | PPP loans | 5,715 | | | 74,420 | |
Overdrafts | Overdrafts | 4,033 | | | | (2) | Overdrafts | 1,957 | | | 1,127 | |
Commercial real estate (1) | Commercial real estate (1) | 1,761,596 | | | | 1,748,189 | | 6,017 | | 1,754,206 | | Commercial real estate (1) | 1,790,801 | | | 1,801,792 | |
Construction real estate: | Construction real estate: | | | | | | Construction real estate: | | | |
Commercial | Commercial | 231,210 | | | | 226,991 | | 572 | | 227,563 | | Commercial | 200,580 | | | 214,561 | |
Retail | Retail | 111,677 | | | | 116,430 | | 235 | | 116,665 | | Retail | 111,127 | | | 107,225 | |
Residential real estate: | Residential real estate: | | | | | | Residential real estate: | | | |
Commercial | Commercial | 527,151 | | | | 526,222 | | 1,161 | | 527,383 | | Commercial | 532,921 | | | 533,802 | |
Mortgage | Mortgage | 1,052,093 | | | | 1,096,358 | | 947 | | 1,097,305 | | Mortgage | 1,057,204 | | | 1,033,658 | |
HELOC | HELOC | 166,454 | | | | 182,028 | | 647 | | 182,675 | | HELOC | 166,989 | | | 165,605 | |
Installment | Installment | 6,410 | | | | 8,436 | | 22 | | 8,458 | | Installment | 4,251 | | | 5,642 | |
Consumer: | Consumer: | | | 1,659,704 | | 4,510 | | 1,664,214 | | Consumer: | |
Consumer | Consumer | 1,710,608 | | | | (2) | Consumer | 1,938,913 | | | 1,685,793 | |
GFSC | GFSC | 2,624 | | | | (2) | GFSC | 452 | | | 1,793 | |
Check loans | Check loans | 2,092 | | | | (2) | Check loans | 2,144 | | | 2,093 | |
Leases | Leases | 21,632 | | | | 24,438 | | 14 | | 24,452 | | Leases | 19,871 | | | 20,532 | |
Total | Total | $ | 6,908,417 | | | | $ | 7,177,785 | | $ | 20,653 | | $ | 7,198,438 | | Total | $ | 7,103,246 | | | $ | 6,871,122 | |
Allowance for credit losses | Allowance for credit losses | (88,129) | | | | (85,675) | | | Allowance for credit losses | (83,961) | | | (83,197) | |
Net loans | Net loans | $ | 6,820,288 | | | | $ | 7,092,110 | | | Net loans | $ | 7,019,285 | | | $ | 6,787,925 | |
(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.
(2) Results for reporting periods beginning after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. Category was not broken out as a separate class at December 31, 2020.
In order to support customers, Park participated in the CARES Act Paycheck Protection Program ("PPP"). PPP loans were broken out as a separate class as of September 30, 2021. Included within commercial, financial and agricultural loans as of December 31, 2020 were $331.6 million of PPP loans. For its assistance in originating the first round of PPP loans during 2020, Park received an aggregate of $20.2 million in fees from the SBA, and for its assistance in originating additional PPP loans during 2021, Park received an aggregate of $12.9 million in fees from the SBA. During the three months ended September 30, 20212022 and September 30, 2020,2021, $361,000 and $4.3 million and $3.8 million, respectively, of PPP fee income werewas recognized within loan interest income. During the nine months ended September 30, 20212022 and September 30, 2020, $14.02021, $2.9 million and $6.6$14.0 million, respectively, of PPP fee income werewas recognized within loan interest income.
Loans are shown net of deferred origination fees, costs and unearned income of $22.7$18.2 million at September 30, 2021,2022, and of $23.6$19.5 million at December 31, 2020,2021, which represented a net deferred income position in both years. At September 30, 20212022 and December 31, 2020,2021, included in the net deferred origination fees, costs and unearned income were $5.2 million$133,000 and $6.5$2.8 million, respectively, in net origination fees related to PPP loans. At September 30, 20212022 and December 31, 2020,2021, loans included purchase accounting adjustments of $4.8$2.7 million and $7.2$4.2 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 $4.0$2.0 million and $2.0$1.1 million were reclassified to loans at September 30, 20212022 and December 31, 2020,2021, respectively. As of September 30, 2021, overdrafts were within their own class and as of December 31, 2020, were included in the commercial, financial and agricultural loan segment in the previous table.
Credit Quality
The following table presentstables present the amortized cost of nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing, by class of loan, at September 30, 2022 and December 31, 2021:
| | | | September 30, 2021 | | | September 30, 2022 |
(In thousands) | (In thousands) | | Nonaccrual Loans | | Accruing TDRs | | Loans Past Due 90 Days or More and Accruing | | Total Nonperforming Loans | (In thousands) | | Nonaccrual Loans | | Accruing TDRs | | Loans Past Due 90 Days or More and Accruing | | Total Nonperforming Loans |
Commercial, financial and agricultural: | Commercial, financial and agricultural: | | | | | | | | | Commercial, financial and agricultural: | |
Commercial, financial and agricultural | Commercial, financial and agricultural | | $ | 18,245 | | | $ | 3,812 | | | $ | — | | | $ | 22,057 | | Commercial, financial and agricultural | | $ | 10,736 | | | $ | 1,478 | | | $ | 30 | | | $ | 12,244 | |
PPP loans | PPP loans | | — | | | — | | | — | | | — | | PPP loans | | — | | | — | | | 8 | | | 8 | |
Overdrafts | Overdrafts | | — | | | — | | | — | | | — | | Overdrafts | | — | | | — | | | — | | | — | |
Commercial real estate | Commercial real estate | | 46,803 | | | 3,740 | | | — | | | 50,543 | | Commercial real estate | | 18,866 | | | 9,068 | | | — | | | 27,934 | |
Construction real estate: | Construction real estate: | | | | | | | | | Construction real estate: | | | | | | | | |
Commercial | Commercial | | 61 | | | 380 | | | — | | | 441 | | Commercial | | 439 | | | — | | | — | | | 439 | |
Retail | Retail | | 12 | | | 10 | | | — | | | 22 | | Retail | | 10 | | | 4 | | | — | | | 14 | |
Residential real estate: | Residential real estate: | | | | | | | | | Residential real estate: | | | | | | | | |
Commercial | Commercial | | 4,614 | | | 243 | | | — | | | 4,857 | | Commercial | | 1,725 | | | 430 | | | — | | | 2,155 | |
Mortgage | Mortgage | | 13,122 | | | 7,387 | | | — | | | 20,509 | | Mortgage | | 9,579 | | | 7,084 | | | 407 | | | 17,070 | |
HELOC | HELOC | | 1,683 | | | 697 | | | — | | | 2,380 | | HELOC | | 1,172 | | | 197 | | | — | | | 1,369 | |
Installment | Installment | | 113 | | | 1,661 | | | 29 | | | 1,803 | | Installment | | 67 | | | 1,009 | | | 4 | | | 1,080 | |
Consumer: | Consumer: | | Consumer: | |
Consumer | Consumer | | 1,650 | | | 857 | | | 243 | | | 2,750 | | Consumer | | 969 | | | 561 | | | 335 | | | 1,865 | |
GFSC | GFSC | | 82 | | | 10 | | | 12 | | | 104 | | GFSC | | 14 | | | — | | | 6 | | | 20 | |
Check loans | Check loans | | — | | | — | | | — | | | — | | Check loans | | — | | | — | | | — | | | — | |
Leases | Leases | | 1,406 | | | — | | | — | | | 1,406 | | Leases | | 1,035 | | | — | | | — | | | 1,035 | |
Total loans | Total loans | | $ | 87,791 | | | $ | 18,797 | | | $ | 284 | | | $ | 106,872 | | Total loans | | $ | 44,612 | | | $ | 19,831 | | | $ | 790 | | | $ | 65,233 | |
Table of Contents
The following table presents the recorded investment in nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing, by class of loan, at December 31, 2020:
| | | | December 31, 2020 | | | December 31, 2021 |
(In thousands) | (In thousands) | | Nonaccrual Loans | | Accruing TDRs | | Loans Past Due 90 Days or More and Accruing | | Total Nonperforming Loans | (In thousands) | | Nonaccrual Loans | | Accruing TDRs | | Loans Past Due 90 Days or More and Accruing | | Total Nonperforming Loans |
Commercial, financial and agricultural | Commercial, financial and agricultural | | $ | 23,261 | | | $ | 5,619 | | | $ | — | | | $ | 28,880 | | Commercial, financial and agricultural | |
Commercial, financial and agricultural | | Commercial, financial and agricultural | | $ | 13,271 | | | $ | 9,396 | | | $ | — | | | $ | 22,667 | |
PPP loans | | PPP loans | | — | | | — | | | 793 | | | 793 | |
Overdrafts | | Overdrafts | | — | | | — | | | — | | | — | |
Commercial real estate | Commercial real estate | | 67,426 | | | 2,931 | | | 377 | | | 70,734 | | Commercial real estate | | 40,142 | | | 7,713 | | | — | | | 47,855 | |
Construction real estate: | Construction real estate: | | | | | | | | Construction real estate: | | | | | | | |
Commercial | Commercial | | 3,110 | | | — | | | — | | | 3,110 | | Commercial | | 52 | | | 169 | | | — | | | 221 | |
Mortgage | | 14 | | | 31 | | | — | | | 45 | | |
Retail | | Retail | | 716 | | | 9 | | | — | | | 725 | |
Residential real estate: | Residential real estate: | | | | | | | | | Residential real estate: | | | | | | | | |
Commercial | Commercial | | 4,304 | | | 253 | | | — | | | 4,557 | | Commercial | | 2,366 | | | 240 | | | — | | | 2,606 | |
Mortgage | Mortgage | | 14,016 | | | 8,400 | | | 416 | | | 22,832 | | Mortgage | | 11,718 | | | 7,779 | | | 372 | | | 19,869 | |
HELOC | HELOC | | 1,286 | | | 909 | | | 77 | | | 2,272 | | HELOC | | 1,590 | | | 803 | | | — | | | 2,393 | |
Installment | Installment | | 184 | | | 1,728 | | | — | | | 1,912 | | Installment | | 82 | | | 1,508 | | | — | | | 1,590 | |
Consumer | Consumer | | 2,172 | | | 1,017 | | | 724 | | | 3,913 | | Consumer | |
Consumer | | Consumer | | 1,518 | | | 700 | | | 431 | | | 2,649 | |
GFSC | | GFSC | | 79 | | | 6 | | | 11 | | | 96 | |
Check loans | | Check loans | | — | | | — | | | — | | | — | |
Leases | Leases | | 1,595 | | | — | | | — | | | 1,595 | | Leases | | 1,188 | | | — | | | — | | | 1,188 | |
Total loans | Total loans | | $ | 117,368 | | | $ | 20,888 | | | $ | 1,594 | | | $ | 139,850 | | Total loans | | $ | 72,722 | | | $ | 28,323 | | | $ | 1,607 | | | $ | 102,652 | |
The following table providestables provide additional detail on nonaccrual loans and the related ACL, by class of loan, at September 30, 2022 and December 31, 2021:
| | | September 30, 2021 | | September 30, 2022 |
(In thousands) | (In thousands) | | Nonaccrual Loans With No ACL | | Nonaccrual Loans With an ACL | | Related ACL | (In thousands) | | Nonaccrual Loans With No ACL | | Nonaccrual Loans With an ACL | | Related ACL |
Commercial, financial and agricultural: | Commercial, financial and agricultural: | | Commercial, financial and agricultural: | |
Commercial, financial and agricultural | Commercial, financial and agricultural | | $ | 13,270 | | | $ | 4,975 | | | $ | 3,190 | | Commercial, financial and agricultural | | $ | 9,982 | | | $ | 754 | | | $ | 507 | |
PPP loans | PPP loans | | — | | | — | | | — | | PPP loans | | — | | | — | | | — | |
Overdrafts | Overdrafts | | — | | | — | | | — | | Overdrafts | | — | | | — | | | — | |
Commercial real estate | Commercial real estate | | 46,121 | | | 682 | | | 180 | | Commercial real estate | | 15,288 | | | 3,578 | | | 1,152 | |
Construction real estate: | Construction real estate: | | Construction real estate: | |
Commercial | Commercial | | 61 | | | — | | | — | | Commercial | | 439 | | | — | | | — | |
Retail | Retail | | — | | | 12 | | | — | | Retail | | — | | | 10 | | | 1 | |
Residential real estate: | Residential real estate: | | Residential real estate: | |
Commercial | Commercial | | 4,614 | | | — | | | — | | Commercial | | 1,725 | | | — | | | — | |
Mortgage | Mortgage | | — | | | 13,122 | | | 84 | | Mortgage | | — | | | 9,579 | | | 78 | |
HELOC | HELOC | | — | | | 1,683 | | | 110 | | HELOC | | 125 | | | 1,047 | | | 88 | |
Installment | Installment | | — | | | 113 | | | 26 | | Installment | | — | | | 67 | | | 17 | |
Consumer | Consumer | | Consumer | |
Consumer | Consumer | | — | | | 1,650 | | | 470 | | Consumer | | — | | | 969 | | | 409 | |
GFSC | GFSC | | — | | | 82 | | | 12 | | GFSC | | — | | | 14 | | | 1 | |
Check loans | Check loans | | — | | | — | | | — | | Check loans | | — | | | — | | | — | |
Leases | Leases | | 930 | | | 476 | | | 103 | | Leases | | 943 | | | 92 | | | 18 | |
Total loans | Total loans | | $ | 64,996 | | | $ | 22,795 | | | $ | 4,175 | | Total loans | | $ | 28,502 | | | $ | 16,110 | | | $ | 2,271 | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
(In thousands) | | Nonaccrual Loans With No ACL | | Nonaccrual Loans With an ACL | | Related ACL |
Commercial, financial and agricultural: | | | | | | |
Commercial, financial and agricultural | | $ | 11,494 | | | $ | 1,777 | | | $ | 1,343 | |
PPP loans | | — | | | — | | | — | |
Overdrafts | | — | | | — | | | — | |
Commercial real estate | | 39,151 | | | 991 | | | 188 | |
Construction real estate: | | | | | | |
Commercial | | 52 | | | — | | | — | |
Retail | | — | | | 716 | | | 67 | |
Residential real estate: | | | | | | |
Commercial | | 2,366 | | | — | | | — | |
Mortgage | | — | | | 11,718 | | | 73 | |
HELOC | | — | | | 1,590 | | | 99 | |
Installment | | — | | | 82 | | | 24 | |
Consumer | | | | | | |
Consumer | | — | | | 1,518 | | | 393 | |
GFSC | | — | | | 79 | | | 10 | |
Check loans | | — | | | — | | | — | |
Leases | | 914 | | | 274 | | | 43 | |
Total | | $ | 53,977 | | | $ | 18,745 | | | $ | 2,240 | |
Nonaccrual commercial loans are evaluated on an individual basis and are excluded from the collective evaluation. Management’s general practice is to proactively charge down loans individually evaluated to the fair value of the underlying collateral. Nonaccrual consumer loans are collectively evaluated based on similar risk characteristics.
The following table presents loans individually evaluated for impairment by class of loan as of December 31, 2020:
| | | | | | | | | | | | | | | | | | | | |
| | 12/31/2020 |
(In thousands) | | Unpaid Principal Balance | | Recorded Investment | | ACL Allocated |
With no related allowance recorded | | | | |
Commercial, financial and agricultural | | $ | 23,316 | | | $ | 22,970 | | | $ | — | |
Commercial real estate | | 63,639 | | | 63,467 | | | — | |
Construction real estate: | | | | | | |
Commercial | | 3,110 | | | 3,110 | | | — | |
Residential real estate: | | | | | | |
Commercial | | 4,522 | | | 4,448 | | | — | |
Leases | | 568 | | | 568 | | | — | |
With an allowance recorded | | | | | | |
Commercial, financial and agricultural | | 5,881 | | | 5,866 | | | 3,758 | |
Commercial real estate | | 6,890 | | | 6,890 | | | 1,316 | |
Construction real estate: | | | | | | |
Commercial | | — | | | — | | | — | |
Residential real estate: | | | | | | |
Commercial | | 109 | | | 109 | | | 16 | |
Leases | | 1,027 | | | 1,027 | | | 344 | |
Total | | $ | 109,062 | | | $ | 108,455 | | | $ | 5,434 | |
The following table providestables provide the amortized cost basis of collateral-dependent loans by class of loan, as of September 30, 2022 and December 31, 2021:
| | | | September 30, 2021 | | | September 30, 2022 |
(In thousands) | (In thousands) | | Real Estate | | Business Assets | | Other | Total | (In thousands) | | Real Estate | | Business Assets | | Other | Total |
Commercial, financial and agricultural | Commercial, financial and agricultural | | Commercial, financial and agricultural | |
Commercial, financial and agricultural | Commercial, financial and agricultural | | $ | 9,386 | | | $ | 12,232 | | | $ | 651 | | $ | 22,269 | | Commercial, financial and agricultural | | $ | 8,716 | | | $ | 3,318 | | | $ | 225 | | $ | 12,259 | |
Commercial real estate | Commercial real estate | | 56,722 | | | 300 | | | 47 | | 57,069 | | Commercial real estate | | 31,436 | | | 30 | | | — | | 31,466 | |
Construction real estate: | Construction real estate: | | Construction real estate: | |
Commercial | Commercial | | 1,407 | | | — | | | — | | 1,407 | | Commercial | | 1,107 | | | — | | | — | | 1,107 | |
Residential real estate: | Residential real estate: | | Residential real estate: | |
Commercial | Commercial | | 5,250 | | | — | | | — | | 5,250 | | Commercial | | 2,452 | | | — | | | — | | 2,452 | |
Mortgage | Mortgage | | 375 | | | — | | | — | | 375 | | Mortgage | | 94 | | | — | | | — | | 94 | |
HELOC | HELOC | | 144 | | | — | | | — | | 144 | | HELOC | | 124 | | | — | | | — | | 124 | |
Leases | Leases | | — | | | 1,455 | | | — | | 1,455 | | Leases | | — | | | 1,035 | | | — | | 1,035 | |
Total loans | Total loans | | $ | 73,284 | | | $ | 13,987 | | | $ | 698 | | $ | 87,969 | | Total loans | | $ | 43,929 | | | $ | 4,383 | | | $ | 225 | | $ | 48,537 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
(In thousands) | | Real Estate | | Business Assets | | Other | Total |
Commercial, financial and agricultural | | | | | | | |
Commercial, financial and agricultural | | $ | 9,321 | | | $ | 13,366 | | | $ | 156 | | $ | 22,843 | |
Commercial real estate | | 52,901 | | | 37 | | | — | | 52,938 | |
Construction real estate: | | | | | | | |
Commercial | | 1,178 | | | — | | | — | | 1,178 | |
Residential real estate: | | | | | | | |
Commercial | | 2,906 | | | — | | | 57 | | 2,963 | |
Mortgage | | 370 | | | — | | | — | | 370 | |
HELOC | | 148 | | | — | | | — | | 148 | |
Leases | | — | | | 1,211 | | | — | | 1,211 | |
Total loans | | $ | 66,824 | | | $ | 14,614 | | | $ | 213 | | $ | 81,651 | |
Interest income on nonaccrual loans individually evaluated for impairment is recognized on a cash basis only when Park expects to receive the entire recorded investment in the loans. Interest income on accruing TDRs individually evaluated for impairment continues to be recorded on an accrual basis. The following table presents interest income recognized on nonaccrual loans for the three-month and the nine-month periods ended September 30, 2022 and 2021:
| | | Interest Income Recognized | | Interest Income Recognized |
(In thousands) | (In thousands) | | Three months ended September 30, 2021 | | Nine months ended September 30, 2021 | (In thousands) | | Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2021 |
Commercial, financial and agricultural: | Commercial, financial and agricultural: | | Commercial, financial and agricultural: | | | | |
Commercial, financial and agricultural | Commercial, financial and agricultural | | $ | 40 | | | $ | 147 | | Commercial, financial and agricultural | | $ | 15 | | | $ | 40 | | | | $ | 45 | | | $ | 147 | |
PPP loans | PPP loans | | — | | | — | | PPP loans | | — | | | — | | | | — | | | — | |
Overdrafts | Overdrafts | | — | | | — | | Overdrafts | | — | | | — | | | | — | | | — | |
Commercial real estate | Commercial real estate | | 458 | | | 1,480 | | Commercial real estate | | 237 | | | 458 | | | | 751 | | | 1,480 | |
Construction real estate: | Construction real estate: | | Construction real estate: | | | |
Commercial | Commercial | | 1 | | | 38 | | Commercial | | 6 | | | 1 | | | | 10 | | | 38 | |
Retail | Retail | | — | | | 1 | | Retail | | — | | | — | | | | 4 | | | 1 | |
Residential real estate: | Residential real estate: | | Residential real estate: | | | |
Commercial | Commercial | | 60 | | | 180 | | Commercial | | 24 | | | 60 | | | | 64 | | | 180 | |
Mortgage | Mortgage | | 90 | | | 233 | | Mortgage | | 43 | | | 90 | | | | 112 | | | 233 | |
HELOC | HELOC | | 2 | | | 12 | | HELOC | | 5 | | | 2 | | | | 11 | | | 12 | |
Installment | Installment | | — | | | 2 | | Installment | | 1 | | | — | | | | 3 | | | 2 | |
Consumer: | Consumer: | | Consumer: | | | |
Consumer | Consumer | | 23 | | | 71 | | Consumer | | 14 | | | 23 | | | | 42 | | | 71 | |
GFSC | GFSC | | 3 | | | 11 | | GFSC | | 1 | | | 3 | | | | 4 | | | 11 | |
Check loans | Check loans | | — | | | — | | Check loans | | — | | | — | | | | — | | | — | |
Leases | Leases | | 17 | | | 61 | | Leases | | 9 | | | 17 | | | | 33 | | | 61 | |
Total loans | Total loans | | $ | 694 | | | $ | 2,236 | | Total loans | | $ | 355 | | | $ | 694 | | | | $ | 1,079 | | | $ | 2,236 | |
The following table presents the average recorded investment and interest income recognized subsequent to impairment on loans individually evaluated for impairment as of and for the three months and nine months ended September 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three months ended September 30, 2020 | | | Nine months ended September 30, 2020 |
(In thousands) | | Recorded Investment as of September 30, 2020 | | Average Recorded Investment | | Interest Income Recognized | | | Average Recorded Investment | | Interest Income Recognized |
Commercial, financial and agricultural | | $ | 33,098 | | | $ | 29,481 | | | $ | 159 | | | | 30,426 | | | 543 | |
Commercial real estate | | 72,519 | | | 58,195 | | | 526 | | | | 50,479 | | | 1,416 | |
Construction real estate: | | | | | | | | | | | |
Commercial | | 3,142 | | | 1,212 | | | 6 | | | | 743 | | | 14 | |
Residential real estate: | | | | | | | | | | | |
Commercial | | 4,897 | | | 5,061 | | | 65 | | | | 4,271 | | | 166 | |
Leases | | 2,524 | | | 2,079 | | | — | | | | 909 | | | — | |
Total | | $ | 116,180 | | | $ | 96,028 | | | $ | 756 | | | | $ | 86,828 | | | $ | 2,139 | |
The following table presentstables present the aging of the amortized cost in past due loans at September 30, 2022 and December 31, 2021 by class of loan:
| | | September 30, 2021 | | September 30, 2022 |
(In thousands) | (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 | (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: | | | | | | | | | | Commercial, financial and agricultural: | |
Commercial, financial and agricultural | Commercial, financial and agricultural | $ | 3,210 | | | $ | 10,909 | | | $ | 14,119 | | | $ | 1,165,235 | | | $ | 1,179,354 | | Commercial, financial and agricultural | $ | 1,356 | | | $ | 9,303 | | | $ | 10,659 | | | $ | 1,259,662 | | | $ | 1,270,321 | |
PPP loans | PPP loans | 1 | | | — | | | 1 | | | 131,482 | | | 131,483 | | PPP loans | 780 | | | 8 | | | 788 | | | 4,927 | | | 5,715 | |
Overdrafts | Overdrafts | — | | | — | | | — | | | 4,033 | | | 4,033 | | Overdrafts | — | | | — | | | — | | | 1,957 | | | 1,957 | |
Commercial real estate | Commercial real estate | — | | | 1,009 | | | 1,009 | | | 1,760,587 | | | 1,761,596 | | Commercial real estate | 574 | | | 516 | | | 1,090 | | | 1,789,711 | | | 1,790,801 | |
Construction real estate: | Construction real estate: | | Construction real estate: | |
Commercial | Commercial | 815 | | | — | | | 815 | | | 230,395 | | | 231,210 | | Commercial | 158 | | | — | | | 158 | | | 200,422 | | | 200,580 | |
Retail | Retail | 1,202 | | | 12 | | | 1,214 | | | 110,463 | | | 111,677 | | Retail | — | | | — | | | — | | | 111,127 | | | 111,127 | |
Residential real estate: | Residential real estate: | | Residential real estate: | |
Commercial | Commercial | — | | | 413 | | | 413 | | | 526,738 | | | 527,151 | | Commercial | 9 | | | 362 | | | 371 | | | 532,550 | | | 532,921 | |
Mortgage | Mortgage | 5,931 | | | 5,884 | | | 11,815 | | | 1,040,278 | | | 1,052,093 | | Mortgage | 6,986 | | | 5,450 | | | 12,436 | | | 1,044,768 | | | 1,057,204 | |
HELOC | HELOC | 487 | | | 997 | | | 1,484 | | | 164,970 | | | 166,454 | | HELOC | 282 | | | 631 | | | 913 | | | 166,076 | | | 166,989 | |
Installment | Installment | 37 | | | 93 | | | 130 | | | 6,280 | | | 6,410 | | Installment | 46 | | | 7 | | | 53 | | | 4,198 | | | 4,251 | |
Consumer: | Consumer: | | Consumer: | |
Consumer | Consumer | 2,436 | | | 404 | | | 2,840 | | | 1,707,768 | | | 1,710,608 | | Consumer | 4,498 | | | 477 | | | 4,975 | | | 1,933,938 | | | 1,938,913 | |
GFSC | GFSC | 196 | | | 57 | | | 253 | | | 2,371 | | | 2,624 | | GFSC | 46 | | | 10 | | | 56 | | | 396 | | | 452 | |
Check loans | Check loans | 8 | | | — | | | 8 | | | 2,084 | | | 2,092 | | Check loans | 5 | | | — | | | 5 | | | 2,139 | | | 2,144 | |
Leases | Leases | 53 | | | 576 | | | 629 | | | 21,003 | | | 21,632 | | Leases | 38 | | | 166 | | | 204 | | | 19,667 | | | 19,871 | |
Total loans | Total loans | $ | 14,376 | | | $ | 20,354 | | | $ | 34,730 | | | $ | 6,873,687 | | | $ | 6,908,417 | | Total loans | $ | 14,778 | | | $ | 16,930 | | | $ | 31,708 | | | $ | 7,071,538 | | | $ | 7,103,246 | |
(1) Includes an aggregate of $0.3 million$790,000 of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes an aggregate of $67.7$28.5 million of nonaccrual loans which were current in regards to contractual principal and interest payments.
The following table presents the aging of the recorded investment in past due loans at December 31, 2020 by class of loan:
| | | December 31, 2020 | | December 31, 2021 |
(in thousands) | (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 Recorded Investment | (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 | $ | 7,372 | | | $ | 13,968 | | | $ | 21,340 | | | $ | 1,574,177 | | | $ | 1,595,517 | | Commercial, financial and agricultural | |
Commercial, financial and agricultural | | Commercial, financial and agricultural | $ | 2,908 | | | $ | 9,547 | | | $ | 12,455 | | | $ | 1,210,624 | | | $ | 1,223,079 | |
PPP loans | | PPP loans | 242 | | | 793 | | | 1,035 | | | 73,385 | | | 74,420 | |
Overdrafts | | Overdrafts | — | | | — | | | — | | | 1,127 | | | 1,127 | |
Commercial real estate | Commercial real estate | 82 | | | 972 | | | 1,054 | | | 1,753,152 | | | 1,754,206 | | Commercial real estate | 65 | | | 1,461 | | | 1,526 | | | 1,800,266 | | | 1,801,792 | |
Construction real estate: | Construction real estate: | | | | | | | | Construction real estate: | |
Commercial | Commercial | — | | | 39 | | | 39 | | | 227,524 | | | 227,563 | | Commercial | — | | | — | | | — | | | 214,561 | | | 214,561 | |
Mortgage | 77 | | | — | | | 77 | | | 115,647 | | | 115,724 | | |
Installment | 12 | | | — | | | 12 | | | 929 | | | 941 | | |
Retail | | Retail | 346 | | | 660 | | | 1,006 | | | 106,219 | | | 107,225 | |
Residential real estate: | Residential real estate: | | | | | | | | | | Residential real estate: | |
Commercial | Commercial | 17 | | | 493 | | | 510 | | | 526,873 | | | 527,383 | | Commercial | 283 | | | 438 | | | 721 | | | 533,081 | | | 533,802 | |
Mortgage | Mortgage | 9,538 | | | 7,814 | | | 17,352 | | | 1,079,953 | | | 1,097,305 | | Mortgage | 6,170 | | | 5,933 | | | 12,103 | | | 1,021,555 | | | 1,033,658 | |
HELOC | HELOC | 805 | | | 810 | | | 1,615 | | | 181,060 | | | 182,675 | | HELOC | 565 | | | 1,011 | | | 1,576 | | | 164,029 | | | 165,605 | |
Installment | Installment | 67 | | | 71 | | | 138 | | | 8,320 | | | 8,458 | | Installment | 49 | | | 31 | | | 80 | | | 5,562 | | | 5,642 | |
Consumer | Consumer | 5,496 | | | 1,213 | | | 6,709 | | | 1,657,505 | | | 1,664,214 | | Consumer | |
Consumer | | Consumer | 2,614 | | | 618 | | | 3,232 | | | 1,682,561 | | | 1,685,793 | |
GFSC | | GFSC | 153 | | | 52 | | | 205 | | | 1,588 | | | 1,793 | |
Check loans | | Check loans | 10 | | | — | | | 10 | | | 2,083 | | | 2,093 | |
Leases | Leases | 186 | | | 984 | | | 1,170 | | | 23,282 | | | 24,452 | | Leases | 60 | | | 526 | | | 586 | | | 19,946 | | | 20,532 | |
Total loans | Total loans | $ | 23,652 | | | $ | 26,364 | | | $ | 50,016 | | | $ | 7,148,422 | | | $ | 7,198,438 | | Total loans | $ | 13,465 | | | $ | 21,070 | | | $ | 34,535 | | | $ | 6,836,587 | | | $ | 6,871,122 | |
(1) Includes an aggregate of $1.6 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes an aggregate of $92.6$53.3 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 September 30, 20212022 and December 31, 20202021 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, GFSC 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 deficiencies 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 a specific 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 impairedindividually evaluated category. A commercial loan is deemed impaired,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 September 30, 2022 and December 31, 2021 were as follows:
| September 30, 2021 | Term Loans Amortized Cost Basis by Origination Year | | |
September 30, 2022 | | September 30, 2022 | Term Loans Amortized Cost Basis by Origination Year | |
(In thousands) | (In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Total | (In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Total |
Commercial, financial and agricultural: Commercial, financial and agricultural (1) | Commercial, financial and agricultural: Commercial, financial and agricultural (1) | | Commercial, financial and agricultural: Commercial, financial and agricultural (1) | |
Risk rating | Risk rating | | Risk rating | |
Pass | Pass | $ | 195,565 | | $ | 225,189 | | $ | 111,003 | | $ | 58,680 | | $ | 47,081 | | $ | 74,703 | | $ | 439,145 | | $ | 1,151,366 | | Pass | $ | 146,540 | | $ | 221,469 | | $ | 166,613 | | $ | 68,641 | | $ | 36,924 | | $ | 62,427 | | $ | 523,166 | | $ | 1,225,780 | |
Special Mention | Special Mention | — | | 1,711 | | 477 | | 390 | | 101 | | — | | 6,916 | | 9,595 | | Special Mention | 622 | | 1,554 | | 1,076 | | 613 | | 38 | | 92 | | 27,378 | | 31,373 | |
Substandard | Substandard | 612 | | 787 | | 593 | | 1,371 | | 680 | | 8,084 | | 404 | | 12,531 | | Substandard | 277 | | 20 | | 2,189 | | 108 | | 1,384 | | 7,838 | | 669 | | 12,485 | |
Doubtful | Doubtful | 1,167 | | 912 | | 372 | | 321 | | 1,903 | | 496 | | 691 | | 5,862 | | Doubtful | — | | — | | 7 | | 99 | | 99 | | 273 | | 205 | | 683 | |
Total | Total | $ | 197,344 | | $ | 228,599 | | $ | 112,445 | | $ | 60,762 | | $ | 49,765 | | $ | 83,283 | | $ | 447,156 | | $ | 1,179,354 | | Total | $ | 147,439 | | $ | 223,043 | | $ | 169,885 | | $ | 69,461 | | $ | 38,445 | | $ | 70,630 | | $ | 551,418 | | $ | 1,270,321 | |
| Commercial, financial and agricultural: PPP | Commercial, financial and agricultural: PPP | | Commercial, financial and agricultural: PPP | |
Risk rating | Risk rating | | Risk rating | |
Pass | Pass | $ | 117,405 | | $ | 14,078 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 131,483 | | Pass | $ | — | | $ | 3,162 | | $ | 2,553 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 5,715 | |
Special Mention | Special Mention | — | | — | | — | | — | | — | | — | | — | | — | | Special Mention | — | | — | | — | | — | | — | | — | | — | | — | |
Substandard | Substandard | — | | — | | — | | — | | — | | — | | — | | — | | Substandard | — | | — | | — | | — | | — | | — | | — | | — | |
Doubtful | Doubtful | — | | — | | — | | — | | — | | — | | — | | — | | Doubtful | — | | — | | — | | — | | — | | — | | — | | — | |
Total | Total | $ | 117,405 | | $ | 14,078 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 131,483 | | Total | $ | — | | $ | 3,162 | | $ | 2,553 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 5,715 | |
| Commercial real estate (1) | Commercial real estate (1) | | Commercial real estate (1) | |
Risk rating | Risk rating | | Risk rating | |
Pass | Pass | $ | 274,406 | | $ | 453,316 | | $ | 251,647 | | $ | 167,526 | | $ | 120,190 | | $ | 345,899 | | $ | 11,767 | | $ | 1,624,751 | | Pass | $ | 271,557 | | $ | 379,993 | | $ | 389,071 | | $ | 228,751 | | $ | 112,182 | | $ | 327,854 | | $ | 14,433 | | $ | 1,723,841 | |
Special Mention | Special Mention | 1,571 | | 12,615 | | 34,376 | | 10,602 | | 7,725 | | 18,777 | | 3,590 | | 89,256 | | Special Mention | 397 | | 757 | | 3,934 | | 6,821 | | 13,830 | | 22,311 | | — | | 48,050 | |
Substandard | Substandard | 1,429 | | 3,866 | | 4,679 | | 12,175 | | 8,486 | | 15,587 | | 439 | | 46,661 | | Substandard | 413 | | 1,292 | | 1,043 | | 1,549 | | 4,293 | | 6,596 | | 150 | | 15,336 | |
Doubtful | Doubtful | — | | — | | 245 | | — | | 47 | | 636 | | — | | 928 | | Doubtful | — | | — | | — | | — | | 2,966 | | 608 | | — | | 3,574 | |
Total | Total | $ | 277,406 | | $ | 469,797 | | $ | 290,947 | | $ | 190,303 | | $ | 136,448 | | $ | 380,899 | | $ | 15,796 | | $ | 1,761,596 | | Total | $ | 272,367 | | $ | 382,042 | | $ | 394,048 | | $ | 237,121 | | $ | 133,271 | | $ | 357,369 | | $ | 14,583 | | $ | 1,790,801 | |
| Construction real estate: Commercial | Construction real estate: Commercial | | Construction real estate: Commercial | |
Risk rating | Risk rating | | Risk rating | |
Pass | Pass | $ | 65,351 | | $ | 85,633 | | $ | 43,410 | | $ | 5,308 | | $ | 1,900 | | $ | 5,250 | | $ | 22,951 | | $ | 229,803 | | Pass | $ | 69,238 | | $ | 55,895 | | $ | 30,411 | | $ | 3,019 | | $ | 3,194 | | $ | 3,400 | | $ | 34,080 | | $ | 199,237 | |
Special Mention | Special Mention | — | | — | | 98 | | 699 | | — | | — | | 282 | | 1,079 | | Special Mention | — | | — | | 236 | | — | | — | | — | | — | | 236 | |
Substandard | Substandard | — | | 54 | | 7 | | 267 | | — | | — | | — | | 328 | | Substandard | — | | 132 | | 307 | | — | | 668 | | — | | — | | 1,107 | |
Doubtful | Doubtful | — | | — | | — | | — | | — | | — | | — | | — | | Doubtful | — | | — | | — | | — | | — | | — | | — | | — | |
Total | Total | $ | 65,351 | | $ | 85,687 | | $ | 43,515 | | $ | 6,274 | | $ | 1,900 | | $ | 5,250 | | $ | 23,233 | | $ | 231,210 | | Total | $ | 69,238 | | $ | 56,027 | | $ | 30,954 | | $ | 3,019 | | $ | 3,862 | | $ | 3,400 | | $ | 34,080 | | $ | 200,580 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential Real Estate: Commercial | | | | | | |
Risk rating | | | | | | | | |
Pass | $ | 106,322 | | $ | 172,182 | | $ | 65,248 | | $ | 46,258 | | $ | 29,798 | | $ | 86,348 | | $ | 14,615 | | $ | 520,771 | |
Special Mention | 96 | | — | | 413 | | 80 | | — | | 507 | | 337 | | 1,433 | |
Substandard | 615 | | 22 | | 809 | | 1,977 | | 64 | | 1,026 | | 166 | | 4,679 | |
Doubtful | — | | — | | — | | — | | 244 | | 24 | | — | | 268 | |
Total | $ | 107,033 | | $ | 172,204 | | $ | 66,470 | | $ | 48,315 | | $ | 30,106 | | $ | 87,905 | | $ | 15,118 | | $ | 527,151 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Leases | | | | | | |
Risk rating | | | | | | | | |
Pass | $ | 5,179 | | $ | 6,398 | | $ | 4,017 | | $ | 2,652 | | $ | 907 | | $ | 1,057 | | $ | — | | $ | 20,210 | |
Special Mention | — | | — | | — | | — | | — | | — | | — | | — | |
Substandard | — | | 792 | | — | | 41 | | — | | 75 | | — | | 908 | |
Doubtful | — | | 76 | | 354 | | 21 | | 47 | | 16 | | — | | 514 | |
Total | $ | 5,179 | | $ | 7,266 | | $ | 4,371 | | $ | 2,714 | | $ | 954 | | $ | 1,148 | | $ | — | | $ | 21,632 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential Real Estate: Commercial | | | | | | |
Risk rating | | | | | | | | |
Pass | $ | 77,551 | | $ | 125,411 | | $ | 144,603 | | $ | 58,862 | | $ | 35,700 | | $ | 69,669 | | $ | 15,341 | | $ | 527,137 | |
Special Mention | — | | 93 | | 1,491 | | 698 | | — | | 1,356 | | 146 | | 3,784 | |
Substandard | 195 | | 464 | | 321 | | 32 | | 309 | | 679 | | — | | 2,000 | |
Doubtful | — | | — | | — | | — | | — | | — | | — | | — | |
Total | $ | 77,746 | | $ | 125,968 | | $ | 146,415 | | $ | 59,592 | | $ | 36,009 | | $ | 71,704 | | $ | 15,487 | | $ | 532,921 | |
Table of Contents
| | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2021 | Term Loans Amortized Cost Basis by Origination Year | | |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Total |
| Total Commercial Loans | | |
September 30, 2022 | | September 30, 2022 | Term Loans Amortized Cost Basis by Origination Year | |
(In thousands) | | (In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Total |
Leases | | Leases | |
Risk rating | Risk rating | | Risk rating | |
Pass | Pass | $ | 764,228 | | $ | 956,796 | | $ | 475,325 | | $ | 280,424 | | $ | 199,876 | | $ | 513,257 | | $ | 488,478 | | $ | 3,678,384 | | Pass | $ | 6,869 | | $ | 4,275 | | $ | 3,996 | | $ | 1,529 | | $ | 1,209 | | $ | 853 | | $ | — | | $ | 18,731 | |
Special Mention | Special Mention | 1,667 | | 14,326 | | 35,364 | | 11,771 | | 7,826 | | 19,284 | | 11,125 | | 101,363 | | Special Mention | 105 | | — | | — | | — | | — | | — | | — | | 105 | |
Substandard | Substandard | 2,656 | | 5,521 | | 6,088 | | 15,831 | | 9,230 | | 24,772 | | 1,009 | | 65,107 | | Substandard | 34 | | — | | 533 | | 122 | | 13 | | 33 | | — | | 735 | |
Doubtful | Doubtful | 1,167 | | 988 | | 971 | | 342 | | 2,241 | | 1,172 | | 691 | | 7,572 | | Doubtful | 74 | | 91 | | 26 | | 108 | | — | | 1 | | — | | 300 | |
Total | Total | $ | 769,718 | | $ | 977,631 | | $ | 517,748 | | $ | 308,368 | | $ | 219,173 | | $ | 558,485 | | $ | 501,303 | | $ | 3,852,426 | | Total | $ | 7,082 | | $ | 4,366 | | $ | 4,555 | | $ | 1,759 | | $ | 1,222 | | $ | 887 | | $ | — | | $ | 19,871 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Commercial Loans | | | | | | |
Risk rating | | | | | | | | |
Pass | $ | 571,755 | | $ | 790,205 | | $ | 737,247 | | $ | 360,802 | | $ | 189,209 | | $ | 464,203 | | $ | 587,020 | | $ | 3,700,441 | |
Special Mention | 1,124 | | 2,404 | | 6,737 | | 8,132 | | 13,868 | | 23,759 | | 27,524 | | 83,548 | |
Substandard | 919 | | 1,908 | | 4,393 | | 1,811 | | 6,667 | | 15,146 | | 819 | | 31,663 | |
Doubtful | 74 | | 91 | | 33 | | 207 | | 3,065 | | 882 | | 205 | | 4,557 | |
Total | $ | 573,872 | | $ | 794,608 | | $ | 748,410 | | $ | 370,952 | | $ | 212,809 | | $ | 503,990 | | $ | 615,568 | | $ | 3,820,209 | |
(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.
The table below presents the recorded investment by loan grade at December 31, 2020 for all commercial loans: | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | Term Loans Amortized Cost Basis by Origination Year | | |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Total |
Commercial, financial and agricultural: Commercial, financial and agricultural (1) | | | | | | |
Risk rating | | | | | | | | |
Pass | $ | 267,016 | | $ | 208,078 | | $ | 100,736 | | $ | 52,705 | | $ | 36,528 | | $ | 59,909 | | $ | 468,749 | | $ | 1,193,721 | |
Special Mention | 1,608 | | 1,592 | | 429 | | 59 | | 277 | | — | | 11,986 | | 15,951 | |
Substandard | 106 | | 906 | | 401 | | 1,345 | | 549 | | 7,818 | | 484 | | 11,609 | |
Doubtful | — | | 30 | | 465 | | 227 | | 463 | | 125 | | 488 | | 1,798 | |
Total | $ | 268,730 | | $ | 210,606 | | $ | 102,031 | | $ | 54,336 | | $ | 37,817 | | $ | 67,852 | | $ | 481,707 | | $ | 1,223,079 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial, financial and agricultural: PPP | | | | | | |
Risk rating | | | | | | | | |
Pass | $ | 69,588 | | $ | 4,832 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 74,420 | |
Special Mention | — | | — | | — | | — | | — | | — | | — | | — | |
Substandard | — | | — | | — | | — | | — | | — | | — | | — | |
Doubtful | — | | — | | — | | — | | — | | — | | — | | — | |
Total | $ | 69,588 | | $ | 4,832 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 74,420 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate (1) | | | | | | | |
Risk rating | | | | | | | | |
Pass | $ | 376,468 | | $ | 445,780 | | $ | 263,786 | | $ | 154,637 | | $ | 115,571 | | $ | 317,371 | | $ | 14,890 | | $ | 1,688,503 | |
Special Mention | 786 | | 6,206 | | 32,965 | | 9,354 | | 4,297 | | 17,829 | | 996 | | 72,433 | |
Substandard | 3,897 | | 2,578 | | 1,385 | | 11,373 | | 5,967 | | 14,541 | | 450 | | 40,191 | |
Doubtful | — | | — | | — | | — | | 47 | | 618 | | — | | 665 | |
Total | $ | 381,151 | | $ | 454,564 | | $ | 298,136 | | $ | 175,364 | | $ | 125,882 | | $ | 350,359 | | $ | 16,336 | | $ | 1,801,792 | |
Table of Contents
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| | December 31, 2020 |
(In thousands) | | 5 Rated | | 6 Rated | | Nonaccrual and Accruing TDRs | | PCI | | Pass-Rated | | Recorded Investment |
Commercial, financial and agricultural (1) | | $ | 14,638 | | | $ | — | | | $ | 28,880 | | | $ | 337 | | | $ | 1,551,662 | | | $ | 1,595,517 | |
Commercial real estate (1) | | 87,439 | | | 117 | | | 70,357 | | | 7,461 | | | 1,588,832 | | | 1,754,206 | |
Construction real estate: | | | | | | | | | | | | |
Commercial | | 164 | | | — | | | 3,110 | | | 1,002 | | | 223,287 | | | 227,563 | |
Residential real estate: | | | | | | | | | | | | |
Commercial | | 798 | | | 22 | | | 4,557 | | | 1,510 | | | 520,496 | | | 527,383 | |
Leases | | 331 | | | — | | | 1,595 | | | 112 | | | 22,414 | | | 24,452 | |
Total Commercial Loans | | $ | 103,370 | | | $ | 139 | | | $ | 108,499 | | | $ | 10,422 | | | $ | 3,906,691 | | | $ | 4,129,121 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | Term Loans Amortized Cost Basis by Origination Year | | |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Total |
Construction real estate: Commercial | | | | | | |
Risk rating | | | | | | | | |
Pass | $ | 96,929 | | $ | 76,867 | | $ | 7,003 | | $ | 4,841 | | $ | 1,856 | | $ | 3,412 | | $ | 22,444 | | $ | 213,352 | |
Special Mention | 202 | | — | | — | | 691 | | — | | — | | — | | 893 | |
Substandard | — | | 52 | | — | | 264 | | — | | — | | — | | 316 | |
Doubtful | — | | — | | — | | — | | — | | — | | — | | — | |
Total | $ | 97,131 | | $ | 76,919 | | $ | 7,003 | | $ | 5,796 | | $ | 1,856 | | $ | 3,412 | | $ | 22,444 | | $ | 214,561 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential Real Estate: Commercial | | | | | | |
Risk rating | | | | | | | | |
Pass | $ | 138,801 | | $ | 165,202 | | $ | 67,921 | | $ | 44,896 | | $ | 26,583 | | $ | 70,434 | | $ | 15,507 | | $ | 529,344 | |
Special Mention | 95 | | 884 | | 106 | | 79 | | — | | 497 | | 135 | | 1,796 | |
Substandard | 735 | | 22 | | 691 | | 41 | | 95 | | 993 | | 29 | | 2,606 | |
Doubtful | 56 | | — | | — | | — | | — | | — | | — | | 56 | |
Total | $ | 139,687 | | $ | 166,108 | | $ | 68,718 | | $ | 45,016 | | $ | 26,678 | | $ | 71,924 | | $ | 15,671 | | $ | 533,802 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Leases | | | | | | |
Risk rating | | | | | | | | |
Pass | $ | 6,705 | | $ | 5,729 | | $ | 2,628 | | $ | 2,151 | | $ | 705 | | $ | 845 | | $ | — | | $ | 18,763 | |
Special Mention | 198 | | 111 | | 184 | | 67 | | 21 | | — | | — | | 581 | |
Substandard | — | | 698 | | — | | 23 | | 19 | | 78 | | — | | 818 | |
Doubtful | — | | — | | 332 | | 16 | | 22 | | — | | — | | 370 | |
Total | $ | 6,903 | | $ | 6,538 | | $ | 3,144 | | $ | 2,257 | | $ | 767 | | $ | 923 | | $ | — | | $ | 20,532 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Commercial Loans | | | | | | |
Risk rating | | | | | | | | |
Pass | $ | 955,507 | | $ | 906,488 | | $ | 442,074 | | $ | 259,230 | | $ | 181,243 | | $ | 451,971 | | $ | 521,590 | | $ | 3,718,103 | |
Special Mention | 2,889 | | 8,793 | | 33,684 | | 10,250 | | 4,595 | | 18,326 | | 13,117 | | 91,654 | |
Substandard | 4,738 | | 4,256 | | 2,477 | | 13,046 | | 6,630 | | 23,430 | | 963 | | 55,540 | |
Doubtful | 56 | | 30 | | 797 | | 243 | | 532 | | 743 | | 488 | | 2,889 | |
Total | $ | 963,190 | | $ | 919,567 | | $ | 479,032 | | $ | 282,769 | | $ | 193,000 | | $ | 494,470 | | $ | 536,158 | | $ | 3,868,186 | |
(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that wereare 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. Park defines a loan as nonperforming if it is on nonaccrual status, designated as an accruing TDR, or is greater than 90 days past due and accruing.
| September 30, 2021 | Term Loans Amortized Cost Basis by Origination Year | | |
September 30, 2022 | | September 30, 2022 | Term Loans Amortized Cost Basis by Origination Year | |
(In thousands) | (In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Total | (In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Total |
Commercial, financial and agricultural: Overdrafts | Commercial, financial and agricultural: Overdrafts | | Commercial, financial and agricultural: Overdrafts | |
Performing | Performing | $ | 4,033 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 4,033 | | Performing | $ | 1,957 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,957 | |
Nonperforming | Nonperforming | — | | — | | — | | — | | — | | — | | — | | — | | Nonperforming | — | | — | | — | | — | | — | | — | | — | | — | |
Total | Total | $ | 4,033 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 4,033 | | Total | $ | 1,957 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,957 | |
| Construction Real Estate: Retail | Construction Real Estate: Retail | | Construction Real Estate: Retail | |
Performing | Performing | $ | 47,057 | | $ | 49,942 | | $ | 7,649 | | $ | 3,045 | | $ | 1,556 | | $ | 2,326 | | $ | 80 | | $ | 111,655 | | Performing | $ | 49,821 | | $ | 43,035 | | $ | 9,093 | | $ | 4,751 | | $ | 1,746 | | $ | 2,591 | | $ | 76 | | $ | 111,113 | |
Nonperforming | Nonperforming | — | | — | | — | | — | | — | | 22 | | — | | 22 | | Nonperforming | — | | — | | — | | — | | — | | 14 | | — | | 14 | |
Total | Total | $ | 47,057 | | $ | 49,942 | | $ | 7,649 | | $ | 3,045 | | $ | 1,556 | | $ | 2,348 | | $ | 80 | | $ | 111,677 | | Total | $ | 49,821 | | $ | 43,035 | | $ | 9,093 | | $ | 4,751 | | $ | 1,746 | | $ | 2,605 | | $ | 76 | | $ | 111,127 | |
| Residential Real Estate: Mortgage | Residential Real Estate: Mortgage | | Residential Real Estate: Mortgage | |
Performing | Performing | $ | 195,203 | | $ | 217,391 | | $ | 123,465 | | $ | 75,441 | | $ | 63,593 | | $ | 356,491 | | $ | — | | $ | 1,031,584 | | Performing | $ | 168,168 | | $ | 217,090 | | $ | 197,891 | | $ | 93,470 | | $ | 57,037 | | $ | 306,478 | | $ | — | | $ | 1,040,134 | |
Nonperforming | Nonperforming | — | | 629 | | 814 | | 861 | | 841 | | 17,364 | | — | | 20,509 | | Nonperforming | — | | — | | 357 | | 564 | | 578 | | 15,571 | | — | | 17,070 | |
Total | Total | $ | 195,203 | | $ | 218,020 | | $ | 124,279 | | $ | 76,302 | | $ | 64,434 | | $ | 373,855 | | $ | — | | $ | 1,052,093 | | Total | $ | 168,168 | | $ | 217,090 | | $ | 198,248 | | $ | 94,034 | | $ | 57,615 | | $ | 322,049 | | $ | — | | $ | 1,057,204 | |
| Residential Real Estate: HELOC | Residential Real Estate: HELOC | | Residential Real Estate: HELOC | |
Performing | Performing | $ | 299 | | $ | — | | $ | 158 | | $ | 22 | | $ | 43 | | $ | 2,490 | | $ | 161,062 | | $ | 164,074 | | Performing | $ | — | | $ | 312 | | $ | 24 | | $ | 112 | | $ | 117 | | $ | 2,118 | | $ | 162,937 | | $ | 165,620 | |
Nonperforming | Nonperforming | — | | — | | — | | 39 | | 70 | | 1,878 | | 393 | | 2,380 | | Nonperforming | — | | — | | 45 | | — | | — | | 1,156 | | 168 | | 1,369 | |
Total | Total | $ | 299 | | $ | — | | $ | 158 | | $ | 61 | | $ | 113 | | $ | 4,368 | | $ | 161,455 | | $ | 166,454 | | Total | $ | — | | $ | 312 | | $ | 69 | | $ | 112 | | $ | 117 | | $ | 3,274 | | $ | 163,105 | | $ | 166,989 | |
| Residential Real Estate: Installment | Residential Real Estate: Installment | | Residential Real Estate: Installment | |
Performing | Performing | $ | — | | $ | 7 | | $ | 553 | | $ | 142 | | $ | 1,231 | | $ | 2,674 | | $ | — | | $ | 4,607 | | Performing | $ | 78 | | $ | — | | $ | 2 | | $ | 271 | | $ | 68 | | $ | 2,752 | | $ | — | | $ | 3,171 | |
Nonperforming | Nonperforming | — | | 13 | | 2 | | 43 | | 85 | | 1,660 | | — | | 1,803 | | Nonperforming | — | | — | | 8 | | 3 | | 19 | | 1,050 | | — | | 1,080 | |
Total | Total | $ | — | | $ | 20 | | $ | 555 | | $ | 185 | | $ | 1,316 | | $ | 4,334 | | $ | — | | $ | 6,410 | | Total | $ | 78 | | $ | — | | $ | 10 | | $ | 274 | | $ | 87 | | $ | 3,802 | | $ | — | | $ | 4,251 | |
| Consumer: Consumer | Consumer: Consumer | | Consumer: Consumer | |
Performing | Performing | $ | 544,465 | | $ | 558,784 | | $ | 293,738 | | $ | 138,496 | | $ | 77,438 | | $ | 72,314 | | $ | 22,623 | | $ | 1,707,858 | | Performing | $ | 731,330 | | $ | 501,209 | | $ | 366,792 | | $ | 171,775 | | $ | 71,891 | | $ | 77,727 | | $ | 16,324 | | $ | 1,937,048 | |
Nonperforming | Nonperforming | 129 | | 482 | | 772 | | 426 | | 243 | | 698 | | — | | 2,750 | | Nonperforming | 109 | | 318 | | 349 | | 336 | | 200 | | 553 | | — | | 1,865 | |
Total | Total | $ | 544,594 | | $ | 559,266 | | $ | 294,510 | | $ | 138,922 | | $ | 77,681 | | $ | 73,012 | | $ | 22,623 | | $ | 1,710,608 | | Total | $ | 731,439 | | $ | 501,527 | | $ | 367,141 | | $ | 172,111 | | $ | 72,091 | | $ | 78,280 | | $ | 16,324 | | $ | 1,938,913 | |
| Consumer: GFSC | Consumer: GFSC | | Consumer: GFSC | |
Performing | Performing | $ | — | | $ | 333 | | $ | 1,581 | | $ | 452 | | $ | 110 | | $ | (81) | | $ | 125 | | $ | 2,520 | | Performing | $ | — | | $ | — | | $ | 81 | | $ | 213 | | $ | 70 | | $ | 7 | | $ | 61 | | $ | 432 | |
Nonperforming | Nonperforming | — | | — | | 70 | | 19 | | 15 | | — | | — | | 104 | | Nonperforming | — | | — | | — | | 17 | | — | | 3 | | — | | 20 | |
Total | Total | $ | — | | $ | 333 | | $ | 1,651 | | $ | 471 | | $ | 125 | | $ | (81) | | $ | 125 | | $ | 2,624 | | Total | $ | — | | $ | — | | $ | 81 | | $ | 230 | | $ | 70 | | $ | 10 | | $ | 61 | | $ | 452 | |
| Consumer: Check loans | Consumer: Check loans | | Consumer: Check loans | |
Performing | Performing | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 2,092 | | $ | 2,092 | | Performing | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 2,144 | | $ | 2,144 | |
Nonperforming | Nonperforming | — | | — | | — | | — | | — | | — | | — | | — | | Nonperforming | — | | — | | — | | — | | — | | — | | — | | — | |
Total | Total | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 2,092 | | $ | 2,092 | | Total | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 2,144 | | $ | 2,144 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Consumer Loans | | | | | | | | |
Performing | $ | 791,057 | | $ | 826,457 | | $ | 427,144 | | $ | 217,598 | | $ | 143,971 | | $ | 436,214 | | $ | 185,982 | | $ | 3,028,423 | |
Nonperforming | 129 | | 1,124 | | 1,658 | | 1,388 | | 1,254 | | 21,622 | | 393 | | 27,568 | |
Total | $ | 791,186 | | $ | 827,581 | | $ | 428,802 | | $ | 218,986 | | $ | 145,225 | | $ | 457,836 | | $ | 186,375 | | $ | 3,055,991 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Consumer Loans | | | | | | | | |
Performing | $ | 951,354 | | $ | 761,646 | | $ | 573,883 | | $ | 270,592 | | $ | 130,929 | | $ | 391,673 | | $ | 181,542 | | $ | 3,261,619 | |
Nonperforming | 109 | | 318 | | 759 | | 920 | | 797 | | 18,347 | | 168 | | 21,418 | |
Total | $ | 951,463 | | $ | 761,964 | | $ | 574,642 | | $ | 271,512 | | $ | 131,726 | | $ | 410,020 | | $ | 181,710 | | $ | 3,283,037 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | Term Loans Amortized Cost Basis by Origination Year | | |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Total |
Commercial, financial and agricultural: Overdrafts | | | | | | |
Performing | $ | 1,127 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,127 | |
Nonperforming | — | | — | | — | | — | | — | | — | | — | | — | |
Total | 1,127 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,127 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction Real Estate: Retail | | | | | | |
Performing | $ | 68,374 | | $ | 26,247 | | $ | 5,710 | | $ | 2,743 | | $ | 1,505 | | $ | 1,842 | | $ | 79 | | $ | 106,500 | |
Nonperforming | — | | 647 | | 57 | | — | | — | | 21 | | — | | 725 | |
Total | $ | 68,374 | | $ | 26,894 | | $ | 5,767 | | $ | 2,743 | | $ | 1,505 | | $ | 1,863 | | $ | 79 | | $ | 107,225 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential Real Estate: Mortgage | | | | | | |
Performing | $ | 230,299 | | $ | 217,022 | | $ | 114,077 | | $ | 68,774 | | $ | 59,939 | | $ | 323,678 | | $ | — | | $ | 1,013,789 | |
Nonperforming | — | | 626 | | 785 | | 824 | | 574 | | 17,060 | | — | | 19,869 | |
Total | $ | 230,299 | | $ | 217,648 | | $ | 114,862 | | $ | 69,598 | | $ | 60,513 | | $ | 340,738 | | $ | — | | $ | 1,033,658 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential Real Estate: HELOC | | | | | | |
Performing | $ | 400 | | $ | — | | $ | 121 | | $ | 58 | | $ | 41 | | $ | 2,640 | | $ | 159,952 | | $ | 163,212 | |
Nonperforming | 89 | | 40 | | — | | 37 | | 90 | | 1,811 | | 326 | | 2,393 | |
Total | $ | 489 | | $ | 40 | | $ | 121 | | $ | 95 | | $ | 131 | | $ | 4,451 | | $ | 160,278 | | $ | 165,605 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential Real Estate: Installment | | | | | | |
Performing | $ | — | | $ | 3 | | $ | 418 | | $ | 111 | | $ | 1,049 | | $ | 2,471 | | $ | — | | $ | 4,052 | |
Nonperforming | — | | 12 | | 5 | | 26 | | 78 | | 1,469 | | — | | 1,590 | |
Total | $ | — | | $ | 15 | | $ | 423 | | $ | 137 | | $ | 1,127 | | $ | 3,940 | | $ | — | | $ | 5,642 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer: Consumer | | | | | | | | |
Performing | $ | 649,638 | | $ | 505,555 | | $ | 259,230 | | $ | 119,222 | | $ | 64,699 | | $ | 62,136 | | $ | 22,664 | | $ | 1,683,144 | |
Nonperforming | 241 | | 506 | | 755 | | 399 | | 155 | | 593 | | — | | 2,649 | |
Total | $ | 649,879 | | $ | 506,061 | | $ | 259,985 | | $ | 119,621 | | $ | 64,854 | | $ | 62,729 | | $ | 22,664 | | $ | 1,685,793 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer: GFSC | | | | | | | | |
Performing | $ | — | | $ | 243 | | $ | 986 | | $ | 292 | | $ | 63 | | $ | 5 | | $ | 108 | | $ | 1,697 | |
Nonperforming | — | | 9 | | 73 | | 5 | | 9 | | — | | — | | 96 | |
Total | $ | — | | $ | 252 | | $ | 1,059 | | $ | 297 | | $ | 72 | | $ | 5 | | $ | 108 | | $ | 1,793 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer: Check loans | | | | | | | | |
Performing | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 2,093 | | $ | 2,093 | |
Nonperforming | — | | — | | — | | — | | — | | — | | — | | — | |
Total | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 2,093 | | $ | 2,093 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Consumer Loans | | | | | | | | |
Performing | $ | 949,838 | | $ | 749,070 | | $ | 380,542 | | $ | 191,200 | | $ | 127,296 | | $ | 392,772 | | $ | 184,896 | | $ | 2,975,614 | |
Nonperforming | 330 | | 1,840 | | 1,675 | | 1,291 | | 906 | | 20,954 | | 326 | | 27,322 | |
Total | $ | 950,168 | | $ | 750,910 | | $ | 382,217 | | $ | 192,491 | | $ | 128,202 | | $ | 413,726 | | $ | 185,222 | | $ | 3,002,936 | |
Loans and Leases Acquired with Deteriorated Credit Quality
In conjunction with the NewDominion acquisition, Park acquired loans with a book value of $277.9 million as of the July 1, 2018 acquisition date. These loans were recorded at the initial fair value of $272.8 million. Loans acquired with deteriorated credit quality (ASC 310-30) with a book value of $5.1 million were recorded at the initial fair value of $4.9 million. In conjunction with the Carolina Alliance acquisition, Park acquired loans and leases with a book value of $589.7 million as of the April 1, 2019 acquisition date. These loans and leases were recorded at the initial fair value of $578.6 million. Loans and leases
acquired with deteriorated credit quality (ASC 310-30) with a book value of $19.9 million were recorded at the initial fair value of $18.4 million.
Upon adoption of CECL on January 1, 2021, $52,000 of the credit discount on PCD loans was reclassified to the allowance for credit losses. PCD loans are individually evaluated on a quarterly basis to determine if a specific reserve is necessary. At September 30, 2022 and December 31, 2021, there was no allowance for credit losses on PCD loans. The carrying amount of loans acquired with deteriorated credit quality at September 30, 20212022 and December 31, 20202021 was $8.7$4.9 million and $11.2$7.1 million, respectively.
Troubled Debt Restructurings
Management typically classifies loans as TDRs when a borrower is experiencing financial difficulties and Park has granted a concession to the borrower 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. Management’s policy is to modify loans by extending the term or by granting a temporary or permanent contractual interest rate below the market rate, not by forgiving debt. A court's discharge of a borrower's debt in a Chapter 7 bankruptcy is considered a concession when the borrower does not reaffirm the discharged debt.
During the twenty-one months ended September 30, 2021, Park modified 5,131 consumer loans, with an aggregate balance of $79.5 million, and modified 1,406 commercial loans, with an aggregate balance of $513.3 million, in each case relatedIn response to a hardship caused by the COVID-19 pandemic, and responses thereto. Park has worked with borrowers impacted by the COVID-19 pandemic and provided modifications to includein the form of either interest only deferral or principal and interest deferral, in each case, for initial periods of up to 90 days. As necessary, Park made available a second 90-day interest only deferral or principal and interest deferral bringing the total potential deferral period to six months. Modifications were structured in a manner to best address each individual customer's then current situation. A majority of these modifications were excluded from the TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. In accordance with this guidance, suchThe modified loans arewere considered current and continuecontinued to accrue interest during the deferral period. Section 4013 of the CARES Act expired on December 31, 2021; therefore, modifications occurring after that date are subject to previous TDR classification guidance.
Certain other loans which were modified during the three-month and the nine-month periods ended September 30, 20212022 and 20202021 did not meet the definition of a TDR as the modification was a delay in a payment that was considered to be insignificant. Management considers a forbearance period of up to three months or a delay in payment of up to 30 days to be insignificant. TDRs may be classified as accruing if the borrower has been current for a period of at least six months with respect to loan payments and management expects that the borrower will be able to continue to make payments in accordance with the terms of the restructured note. Management reviews all accruing TDRs quarterly to ensure payments continue to be made in accordance with the modified terms.
At September 30, 20212022 and December 31, 2020,2021, there were $26.1$14.0 million and $25.8$20.9 million, respectively, of TDRs included in the nonaccrual loan totals. At September 30, 20212022 and December 31, 2020, $16.22021, $4.3 million and $12.9$10.5 million, respectively, of these nonaccrual TDRs were performing in accordance with the terms of the restructured notes. At September 30, 20212022 and December 31, 2020,2021, loans totaling $18.8$19.8 million and $20.9$28.3 million, respectively, were included in accruing TDR loan totals. Management will continue to review the restructured loans and may determine it is appropriate to move certain nonaccrual TDRs to accrual status in the future.
At September 30, 20212022 and December 31, 2020,2021, Park had commitments to lend $6.8$2.1 million and $6.7$3.0 million, respectively, of additional funds to borrowers whose outstanding loan terms had been modified in a TDR.
At September 30, 20212022 and December 31, 2020,2021, there were $0.5$0.2 million and $0.2$0.3 million, respectively, of specific reserves related to TDRs. Modifications made in 20212022 and 20202021 were largely the result of renewals and extending the maturity date of the loans at terms consistent with the original notes. These modifications were deemed to be TDRs primarily due to Park’s conclusion that the respective borrowers would likely not have qualified for similar terms through another lender. Many of the modifications deemed to be TDRs were previously identified as impaired loans and thus were also previouslyindividually evaluated for impairment under ASC 310. impairment. There were $87,000 of additional specific reserves recorded during both the three-month and the nine-month periods ended September 30, 2022 as a result of TDRs identified in the respective periods. There were $156,000 and $174,000 of additional specific reserves recorded during the three-month and the nine-month periods ended September 30, 2021, respectively, as a result of TDRs identified in the period. There were no
additional specific reserves recorded during either the three-month or nine-month periods ended September 30, 2020 as a result of TDRs identified in the period.respective periods.
Quarterly, management reviews renewals/modifications of loans previously identified as TDRs to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms and the terms of the renewal/modification are considered
to be market terms based on the current risk characteristics of the borrower, management considers the potential removal of the TDR classification. If deemed appropriate, the TDR classification is removed if the borrower has complied with the terms of the loan at the date of the renewal/modification and there was a reasonable expectation that the borrower will continue to comply with the terms of the loan subsequent to the date of the renewal/modification. The majority of these TDRs were originally considered restructurings in a prior year as a result of a renewal/modification with an interest rate that was not commensurate with the risk of the underlying loan at the time of the renewal/modification. There were $58,000 and $4.0no TDR reclassifications removed during the three-month period ended September 30, 2022. There were $1.0 million of TDR classifications removed during the nine-month period ended September 30, 2022. The TDR classification was removed on $58,000 and $4.0 million of loans during the three-month and the nine-month periods ended September 30, 2021, respectively. The TDR classification was removed on $709,000 and $1.6 million of loans during the three-month and nine-month periods ended September 30, 2020, respectively.
The terms of certain other loans were modified during the three-month and the nine-month periods ended September 30, 2022 and 2021 and 2020 that did not meet the definition of a TDR. There were no substandard commercial loans modified during either of the three-month or the nine-month periods ended September 30, 2022, which did not meet the definition of a TDR. Excluding COVID-19 related modifications, there were no substandard commercial loans modified during either of the three-month andor the nine-month periods ended September 30, 2021, and September 30, 2020, which did not meet the definition of a TDR. Consumer loans modified during the three-month and the nine-month periods ended September 30, 2022, which did not meet the definition of a TDR, had a total amortized cost of $13.5 million and $29.5 million, respectively.Excluding COVID-19 related modifications, consumer loans modified during the three-month and the nine-month periods ended September 30, 2021, which did not meet the definition of a TDR, had a total recorded investmentamortized cost of $2.0 million and $4.8 million respectively. Excluding COVID-19 related modifications, consumer loans modified during the three-month and nine-month periods ended September 30, 2020 which did not meet the definition of a TDR had a total recorded investment of $16.7 million and $58.2 million,, respectively. Many of these loans were to borrowers who were not experiencing financial difficulties but who were looking to reduce their cost of funds.
The following tables detail the number of contracts modified as TDRs during the three-month periods ended September 30, 20212022 and 2020,2021, as well as the amortized cost/recorded investmentcost of these contracts at September 30, 20212022 and 2020.2021. The amortized cost/recorded investment pre- andcost pre-and post-modification is generally the same due to the fact that Park does not typically forgive principal.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
(In thousands) | Number of Contracts | | Accruing | | Nonaccrual | | Total Amortized Cost |
Commercial, financial and agricultural | | | | | | | |
Commercial, financial and agricultural | 4 | | | $ | 227 | | | $ | 511 | | | $ | 738 | |
PPP loans | — | | | — | | | — | | | — | |
Overdrafts | — | | | — | | | — | | | — | |
Commercial real estate | 1 | | | 31 | | | — | | | 31 | |
Construction real estate: | | | | | | | |
Commercial | — | | | — | | | — | | | — | |
Retail | — | | | — | | | — | | | — | |
Residential real estate: | | | | | | | |
Commercial | 1 | | | 146 | | | — | | | 146 | |
Mortgage | 3 | | | 545 | | | 120 | | | 665 | |
HELOC | 1 | | | — | | | 10 | | | 10 | |
Installment | 2 | | | — | | | 29 | | | 29 | |
Consumer: | | | | | | | |
Consumer | 21 | | | 3 | | | 169 | | | 172 | |
GFSC | — | | | — | | | — | | | — | |
Check loans | — | | | — | | | — | | | — | |
Leases | 10 | | | — | | | 115 | | | 115 | |
Total loans | 43 | | | $ | 952 | | | $ | 954 | | | $ | 1,906 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
(In thousands) | Number of Contracts | | Accruing | | Nonaccrual | | Total Amortized Cost |
Commercial, financial and agricultural | | | | | | | |
Commercial, financial and agricultural | 5 | | | $ | 383 | | | $ | 868 | | | $ | 1,251 | |
PPP loans | — | | | — | | | — | | | — | |
Overdrafts | — | | | — | | | — | | | — | |
Commercial real estate | 5 | | | — | | | 5,053 | | | 5,053 | |
Construction real estate: | | | | | | | |
Commercial | — | | | — | | | — | | | — | |
Retail | — | | | — | | | — | | | — | |
Residential real estate: | | | | | | | |
Commercial | 2 | | | 96 | | | 125 | | | 221 | |
Mortgage | 3 | | | — | | | 102 | | | 102 | |
HELOC | 1 | | | 33 | | | — | | | 33 | |
Installment | 1 | | | 55 | | | — | | | 55 | |
Consumer: | | | | | | | |
Consumer | 28 | | | 15 | | | 250 | | | 265 | |
GFSC | — | | | — | | | — | | | — | |
Check loans | — | | | — | | | — | | | — | |
Leases | — | | | — | | | — | | | — | |
Total loans | 45 | | | $ | 582 | | | $ | 6,398 | | | $ | 6,980 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 |
(In thousands) | Number of Contracts | | Accruing | | Nonaccrual | | Total Recorded Investment |
Commercial, financial and agricultural | 3 | | | $ | 35 | | | $ | 117 | | | $ | 152 | |
Commercial real estate | 4 | | | — | | | 359 | | | 359 | |
Construction real estate: | | | | | | | |
Commercial | — | | | — | | | — | | | — | |
Mortgage | — | | | — | | | — | | | — | |
Installment | — | | | — | | | — | | | — | |
Residential real estate: | | | | | | | |
Commercial | — | | | — | | | — | | | — | |
Mortgage | 5 | | | 258 | | | 109 | | | 367 | |
HELOC | 1 | | | 21 | | | — | | | 21 | |
Installment | 3 | | | 12 | | | 7 | | | 19 | |
Consumer | 64 | | | 109 | | | 479 | | | 588 | |
Total loans | 80 | | | $ | 435 | | | $ | 1,071 | | | $ | 1,506 | |
Of those loans which were modified and determined to be a TDR during the three-month period ended September 30, 2022, $0.2 million were on nonaccrual status at December 31, 2021. O
Off those loans which were modified and determined to be a TDR during the three-month period ended September 30, 2021, $4.5 million were on nonaccrual status at December 31, 2020. Of those loans which were modified and determined to be a TDR during the three-month period ended September 30, 2020, $0.1 million were on nonaccrual status at December 31, 2019.
The following tables detail the number of contracts modified as TDRs during the nine-month periods ended September 30, 20212022 and 2020,2021, as well as the amortized cost/recorded investmentcost of these contracts at September 30, 20212022 and 2020.2021. The amortized cost/recorded investment pre- andcost pre-and post-modification is generally the same due to the fact that Park does not typically forgive principal.
| | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2022 |
(In thousands) | (In thousands) | Number of Contracts | | Accruing | | Nonaccrual | | Total Amortized Cost | (In thousands) | Number of Contracts | | Accruing | | Nonaccrual | | Total Amortized Cost |
Commercial, financial and agricultural | Commercial, financial and agricultural | | Commercial, financial and agricultural | |
Commercial, financial and agricultural | Commercial, financial and agricultural | 9 | | | $ | 383 | | | $ | 899 | | | $ | 1,282 | | Commercial, financial and agricultural | 6 | | | $ | 227 | | | $ | 511 | | | $ | 738 | |
PPP loans | PPP loans | — | | | — | | | — | | | — | | PPP loans | — | | | — | | | — | | | — | |
Overdrafts | Overdrafts | — | | | — | | | — | | | — | | Overdrafts | — | | | — | | | — | | | — | |
Commercial real estate | Commercial real estate | 13 | | | 1,571 | | | 6,137 | | | 7,708 | | Commercial real estate | 6 | | | 1,090 | | | 150 | | | 1,240 | |
Construction real estate: | Construction real estate: | | — | | Construction real estate: | |
Commercial | Commercial | 1 | | | 98 | | | — | | | 98 | | Commercial | — | | | — | | | — | | | — | |
Retail | Retail | — | | | — | | | — | | | — | | Retail | — | | | — | | | — | | | — | |
Residential real estate: | Residential real estate: | | — | | Residential real estate: | |
Commercial | Commercial | 5 | | | 96 | | | 528 | | | 624 | | Commercial | 2 | | | 146 | | | 104 | | | 250 | |
Mortgage | Mortgage | 13 | | | 148 | | | 377 | | | 525 | | Mortgage | 11 | | | 870 | | | 222 | | | 1,092 | |
HELOC | HELOC | 5 | | | 80 | | | 106 | | | 186 | | HELOC | 3 | | | — | | | 29 | | | 29 | |
Installment | Installment | 7 | | | 93 | | | 27 | | | 120 | | Installment | 9 | | | 48 | | | 38 | | | 86 | |
Consumer: | Consumer: | | — | | Consumer: | |
Consumer | Consumer | 104 | | | 137 | | | 379 | | | 516 | | Consumer | 62 | | | 13 | | | 315 | | | 328 | |
GFSC | GFSC | — | | | 0 | | — | | | — | | GFSC | — | | | — | | | — | | | — | |
Check loans | Check loans | — | | | 0 | | — | | | — | | Check loans | — | | | — | | | — | | | — | |
Leases | Leases | 1 | | | 0 | | 351 | | | 351 | | Leases | 10 | | | — | | | 115 | | | 115 | |
Total loans | Total loans | 158 | | | $ | 2,606 | | | $ | 8,804 | | | $ | 11,410 | | Total loans | 109 | | | $ | 2,394 | | | $ | 1,484 | | | $ | 3,878 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
(In thousands) | Number of Contracts | | Accruing | | Nonaccrual | | Total Recorded Investment |
Commercial, financial and agricultural | 10 | | | $ | 117 | | | $ | 1,110 | | | $ | 1,227 | |
Commercial real estate | 8 | | | 1,136 | | | 2,068 | | | 3,204 | |
Construction real estate: | | | | | | | |
Commercial | — | | | — | | | — | | | — | |
Mortgage | 1 | | | 10 | | | — | | | 10 | |
Installment | 1 | | | — | | | 14 | | | 14 | |
Residential real estate: | | | | | | | |
Commercial | 1 | | | — | | | 8 | | | 8 | |
Mortgage | 24 | | | 735 | | | 1,005 | | | 1,740 | |
HELOC | 6 | | | 25 | | | 18 | | | 43 | |
Installment | 16 | | | 191 | | | 63 | | | 254 | |
Consumer | 177 | | | 235 | | | 655 | | | 890 | |
Total loans | 244 | | | $ | 2,449 | | | $ | 4,941 | | | $ | 7,390 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
(In thousands) | Number of Contracts | | Accruing | | Nonaccrual | | Total Amortized Cost |
Commercial, financial and agricultural | | | | | | | |
Commercial, financial and agricultural | 9 | | | $ | 383 | | | $ | 899 | | | $ | 1,282 | |
PPP loans | — | | | — | | | — | | | — | |
Overdrafts | — | | | — | | | — | | | — | |
Commercial real estate | 13 | | | 1,571 | | | 6,137 | | | 7,708 | |
Construction real estate: | | | | | | | |
Commercial | 1 | | | 98 | | | — | | | 98 | |
Retail | — | | | — | | | — | | | — | |
Residential real estate: | | | | | | | |
Commercial | 5 | | | 96 | | | 528 | | | 624 | |
Mortgage | 13 | | | 148 | | | 377 | | | 525 | |
HELOC | 5 | | | 80 | | | 106 | | | 186 | |
Installment | 7 | | | 93 | | | 27 | | | 120 | |
Consumer: | | | | | | | |
Consumer | 104 | | | 137 | | | 379 | | | 516 | |
GFSC | — | | | — | | | — | | | — | |
Check loans | — | | | — | | | — | | | — | |
Leases | 1 | | | — | | | 351 | | | 351 | |
Total loans | 158 | | | $ | 2,606 | | | $ | 8,804 | | | $ | 11,410 | |
Of those loans which were modified and determined to be a TDR during the nine-month period ended September 30, 2022, $0.7 million were on nonaccrual status at December 31, 2021. Of those loans which were modified and determined to be a TDR during the nine-month period ended September 30, 2021, $6.1 million were on nonaccrual status at December 31, 2020. Of those loans which were modified and determined to be a TDR during the nine-month period ended September 30, 2020, $0.4 million were on nonaccrual status at December 31, 2019.
The following tables presenttable presents the amortized cost/recorded investmentcost in loans which were modified as TDRs within the previous 12 months and for which there was a payment default during the three-month and nine-month periods ended September 30, 20212022 and 2020,2021, respectively. For these tables,this
table, a loan is considered to be in default when it becomes 30 days contractually past due under the modified terms. The additional ACL resulting from the defaults on TDR loans was immaterial.
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| Three Months Ended September 30, 2021 | | | Three Months Ended September 30, 2020 |
(In thousands) | Number of Contracts | | Amortized Cost | | | Number of Contracts | | Recorded Investment |
Commercial, financial and agricultural: | | | | | | — | | | $ | — | |
Commercial, financial and agricultural | — | | | $ | — | | | | (1) | | (1) |
PPP loans | — | | | — | | | | (1) | | (1) |
Overdrafts | — | | | — | | | | (1) | | (1) |
Commercial real estate | — | | | — | | | | 1 | | | 50 | |
Construction real estate: | | | | | | | | |
Commercial | — | | | — | | | | — | | | — | |
Retail | — | | | — | | | | 1 | | | 14 | |
Residential real estate: | | | | | | | | |
Commercial | — | | | — | | | | — | | | — | |
Mortgage | 4 | | | 330 | | | | 4 | | | 365 | |
HELOC | 1 | | | 95 | | | | 1 | | | 16 | |
Installment | 1 | | | 4 | | | | 1 | | | 16 | |
Consumer | | | | | | 26 | | | 263 | |
Consumer | 15 | | | 122 | | | | (1) | | (1) |
GFSC | — | | | — | | | | (1) | | (1) |
Check loans | — | | | — | | | | (1) | | (1) |
Leases | — | | | — | | | | — | | | — | |
Total loans | 21 | | | $ | 551 | | | | 34 | | | $ | 724 | |
(1) Results for reporting periods beginning after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. Category was not broken out as a separate class at December 31, 2020. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 | | | Three Months Ended September 30, 2021 |
(In thousands) | Number of Contracts | | Amortized Cost | | | Number of Contracts | | Amortized Cost |
Commercial, financial and agricultural: | | | | | | | | |
Commercial, financial and agricultural | 1 | | | $ | 3 | | | | — | | | $ | — | |
PPP loans | — | | | — | | | | — | | | — | |
Overdrafts | — | | | — | | | | — | | | — | |
Commercial real estate | — | | | — | | | | — | | | — | |
Construction real estate: | | | | | | | | |
Commercial | — | | | — | | | | — | | | — | |
Retail | — | | | — | | | | — | | | — | |
Residential real estate: | | | | | | | | |
Commercial | 1 | | | 103 | | | | — | | | — | |
Mortgage | 2 | | | 110 | | | | 4 | | | 330 | |
HELOC | 2 | | | 9 | | | | 1 | | | 95 | |
Installment | — | | | — | | | | 1 | | | 4 | |
Consumer | | | | | | | | |
Consumer | 12 | | | 103 | | | | 15 | | | 122 | |
GFSC | — | | | — | | | | — | | | — | |
Check loans | — | | | — | | | | — | | | — | |
Leases | — | | | — | | | | — | | | — | |
Total loans | 18 | | | $ | 328 | | | | 21 | | | $ | 551 | |
Of the $0.3 million in modified TDRs which defaulted during the three-month period ended September 30, 2022, $6,000 were accruing loans and $0.3 million were nonaccrual loans. Of the $0.6 million in modified TDRs which defaulted during the three-month period ended September 30, 2021, $29,000 were accruing loans and $0.5 million were nonaccrual loans.
The following table presents the amortized cost in loans which were modified as TDRs within the previous 12 months and for which there was a payment default during the nine-month periods ended September 30, 2022 and 2021, respectively. For this
table, a loan is considered to be in default when it becomes 30 days contractually past due under the modified terms. The additional ACL resulting from the defaults on TDR loans was immaterial.
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| Nine Months Ended September 30, 2022 | | | Nine Months Ended September 30, 2021 |
(In thousands) | Number of Contracts | | Amortized Cost | | | Number of Contracts | | Amortized Cost |
Commercial, financial and agricultural: | | | | | | | | |
Commercial, financial and agricultural | 2 | | | $ | 57 | | | | — | | | $ | — | |
PPP loans | — | | | — | | | | — | | | — | |
Overdrafts | — | | | — | | | | — | | | — | |
Commercial real estate | — | | | — | | | | — | | | — | |
Construction real estate: | | | | | | | | |
Commercial | — | | | — | | | | — | | | — | |
Retail | — | | | — | | | | — | | | — | |
Residential real estate: | | | | | | | | |
Commercial | 1 | | | 103 | | | | — | | | — | |
Mortgage | 2 | | | 110 | | | | 6 | | | 396 | |
HELOC | 4 | | | 64 | | | | 1 | | | 95 | |
Installment | — | | | — | | | | 2 | | | 32 | |
Consumer | | | | | | | | |
Consumer | 18 | | | 144 | | | | 16 | | | 128 | |
GFSC | — | | | — | | | | — | | | — | |
Check loans | — | | | — | | | | — | | | — | |
Leases | — | | | — | | | | 1 | | | 351 | |
Total loans | 27 | | | $ | 478 | | | | 26 | | | $ | 1,002 | |
Of the $0.7$0.5 million in modified TDRs which defaulted during the three-monthnine-month period ended September 30, 2020, $65,0002022, $10,000 were accruing loans and $0.7$0.5 million were nonaccrual loans.
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| Nine Months Ended September 30, 2021 | | | Nine Months Ended September 30, 2020 |
(In thousands) | Number of Contracts | | Amortized Cost | | | Number of Contracts | | Recorded Investment |
Commercial, financial and agricultural: | | | | | | 2 | | | 89 | |
Commercial, financial and agricultural | — | | | — | | | | (1) | | (1) |
PPP loans | — | | | — | | | | (1) | | (1) |
Overdrafts | — | | | — | | | | (1) | | (1) |
Commercial real estate | — | | | — | | | | 2 | | | 278 | |
Construction real estate: | | | | | | | | |
Commercial | — | | | — | | | | — | | | — | |
Retail | — | | | — | | | | 1 | | | 14 | |
Residential real estate: | | | | | | | | |
Commercial | — | | | — | | | | 1 | | | 8 | |
Mortgage | 6 | | | 396 | | | | 8 | | | 768 | |
HELOC | 1 | | | 95 | | | | 1 | | | 16 | |
Installment | 2 | | | 32 | | | | 2 | | | 28 | |
Consumer | | | | | | 32 | | | 365 | |
Consumer | 16 | | | 128 | | | | (1) | | (1) |
GFSC | — | | | — | | | | (1) | | (1) |
Check loans | — | | | — | | | | (1) | | (1) |
Leases | 1 | | | 351 | | | | — | | | — | |
Total loans | 26 | | | $ | 1,002 | | | | 49 | | | $ | 1,566 | |
(1) Results for reporting periods beginning after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. Category was not broken out as a separate class at December 31, 2020.
Of the $1.0 million in modified TDRs which defaulted during the nine-month period ended September 30, 2021, $29,000 were accruing loans and $1.0 million were nonaccrual loans. Of the $1.6 million in modified TDRs which defaulted during the nine-month period ended September 30, 2020, $621,000 were accruing loans and $945,000 were nonaccrual loans.
Note 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 2 – Adoption of New Accounting Pronouncements and Issued But Not Yet Effective Accounting Standards of the Notes to the Consolidated Condensed Financial Statements included in this Form 10-Q. factors.
During the first quarter of 2021, Park adopted ASU 2016-13, including the CECL methodology for estimating the ACL. This standard was adopted prospectively on January 1, 2021, resulting in a $6.1 million increase to the ACL and a $3.9 million increase to the allowance for unfunded credit losses. A cumulative effect adjustment resulting in an $8.0 million decrease to retained earnings and a $2.1 million increase to deferred tax assets was also recorded as of the adoption of ASU 2016-13.
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 plans to update the LDA annually; however, due to the impact of COVID-19, the LDA analysis was last updated in the fourth quarter of 2019.
•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 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-dataloan-level data is not available reflecting the forecasted economic conditions, a forecast model is utilized to estimate PDs.
•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.
•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 2020.2021.
•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 January 1, 2021, the date of CECL adoption, Park weighted a "most likely" scenario 80%, a "slower near-term growth" scenario 10%, and a "moderate recession" scenario 10%. As of January 1, 2021, the "most likely" scenario forecasted Ohio unemployment to range between 5.31% and 5.79% during the next four quarters.
◦As of MarchDecember 31, 2021, the "most likely" scenario forecasted Ohio unemployment between 3.32% and 3.97% during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2021, management considered the range of forecasted unemployment as well as a number of economic indicators. While some economic indications continued to decrease significantly,be optimistic, the Omicron variant, rising inflation, volatility in consumer confidence, employment, supply chain and workforce challenges continued to a rangecause uncertainty in the overall economic environment. Considering these factors, management determined it was appropriate to weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2021.
◦As of March 31, 2022, the "most likely" scenario forecasted Ohio unemployment between 3.70%3.36% and 4.93%3.75% during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2021,2022, management considered this improvedthe range of forecasted unemployment as well as a number of economic forecast while balancingindicators. While some economic indications were optimistic, the risks associated withsurging inflation, volatility in consumer confidence, workforce challenges, and geopolitical conflict (including the COVID-19 pandemic, includingconflict between Russia and Ukraine) continued to cause uncertainty in the risk of pandemic-related losses lagging behind the projected improvement in unemployment. Managementoverall economic environment. Considering these factors, management determined it was appropriate to weightmaintain the previous quarter's weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50%. at March 31, 2022. Improved forecasts, largely in the "moderate recession" scenario, resulted in a 4 basis point decline in the weighted quantitative allowance.
◦As of June 30, 2021,2022, the "most likely" scenario forecasted Ohio unemployment to decrease significantly, to a range between 2.85%3.36% and 3.92%3.57% during the next four quarters. In determining the appropriate weighting of scenarios at June 30, 2021,2022, management considered this improvedthe range of forecasted unemployment as well as a number of economic forecastindicators. While some economic indications were optimistic, the surging inflation, declining consumer confidence, rising interest rates, geopolitical conflict (including the conflict between Russia and other positiveUkraine), and workforce and supply chain challenges continued to cause uncertainty to the overall economic indicators while balancing the risks associated with the COVID-19 pandemic, including the continued risk of pandemic-related losses lagging behind the projected improvement in unemployment. Managementenvironment. Considering these factors, management determined it was appropriate to weightmaintain the previous quarter's weighting, and weigh the "most likely" scenario 55%50% and the "moderate recession" scenario 45%50% at June 30, 2021. Management believed that2022. Deteriorating forecasts, largely in the resulting"moderate recession" scenario, resulted in a 4 basis point increase in the weighted quantitative reserve appropriately balanced economic improvement with the ongoing risks.allowance.
◦AsAs of September 30, 2021,2022, the "most likely" scenario forecasted Ohio unemployment to decrease, to a range between 3.03%3.86% and 4.02%, 4.05% during the next four quarters. In determining the appropriate weighting of scenarios at September 30, 2021,2022, management considered the range of forecasted unemployment as well as a number of less optimistic economic indicators, including: a slight uptick in Ohio unemployment, which was contraryindicators. The continued high inflation, low consumer confidence, rising interest rates, geopolitical conflict (including the conflict between Russia and Ukraine), and workforce and supply chain challenges continued to cause uncertainty to the forecast; increased COVID cases; decreased consumer confidence; and decreased occupancy, among others. overall economic environment. Considering these factors, management determined it was appropriate to return tomaintain the March 31, 2021previous quarter's weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at September 30, 2021.2022. Deteriorating forecasts, largely in the "moderate recession" scenario, resulted in a 4 basis point increase in the weighted quantitative allowance.
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, write-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 collectibility of financial assets.
•Where the U.S. economy is within a given credit cycle.
•The extent that there is government assistance (stimulus).
During 2020, Park added an additional reserve for three industries at particularly high risk due to the COVID-19 pandemic: hotels and accommodations; restaurants and food service; and strip shopping centers. These industries have experienced high levels of deferrals and have been particularly impacted by shut downs of non-essential businesses, increased health department regulations, and changes in consumer behavior. Management expects that a relatively higher percentage of the 4-rated credits in these portfolios will eventually migrate to special mention, substandard, or impaired status.doubtful. In adopting CECL, management determined it was appropriate to retain this qualitative adjustment as this adjustment takes into account the additional risk in these portfolios, which is not captured in the quantitative calculation. Even though COVID-19 case numbers have declined since December 31, 2021, these industries are still recovering from the pandemic effects. As of September 30, 2021,2022, additional reserves totaling $4.6$1.4 million were added for these portfolios on top of the quantitative reserve already calculated. This is an increasewas a decrease from $3.4 million as of June 30, 2021 and $4.5 million as of March 31, 2021 and reflects the previously discussed uncertainty regarding sustained economic improvement due to COVID-19. The $4.6 million in additional COVID-19-related reserves as of September 30, 2021 is also an increase compared to $3.8$5.2 million as of December 31, 2020, which had been calculated under the previous incurred loss methodology.2021 and reflected improvement in COVID-19 cases, eased COVID-19 health department precautions and improving affected industry performance. Management believes there is still residual risk in these portfolios related to pandemic effects and uncertainty in future COVID-19 strains and related impacts.
A breakout of the 4-rated balances within these portfolios and the additional reserve related to these portfolios is detailed in the following table.table:
| | | September 30, 2021 | | September 30, 2022 | | December 31, 2021 |
(in thousands) | (in thousands) | 4-Rated Balance | | Additional Reserve | (in thousands) | 4-Rated Balance | | Additional Reserve | | 4-Rated Balance | | Additional Reserve |
Hotels and accommodations | Hotels and accommodations | $ | 123,249 | | | $ | 1,854 | | Hotels and accommodations | $ | 182,806 | | | $ | 687 | | | $ | 148,018 | | | $ | 2,226 | |
Restaurants and food service | Restaurants and food service | 33,373 | | | 754 | | Restaurants and food service | 49,500 | | | 279 | | | 40,648 | | | 917 | |
Strip shopping centers | Strip shopping centers | 177,635 | | | 1,961 | | Strip shopping centers | 168,144 | | | 464 | | | 184,171 | | | 2,033 | |
Total | Total | $ | 334,257 | | | $ | 4,569 | | Total | $ | 400,450 | | | $ | 1,430 | | | $ | 372,837 | | | $ | 5,176 | |
Additionally, at September 30, 2022, management applied a 1.00%0.50% reserve to all hotels and accommodations loans in the collectively evaluated population to account for increased valuation risk. This is an increase0.50% reserve was reduced from 0.50%0.75% at June 30, 20212022 and considers some decline in various economic conditions due to the Delta variant and a decline in hotel occupancy rates.1.00% at December 31, 2021. At September 30, 2021,2022, Park's originatedcollectively evaluated hotels and accommodation loans had a balance of $193.8$218.0 million with an additional reserve related to valuation risks of $1.9$1.1 million.
There is still At December 31, 2021, Park's collectively evaluated hotels and accommodation loans had a significant amountbalance of uncertainty$203.9 million with an additional reserve related to the economic impactvaluation risks of COVID-19, including the duration of the pandemic, the risk related to new variants, future government programs that may be established in response to the pandemic, and the resiliency of the U.S. economy. Management will continue to evaluate its estimate of expected credit losses as new information becomes available.$2.0 million.
As of September 30, 2021,2022, Park had $131.5$5.7 million of PPP loans which were included in the commercial, financial and agricultural portfolio segment. These loans are guaranteed by the SBA and thus have not been reserved for using the same methodology as the rest of Park’s loan portfolio. A 10 basis point reserve was calculated for these loans to reflect minimal credit risk.
ACL Activity
The activity in the ACL for the three-month and the nine-month periods ended September 30, 20212022 and September 30, 20202021 is summarized in the following tables.tables:
| | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 |
(In thousands) | (In thousands) | Commercial, financial and agricultural | | Commercial real estate | | Construction real estate | | Residential real estate | | Consumer | | Leases | | Total | (In thousands) | Commercial, financial and agricultural | | Commercial real estate | | Construction real estate | | Residential real estate | | Consumer | | Leases | | Total |
ACL: | ACL: | | | | | | | | | | | | | | ACL: | | | | | | | | | | | | | |
Beginning balance | Beginning balance | $ | 15,222 | | | $ | 22,749 | | | $ | 5,670 | | | $ | 13,113 | | | $ | 26,261 | | | $ | 562 | | | $ | 83,577 | | Beginning balance | $ | 12,747 | | | $ | 22,339 | | | $ | 4,391 | | | $ | 13,619 | | | $ | 28,149 | | | $ | 203 | | | $ | 81,448 | |
Charge-offs | Charge-offs | 221 | | | — | | | — | | | — | | | 781 | | | — | | | 1,002 | | Charge-offs | 543 | | | — | | | — | | | — | | | 1,169 | | | 36 | | | 1,748 | |
Recoveries | Recoveries | 132 | | | 428 | | | 1,597 | | | 729 | | | 696 | | | — | | | 3,582 | | Recoveries | 110 | | | 36 | | | 20 | | | 20 | | | 884 | | | 1 | | | 1,071 | |
Net charge-offs/(recoveries) | Net charge-offs/(recoveries) | $ | 89 | | | $ | (428) | | | $ | (1,597) | | | $ | (729) | | | $ | 85 | | | $ | — | | | $ | (2,580) | | Net charge-offs/(recoveries) | $ | 433 | | | $ | (36) | | | $ | (20) | | | $ | (20) | | | $ | 285 | | | $ | 35 | | | $ | 677 | |
Provision for (recovery of) credit loss | 843 | | | 2,991 | | | (1,003) | | | (2,080) | | | 1,483 | | | (262) | | | 1,972 | | |
Provision for (recovery of) credit losses | | Provision for (recovery of) credit losses | 563 | | | (1,653) | | | 87 | | | 1,464 | | | 2,699 | | | 30 | | | 3,190 | |
Ending balance | Ending balance | $ | 15,976 | | | $ | 26,168 | | | $ | 6,264 | | | $ | 11,762 | | | $ | 27,659 | | | $ | 300 | | | $ | 88,129 | | Ending balance | $ | 12,877 | | | $ | 20,722 | | | $ | 4,498 | | | $ | 15,103 | | | $ | 30,563 | | | $ | 198 | | | $ | 83,961 | |
| | | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2021 |
(In thousands) | (In thousands) | Commercial, financial and agricultural | | Commercial real estate | | Construction real estate | | Residential real estate | | Consumer | | Leases | | Total | (In thousands) | Commercial, financial and agricultural | | Commercial real estate | | Construction real estate | | Residential real estate | | Consumer | | Leases | | Total |
ACL: | ACL: | | | | | | | | | | | | | | ACL: | | | | | | | | | | | | | |
Beginning balance | Beginning balance | $ | 23,476 | | | $ | 16,469 | | | $ | 6,828 | | | $ | 10,507 | | | $ | 15,624 | | | $ | 572 | | | $ | 73,476 | | Beginning balance | $ | 15,222 | | | $ | 22,749 | | | $ | 5,670 | | | $ | 13,113 | | | $ | 26,261 | | | $ | 562 | | | $ | 83,577 | |
Charge-offs | Charge-offs | 241 | | | 45 | | | — | | | 34 | | | 1,208 | | | 1 | | | 1,529 | | Charge-offs | 221 | | | — | | | — | | | — | | | 781 | | | — | | | 1,002 | |
Recoveries | Recoveries | 181 | | | 47 | | | 35 | | | 189 | | | 803 | | | — | | | 1,255 | | Recoveries | 132 | | | 428 | | | 1,597 | | | 729 | | | 696 | | | — | | | 3,582 | |
Net charge-offs/(recoveries) | Net charge-offs/(recoveries) | $ | 60 | | | $ | (2) | | | $ | (35) | | | $ | (155) | | | $ | 405 | | | $ | 1 | | | $ | 274 | | Net charge-offs/(recoveries) | $ | 89 | | | $ | (428) | | | $ | (1,597) | | | $ | (729) | | | $ | 85 | | | $ | — | | | $ | (2,580) | |
Provision for credit loss | 3,571 | | | 6,417 | | | 1,544 | | | 546 | | | 1,750 | | | 8 | | | 13,836 | | |
Provision for (recovery of) credit losses | | Provision for (recovery of) credit losses | 843 | | | 2,991 | | | (1,003) | | | (2,080) | | | 1,483 | | | (262) | | | 1,972 | |
Ending balance | Ending balance | $ | 26,987 | | | $ | 22,888 | | | $ | 8,407 | | | $ | 11,208 | | | $ | 16,969 | | | $ | 579 | | | $ | 87,038 | | Ending balance | $ | 15,976 | | | $ | 26,168 | | | $ | 6,264 | | | $ | 11,762 | | | $ | 27,659 | | | $ | 300 | | | $ | 88,129 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
(In thousands) | Commercial, financial and agricultural | | Commercial real estate | | Construction real estate | | Residential real estate | | Consumer | | Leases | | Total |
ACL: | | | | | | | | | | | | | |
Beginning balance, prior to adoption of ASC 326 | $ | 25,608 | | | $ | 23,480 | | | $ | 7,288 | | | $ | 11,363 | | | $ | 17,418 | | | $ | 518 | | | $ | 85,675 | |
Impact of adopting ASC 326 | (8,257) | | | 2,119 | | | (1,898) | | | 3,121 | | | 10,925 | | | 80 | | | 6,090 | |
Charge-offs | 675 | | | — | | | — | | | 37 | | | 3,061 | | | — | | | 3,773 | |
Recoveries | 487 | | | 724 | | | 2,078 | | | 859 | | | 2,912 | | | — | | | 7,060 | |
Net charge-offs/(recoveries) | $ | 188 | | | $ | (724) | | | $ | (2,078) | | | $ | (822) | | | $ | 149 | | | $ | — | | | $ | (3,287) | |
Recovery of credit loss | (1,187) | | | (155) | | | (1,204) | | | (3,544) | | | (535) | | | (298) | | | (6,923) | |
Ending balance | $ | 15,976 | | | $ | 26,168 | | | $ | 6,264 | | | $ | 11,762 | | | $ | 27,659 | | | $ | 300 | | | $ | 88,129 | |
| | | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2022 |
(In thousands) | (In thousands) | Commercial, financial and agricultural | | Commercial real estate | | Construction real estate | | Residential real estate | | Consumer | | Leases | | Total | (In thousands) | Commercial, financial and agricultural | | Commercial real estate | | Construction real estate | | Residential real estate | | Consumer | | Leases | | Total |
ACL: | ACL: | | | | | | | | | | | | | | ACL: | | | | | | | | | | | | | |
Beginning balance | Beginning balance | $ | 20,203 | | | $ | 10,229 | | | $ | 5,311 | | | $ | 8,610 | | | $ | 12,211 | | | $ | 115 | | | $ | 56,679 | | Beginning balance | $ | 14,025 | | | $ | 25,466 | | | $ | 5,758 | | | $ | 11,424 | | | $ | 26,286 | | | $ | 238 | | | $ | 83,197 | |
Charge-offs | Charge-offs | 1,041 | | | 45 | | | 6 | | | 176 | | | 5,060 | | | 16 | | | 6,344 | | Charge-offs | 1,456 | | | 598 | | | 33 | | | 81 | | | 3,287 | | | 42 | | | 5,497 | |
Recoveries | Recoveries | 1,061 | | | 690 | | | 628 | | | 457 | | | 2,654 | | | — | | | 5,490 | | Recoveries | 544 | | | 624 | | | 550 | | | 106 | | | 2,859 | | | 2 | | | 4,685 | |
Net (recoveries)/charge-offs | $ | (20) | | | $ | (645) | | | $ | (622) | | | $ | (281) | | | $ | 2,406 | | | $ | 16 | | | $ | 854 | | |
Provision for credit loss | 6,764 | | | 12,014 | | | 2,474 | | | 2,317 | | | 7,164 | | | 480 | | | 31,213 | | |
Net charge-offs/(recoveries) | | Net charge-offs/(recoveries) | $ | 912 | | | $ | (26) | | | $ | (517) | | | $ | (25) | | | $ | 428 | | | $ | 40 | | | $ | 812 | |
(Recovery of) provision for credit losses | | (Recovery of) provision for credit losses | (236) | | | (4,770) | | | (1,777) | | | 3,654 | | | 4,705 | | | — | | | 1,576 | |
Ending balance | Ending balance | $ | 26,987 | | | $ | 22,888 | | | $ | 8,407 | | | $ | 11,208 | | | $ | 16,969 | | | $ | 579 | | | $ | 87,038 | | Ending balance | $ | 12,877 | | | $ | 20,722 | | | $ | 4,498 | | | $ | 15,103 | | | $ | 30,563 | | | $ | 198 | | | $ | 83,961 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
(In thousands) | Commercial, financial and agricultural | | Commercial real estate | | Construction real estate | | Residential real estate | | Consumer | | Leases | | Total |
ACL: | | | | | | | | | | | | | |
Beginning balance, prior to adoption of ASC 326 | $ | 25,608 | | | $ | 23,480 | | | $ | 7,288 | | | $ | 11,363 | | | $ | 17,418 | | | $ | 518 | | | $ | 85,675 | |
Impact of adopting ASC 326 | (8,257) | | | 2,119 | | | (1,898) | | | 3,121 | | | 10,925 | | | 80 | | | 6,090 | |
Charge-offs | 675 | | | — | | | — | | | 37 | | | 3,061 | | | — | | | 3,773 | |
Recoveries | 487 | | | 724 | | | 2,078 | | | 859 | | | 2,912 | | | — | | | 7,060 | |
Net charge-offs/(recoveries) | $ | 188 | | | $ | (724) | | | $ | (2,078) | | | $ | (822) | | | $ | 149 | | | $ | — | | | $ | (3,287) | |
Recovery of credit losses | (1,187) | | | (155) | | | (1,204) | | | (3,544) | | | (535) | | | (298) | | | (6,923) | |
Ending balance | $ | 15,976 | | | $ | 26,168 | | | $ | 6,264 | | | $ | 11,762 | | | $ | 27,659 | | | $ | 300 | | | $ | 88,129 | |
ACL Summary
Loans collectively evaluated for impairment in the following tables include all performing loans at September 30, 20212022 and December 31, 2020,2021, 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 impaired loans internally classified as commercial nonaccrual loans and TDRs at September 30, 20212022 and December 31, 2020,2021, which are individually evaluated for impairment in accordance with U.S. GAAP (see Note 1 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 20202021 Form 10-K).
The composition of the ACL at September 30, 20212022 and December 31, 20202021 was as follows:
| | | September 30, 2021 | | September 30, 2022 |
(In thousands) | (In thousands) | Commercial, financial and agricultural | | Commercial real estate | | Construction real estate | | Residential real estate | | Consumer | | Leases | | Total | (In thousands) | Commercial, financial and agricultural | | Commercial real estate | | Construction real estate | | Residential real estate | | Consumer | | Leases | | Total |
ACL: | ACL: | | | | | | | | | | | | | | ACL: | | | | | | | | | | | | | |
Ending allowance balance attributed to loans: | Ending allowance balance attributed to loans: | | | | | | | | | | | | | | Ending allowance balance attributed to loans: | | | | | | | | | | | | | |
Individually evaluated for impairment | Individually evaluated for impairment | $ | 3,183 | | | $ | 180 | | | $ | — | | | $ | — | | | $ | — | | | $ | 103 | | | $ | 3,466 | | Individually evaluated for impairment | $ | 579 | | $ | 1,153 | | $ | — | | $ | — | | $ | — | | $ | 18 | | $ | 1,750 |
Collectively evaluated for impairment | Collectively evaluated for impairment | 12,793 | | | 25,988 | | | 6,264 | | | 11,762 | | | 27,659 | | | 197 | | | 84,663 | | Collectively evaluated for impairment | 12,298 | | 19,569 | | 4,498 | | 15,103 | | 30,563 | | 180 | | 82,211 |
Acquired with deteriorated credit quality | Acquired with deteriorated credit quality | — | | | — | | | — | | | — | | | — | | | — | | | — | | Acquired with deteriorated credit quality | — | | — | | — | | — | | — | | — | | — |
Total ending allowance balance | Total ending allowance balance | $ | 15,976 | | | $ | 26,168 | | | $ | 6,264 | | | $ | 11,762 | | | $ | 27,659 | | | $ | 300 | | | $ | 88,129 | | Total ending allowance balance | $ | 12,877 | | $ | 20,722 | | $ | 4,498 | | $ | 15,103 | | $ | 30,563 | | $ | 198 | | $ | 83,961 |
| Loan balance: | Loan balance: | | | | | | | | | | | | | | Loan balance: | | | | | | | | | | | | | |
Loans individually evaluated for impairment | Loans individually evaluated for impairment | $ | 22,018 | | | $ | 50,541 | | | $ | 442 | | | $ | 4,857 | | | $ | — | | | $ | 1,406 | | | $ | 79,264 | | Loans individually evaluated for impairment | $ | 12,138 | | $ | 27,904 | | $ | 439 | | $ | 2,154 | | $ | — | | $ | 1,035 | | $ | 43,670 |
Loans collectively evaluated for impairment | Loans collectively evaluated for impairment | 1,292,601 | | | 1,704,527 | | | 341,480 | | | 1,746,339 | | | 1,715,324 | | | 20,177 | | | 6,820,448 | | Loans collectively evaluated for impairment | 1,265,734 | | 1,759,335 | | 310,600 | | 1,758,695 | | 1,941,509 | | 18,836 | | 7,054,709 |
Loans acquired with deteriorated credit quality | Loans acquired with deteriorated credit quality | 251 | | | 6,528 | | | 965 | | | 912 | | | — | | | 49 | | | 8,705 | | Loans acquired with deteriorated credit quality | 121 | | 3,562 | | 668 | | 516 | | — | | — | | 4,867 |
Total ending loan balance | Total ending loan balance | $ | 1,314,870 | | | $ | 1,761,596 | | | $ | 342,887 | | | $ | 1,752,108 | | | $ | 1,715,324 | | | $ | 21,632 | | | $ | 6,908,417 | | Total ending loan balance | $ | 1,277,993 | | $ | 1,790,801 | | $ | 311,707 | | $ | 1,761,365 | | $ | 1,941,509 | | $ | 19,871 | | $ | 7,103,246 |
| ACL as a percentage of loan balance: | ACL as a percentage of loan balance: | | | | | | | | | | | | | | ACL as a percentage of loan balance: | | | | | | | | | | | | | |
Loans individually evaluated for impairment | Loans individually evaluated for impairment | 14.46 | % | | 0.36 | % | | — | % | | — | % | | — | % | | 7.33 | % | | 4.37 | % | Loans individually evaluated for impairment | 4.77 | % | | 4.13 | % | | — | % | | — | % | | — | % | | 1.74 | % | | 4.01 | % |
Loans collectively evaluated for impairment | Loans collectively evaluated for impairment | 0.99 | % | | 1.52 | % | | 1.83 | % | | 0.67 | % | | 1.61 | % | | 0.98 | % | | 1.24 | % | Loans collectively evaluated for impairment | 0.97 | % | | 1.11 | % | | 1.45 | % | | 0.86 | % | | 1.57 | % | | 0.96 | % | | 1.17 | % |
Loans acquired with deteriorated credit quality | Loans acquired with deteriorated credit quality | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | Loans acquired with deteriorated credit quality | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % |
Total | Total | 1.22 | % | | 1.49 | % | | 1.83 | % | | 0.67 | % | | 1.61 | % | | 1.39 | % | | 1.28 | % | Total | 1.01 | % | | 1.16 | % | | 1.44 | % | | 0.86 | % | | 1.57 | % | | 1.00 | % | | 1.18 | % |
Table of Contents
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
(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 | | $ | 3,758 | | | $ | 1,316 | | | $ | — | | | $ | 16 | | | $ | — | | | $ | 344 | | | $ | 5,434 | |
Collectively evaluated for impairment | | 21,809 | | | 22,093 | | | 7,288 | | | 11,292 | | | 17,418 | | | 174 | | | 80,074 | |
Acquired with deteriorated credit quality | | 41 | | | 71 | | | — | | | 55 | | | — | | | — | | | 167 | |
Total ending allowance balance | | $ | 25,608 | | | $ | 23,480 | | | $ | 7,288 | | | $ | 11,363 | | | $ | 17,418 | | | $ | 518 | | | $ | 85,675 | |
| | | | | | | | | | | | | | |
Loan balance: | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | 28,811 | | | $ | 70,334 | | | $ | 3,110 | | | $ | 4,557 | | | $ | — | | | $ | 1,595 | | | $ | 108,407 | |
Loans collectively evaluated for impairment | | 1,559,842 | | | 1,670,510 | | | 339,312 | | | 1,806,126 | | | 1,659,704 | | | 22,731 | | | 7,058,225 | |
Loans acquired with deteriorated credit quality | | 336 | | | 7,345 | | | 999 | | | 2,361 | | | — | | | 112 | | | 11,153 | |
Total ending loan balance | | $ | 1,588,989 | | | $ | 1,748,189 | | | $ | 343,421 | | | $ | 1,813,044 | | | $ | 1,659,704 | | | $ | 24,438 | | | $ | 7,177,785 | |
| | | | | | | | | | | | | | |
ACL as a percentage of loan balance: | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | 13.04 | % | | 1.87 | % | | — | % | | 0.35 | % | | — | % | | 21.57 | % | | 5.01 | % |
Loans collectively evaluated for impairment | | 1.40 | % | | 1.32 | % | | 2.15 | % | | 0.63 | % | | 1.05 | % | | 0.77 | % | | 1.13 | % |
Loans acquired with deteriorated credit quality | | 12.20 | % | | 0.97 | % | | — | % | | 2.33 | % | | — | % | | — | % | | 1.50 | % |
Total | | 1.61 | % | | 1.34 | % | | 2.12 | % | | 0.63 | % | | 1.05 | % | | 2.12 | % | | 1.19 | % |
| | | | | | | | | | | | | | |
Recorded investment: | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | 28,836 | | | $ | 70,357 | | | $ | 3,110 | | | $ | 4,557 | | | $ | — | | | $ | 1,595 | | | $ | 108,455 | |
Loans collectively evaluated for impairment | | 1,566,344 | | | 1,676,388 | | | 340,116 | | | 1,808,892 | | | 1,664,214 | | | 22,745 | | | 7,078,699 | |
Loans acquired with deteriorated credit quality | | 337 | | | 7,461 | | | 1,002 | | | 2,372 | | | — | | | 112 | | | 11,284 | |
Total ending recorded investment | | $ | 1,595,517 | | | $ | 1,754,206 | | | $ | 344,228 | | | $ | 1,815,821 | | | $ | 1,664,214 | | | $ | 24,452 | | | $ | 7,198,438 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
(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 | | $ | 1,385 | | $ | 188 | | $ | — | | $ | — | | $ | — | | $ | 43 | | $ | 1,616 |
Collectively evaluated for impairment | | 12,640 | | 25,278 | | 5,758 | | 11,424 | | 26,286 | | 195 | | 81,581 |
Acquired with deteriorated credit quality | | — | | — | | — | | — | | — | | — | | — |
Total ending allowance balance | | $ | 14,025 | | $ | 25,466 | | $ | 5,758 | | $ | 11,424 | | $ | 26,286 | | $ | 238 | | $ | 83,197 |
| | | | | | | | | | | | | | |
Loan balance: | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | 22,666 | | $ | 47,820 | | $ | 222 | | $ | 2,606 | | $ | — | | $ | 1,188 | | $ | 74,502 |
Loans collectively evaluated for impairment | | 1,275,783 | | 1,748,854 | | 320,608 | | 1,735,226 | | 1,689,679 | | 19,321 | | 6,789,471 |
Loans acquired with deteriorated credit quality | | 177 | | 5,118 | | 956 | | 875 | | — | | 23 | | 7,149 |
Total ending loan balance | | $ | 1,298,626 | | $ | 1,801,792 | | $ | 321,786 | | $ | 1,738,707 | | $ | 1,689,679 | | $ | 20,532 | | $ | 6,871,122 |
| | | | | | | | | | | | | | |
ACL as a percentage of loan balance: | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | 6.11 | % | | 0.39 | % | | — | % | | — | % | | — | % | | 3.62 | % | | 2.17 | % |
Loans collectively evaluated for impairment | | 0.99 | % | | 1.45 | % | | 1.80 | % | | 0.66 | % | | 1.56 | % | | 1.01 | % | | 1.20 | % |
Loans acquired with deteriorated credit quality | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % | | — | % |
Total | | 1.08 | % | | 1.41 | % | | 1.79 | % | | 0.66 | % | | 1.56 | % | | 1.16 | % | | 1.21 | % |
Note 7 – Loans Held For Sale
Mortgage loans held for sale are carried at their fair value. At September 30, 20212022 and December 31, 2020,2021, respectively, Park had $8.9$1.9 million and $31.7$9.4 million in mortgage loans held for sale. These amounts are included in loans on the Consolidated Condensed Balance Sheets and in the residential real estate loan portfolio segment in Note 5 - Loans, and Note 6 - Allowance for Credit Losses. The contractual balance was $8.8$1.9 million and $30.9$9.2 million at September 30, 20212022 and December 31, 2020,2021, respectively. The gain expected upon sale was $175,000$26,000 and $753,000$166,000 at September 30, 20212022 and December 31, 2020,2021, respectively. None of these loans were 90 days or more past due or on nonaccrual status at September 30, 20212022 or December 31, 2020.2021.
During the three months ended June 30, 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 during the three months ended September 30, 2022, and Park recognized a gain on sale of $495,000 which is recorded within "Miscellaneous income" on the Consolidated Condensed 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 the three months or the nine months ended September 30, 2021.
Note 8 – Goodwill and Other Intangible Assets
The following tables show the activity in goodwill and other intangible assets for the three-month and the nine-month periods ended September 30, 20212022 and 2020. | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Goodwill | | Other intangible assets | | Total |
July 1, 2020 | | $ | 159,595 | | | $ | 10,310 | | | $ | 169,905 | |
Amortization | | — | | | 525 | | | 525 | |
September 30, 2020 | | $ | 159,595 | | | $ | 9,785 | | | $ | 169,380 | |
| | | | | | |
July 1, 2021 | | $ | 159,595 | | | $ | 8,302 | | | $ | 167,897 | |
Amortization | | — | | | 420 | | | 420 | |
September 30, 2021 | | $ | 159,595 | | | $ | 7,882 | | | $ | 167,477 | |
2021.
| (in thousands) | (in thousands) | | Goodwill | | Other intangible assets | | Total | (in thousands) | | Goodwill | | Other intangible assets | | Total |
December 31, 2019 | | $ | 159,595 | | | $ | 11,523 | | | $ | 171,118 | | |
Amortization | | — | | | 1,738 | | | 1,738 | | |
September 30, 2020 | | $ | 159,595 | | | $ | 9,785 | | | $ | 169,380 | | |
| December 31, 2020 | | $ | 159,595 | | | $ | 9,260 | | | $ | 168,855 | | |
July 1, 2021 | | July 1, 2021 | | $ | 159,595 | | | $ | 8,302 | | | $ | 167,897 | |
Amortization | Amortization | | — | | | 1,378 | | | 1,378 | | Amortization | | — | | | 420 | | | 420 | |
September 30, 2021 | September 30, 2021 | | $ | 159,595 | | | $ | 7,882 | | | $ | 167,477 | | September 30, 2021 | | $ | 159,595 | | | $ | 7,882 | | | $ | 167,477 | |
| July 1, 2022 | | July 1, 2022 | | $ | 159,595 | | | $ | 6,657 | | | $ | 166,252 | |
Amortization | | Amortization | | — | | | 341 | | | 341 | |
September 30, 2022 | | September 30, 2022 | | $ | 159,595 | | | $ | 6,316 | | | $ | 165,911 | |
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Goodwill | | Other intangible assets | | Total |
December 31, 2020 | | $ | 159,595 | | | $ | 9,260 | | | $ | 168,855 | |
Amortization | | — | | | 1,378 | | | 1,378 | |
September 30, 2021 | | $ | 159,595 | | | $ | 7,882 | | | $ | 167,477 | |
| | | | | | |
December 31, 2021 | | $ | 159,595 | | | $ | 7,462 | | | $ | 167,057 | |
Amortization | | — | | | 1,146 | | | 1,146 | |
September 30, 2022 | | $ | 159,595 | | | $ | 6,316 | | | $ | 165,911 | |
Park evaluates goodwill for impairment during the second quarter of each year, with financial data as of March 31. Based on the qualitative analysis performed as of April 1, 2021,2022, the Company determined that goodwill for Park's reporting unit, PNB, was not impaired. Management continues to monitor economic factors, including economic conditions as a result of the COVID-19 pandemic and responses thereto, to evaluate goodwill impairment.
Acquired Intangible Assets
The following table shows the balance of acquired intangible assets as of September 30, 20212022 and December 31, 2020.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
(in thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Other intangible assets: | | | | | | | | |
Core deposit intangible assets | | $ | 14,456 | | | $ | 6,574 | | | $ | 14,456 | | | $ | 5,196 | |
Trade name intangible assets | | 1,300 | | | 1,300 | | | 1,300 | | | 1,300 | |
Total | | $ | 15,756 | | | $ | 7,874 | | | $ | 15,756 | | | $ | 6,496 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
(in thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Other intangible assets: | | | | | | | | |
Core deposit intangible assets | | $ | 14,456 | | | $ | 8,140 | | | $ | 14,456 | | | $ | 6,994 | |
Trade name intangible assets | | 1,300 | | | 1,300 | | | 1,300 | | | 1,300 | |
Total | | $ | 15,756 | | | $ | 9,440 | | | $ | 15,756 | | | $ | 8,294 | |
Core deposit intangible assets are being amortized, on an accelerated basis, over a period of ten years. Aggregate amortization expense was $420,000$341,000 and $525,000$420,000 for the three months ended September 30, 20212022 and 2020,2021, respectively, and was $1.4$1.1 million and $1.7$1.4 million for the nine months ended September 30, 20212022 and 2020,2021, respectively.
Estimated amortization expense related to core deposit intangible assets for each of the next five years follows:
| (in thousands) | (in thousands) | | Total | (in thousands) | | Total |
Three months ending December 31, 2021 | | $ | 420 | | |
2022 | | 1,487 | | |
Three months ending December 31, 2022 | | Three months ending December 31, 2022 | | $ | 341 | |
2023 | 2023 | | 1,323 | | 2023 | | 1,323 | |
2024 | 2024 | | 1,215 | | 2024 | | 1,215 | |
2025 | 2025 | | 1,042 | | 2025 | | 1,042 | |
2026 | | 2026 | | 887 | |
Note 9 – Investment 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.
The table below details the balances of Park’s affordable housing tax credit investments and related unfunded commitments at September 30, 20212022 and December 31, 2020.2021.
| (in thousands) | (in thousands) | | September 30, 2021 | December 31, 2020 | (in thousands) | | September 30, 2022 | December 31, 2021 |
Affordable housing tax credit investments | Affordable housing tax credit investments | | $ | 60,457 | | $ | 56,024 | | Affordable housing tax credit investments | | $ | 62,771 | | $ | 58,711 | |
Unfunded commitments | Unfunded commitments | | 33,116 | | 29,298 | | Unfunded commitments | | 28,480 | | 28,484 | |
Commitments are funded when capital calls are made by the general partner. Park expects that the current commitments will be funded between 2021the remainder of 2022 and 2031.2032.
Park recognized amortization expense of $1.9$2.0 million and $1.8$1.9 million, respectively, for the three months ended September 30, 2022 and 2021, and 2020,$5.9 million and recognized $5.6 million, and $5.5 millionrespectively, for each of the nine months ended September 30, 20212022 and 2020,2021, which were included within the provision for income taxes. Additionally, during the three months ended September 30, 20212022 and 2020,2021, Park recognized tax credits and other benefits from its affordable housing tax credit investments of $1.9$2.5 million and $2.3$1.9 million, respectively, and during the nine months ended September 30, 2022 and 2021, and 2020, recognized $7.2$7.4 million and $6.9$7.2 million, respectively, which were included within the provision for income taxes.
Note 10 – 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 amounts of foreclosed real estate properties held at September 30, 20212022 and December 31, 20202021 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) | (in thousands) | | September 30, 2021 | | December 31, 2020 | (in thousands) | | September 30, 2022 | | December 31, 2021 |
OREO: | OREO: | | OREO: | |
Commercial real estate | Commercial real estate | | $ | — | | | $ | 625 | | Commercial real estate | | $ | 1,354 | | | $ | — | |
Residential real estate | Residential real estate | | 813 | | | 806 | | Residential real estate | | — | | | 775 | |
Total OREO | Total OREO | | $ | 813 | | | $ | 1,431 | | Total OREO | | $ | 1,354 | | | $ | 775 | |
| Loans in process of foreclosure: | Loans in process of foreclosure: | | Loans in process of foreclosure: | |
Residential real estate | Residential real estate | | $ | 1,397 | | | $ | 1,643 | | Residential real estate | | $ | 1,567 | | | $ | 1,148 | |
Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired. During the three months and the nine months ended September 30, 2022, Park recognized a $12.0 million OREO valuation markup related to the foreclosure and subsequent sale of a property collateralizing a former Vision Bank relationship. This income is included in "OREO valuation markup" on the Consolidated Condensed Statements of Income. There was no OREO valuation
markup related to former Vision Bank relationships during the three-month or the nine-month periods ended September 30, 2021.
During the three months and the nine months ended September 30, 2022, Park recognized a $5.6 million gain on the sale of OREO related to former Vision Bank relationships. This income is included in "Gain (loss) on sale of OREO, net" on the Consolidated Condensed Statements of Income. There was no gain or loss on sale of OREO related to former Vision Bank relationships during the three-month or the nine-month periods ended September 30, 2021.
In addition to real estate, Park may also repossess different types of collateral. At both September 30, 20212022 and December 31, 2020,2021, Park had $3.6$352,000 and $3.3 million, respectively, in other repossessed assets which are included in "Other assets" on the Consolidated Condensed Balance Sheets. At both dates presented,December 31, 2021, the other repossessed assets largely consisted of an aircraft acquired as part of a loan workout.
Note 11 – Loan Servicing
Park serviced sold mortgage loans of $2.09 billion at September 30, 2022, $2.13 billion at December 31, 2021 and $2.12 billion at September 30, 2021, $1.97 billion at December 31, 2020 and $1.79 billion at September 30, 2020.2021. At September 30, 2021, $3.52022, $3.3 million of the sold mortgage loans were sold with recourse, compared to $1.7$3.3 million at December 31, 20202021 and $2.0$3.5 million at September 30, 2020.2021. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. At September 30, 20212022 and December 31, 2020,2021, management had established reserves of $39,000$61,000 and $30,000,$57,000, respectively, to account for expected losses on loan repurchases.
When Park sells mortgage loans with servicing rights retained, these servicing rights are initially recorded at fair value. Park has 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 with respect to 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 Condensed Statements of Income.
Activity for MSRs and the related valuation allowance follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 | (In thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Mortgage servicing rights: | Mortgage servicing rights: | | | | | | | | | Mortgage servicing rights: | | | | | |
Carrying amount, net, beginning of period | Carrying amount, net, beginning of period | | $ | 14,316 | | | $ | 9,505 | | | $ | 12,210 | | | $ | 10,070 | | Carrying amount, net, beginning of period | | $ | 16,470 | | | $ | 14,316 | | | $ | 15,264 | | | $ | 12,210 | |
Additions | Additions | | 1,114 | | | 2,987 | | | 4,061 | | | 5,796 | | Additions | | 254 | | | 1,114 | | | 1,336 | | | 4,061 | |
Amortization | Amortization | | (835) | | | (1,254) | | | (2,753) | | | (2,853) | | Amortization | | (592) | | | (835) | | | (1,804) | | | (2,753) | |
Change in valuation allowance | Change in valuation allowance | | (39) | | | (198) | | | 1,038 | | | (1,973) | | Change in valuation allowance | | 59 | | | (39) | | | 1,395 | | | 1,038 | |
Carrying amount, net, end of period | Carrying amount, net, end of period | | $ | 14,556 | | | $ | 11,040 | | | $ | 14,556 | | | $ | 11,040 | | Carrying amount, net, end of period | | $ | 16,191 | | | $ | 14,556 | | | $ | 16,191 | | | $ | 14,556 | |
| Valuation allowance: | Valuation allowance: | | | | Valuation allowance: | | | |
Beginning of period | Beginning of period | | $ | 2,112 | | | $ | 2,600 | | | $ | 3,189 | | | $ | 825 | | Beginning of period | | $ | 232 | | | $ | 2,112 | | | $ | 1,568 | | | $ | 3,189 | |
Change in valuation allowance | Change in valuation allowance | | 39 | | | 198 | | | (1,038) | | | 1,973 | | Change in valuation allowance | | (59) | | | 39 | | | (1,395) | | | (1,038) | |
End of period | End of period | | $ | 2,151 | | | $ | 2,798 | | | $ | 2,151 | | | $ | 2,798 | | End of period | | $ | 173 | | | $ | 2,151 | | | $ | 173 | | | $ | 2,151 | |
Servicing fees included in other"Other service incomeincome" were $1.4 million and $1.0 million for each of the three months ended September 30, 20212022 and 2020,2021, respectively, and were $4.0$4.1 million and $2.9$4.0 million for the nine months ended September 30, 20212022 and 2020,2021, respectively.
Note 12 - 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 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 contracts 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 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. The CompanyPark recognizes the lease payments associated with its short-term leases as an expense on a cash basis.
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 September 30, 20212022 and December 31, 2020,2021, all of Park's leases were classified as operating leases.
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 thea 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 the Company’sPark'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 the CompanyPark 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.
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 Condensed Balance Sheets. The carrying amounts of Park's ROU asset and lease liability at September 30, 20212022 were $13.4$15.5 million and $14.5$16.4 million, respectively. At December 31, 2020,2021, the carrying amounts of Park's ROU asset and lease liability were $15.1$13.4 million and $16.1$14.3 million, respectively. Park's operating lease expense is recorded in "Occupancy expense" on the Company's Consolidated Condensed Statements of Income.
Other information related to operating leases for the three monthsthree-month and nine monthsthe nine-month periods ended September 30, 20212022 and 2020 was as2021 follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
(in thousands) | (in thousands) | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | (in thousands) | September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
Lease cost | Lease cost | | | | Lease cost | | | |
Operating lease cost | Operating lease cost | $ | 705 | | | $ | 905 | | | $ | 2,124 | | | $ | 2,671 | | Operating lease cost | $ | 811 | | | $ | 705 | | | $ | 2,286 | | | $ | 2,124 | |
Sublease income | Sublease income | (63) | | | (95) | | | (189) | | | (289) | | Sublease income | (63) | | | (63) | | | (189) | | | (189) | |
Total lease cost | Total lease cost | $ | 642 | | | $ | 810 | | | $ | 1,935 | | | $ | 2,382 | | Total lease cost | $ | 748 | | | $ | 642 | | | $ | 2,097 | | | $ | 1,935 | |
| Other information | Other information | | Other information | |
Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows from operating leases | Operating cash flows from operating leases | $ | 777 | | | $ | 906 | | | $ | 2,329 | | | $ | 2,710 | | Operating cash flows from operating leases | $ | 766 | | | $ | 777 | | | $ | 2,307 | | | $ | 2,329 | |
ROU assets obtained in exchange for new operating lease liabilities | ROU assets obtained in exchange for new operating lease liabilities | $ | 367 | | | $ | 25 | | | $ | 547 | | | $ | 7,794 | | ROU assets obtained in exchange for new operating lease liabilities | $ | 88 | | | $ | 367 | | | $ | 4,270 | | | $ | 547 | |
Reductions to ROU assets resulting from reductions to lease obligations | Reductions to ROU assets resulting from reductions to lease obligations | $ | (695) | | | $ | (789) | | | $ | (2,074) | | | $ | (2,347) | | Reductions to ROU assets resulting from reductions to lease obligations | $ | (697) | | | $ | (695) | | | $ | (2,090) | | | $ | (2,074) | |
At September 30, 20212022 and December 31, 2020,2021, Park's operating leases had a weighted average remaining term of 6.88.7 years and 7.26.8 years, respectively. The weighted average discount rate of Park's operating leases waswas 2.7% and 2.3% at both September 30, 20212022 and December 31, 2020.2021, respectively.
Undiscounted cash flows included in lease liabilities have expected contractual payments as follows:
| (in thousands) | (in thousands) | September 30, 2021 | (in thousands) | September 30, 2022 |
3 months ending December 31, 2021 | $ | 783 | | |
2022 | 3,085 | | |
Three months ending December 31, 2022 | | Three months ending December 31, 2022 | $ | 763 | |
2023 | 2023 | 2,944 | | 2023 | 3,306 | |
2024 | 2024 | 1,791 | | 2024 | 2,179 | |
2025 | 2025 | 1,451 | | 2025 | 1,860 | |
2026 | | 2026 | 1,806 | |
Thereafter | Thereafter | 5,602 | | Thereafter | 8,885 | |
Total undiscounted minimum lease payments | Total undiscounted minimum lease payments | $ | 15,656 | | Total undiscounted minimum lease payments | $ | 18,799 | |
Present value adjustment | Present value adjustment | (1,176) | | Present value adjustment | (2,385) | |
Total lease liabilities | Total lease liabilities | $ | 14,480 | | Total lease liabilities | $ | 16,414 | |
In September 2021, the Company entered into a noncancellable operating lease for an additional retail office for an initial term of 12 years, with two five-year renewal options. This lease is expected to commence during the fourth quarter of 2022, and therefore, was not recognized as of December 31, 2021 or September 30, 2022. The fixed payments due on an undiscounted basis over the noncancellable 12-year period of the lease are $3.5 million. The Company will assess the lease term as of the lease commencement date, but does not presently expect that either of the five-year renewal periods will be exercised.
Note 13 – 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 Condensed Balance Sheets.
All repurchase agreements are subject to terms and conditions of repurchase/security agreements between Park and the client and are accounted for as secured borrowings. Park's repurchase agreements consistedconsist of customer accounts and securities which are pledged on an individual security basis.
At September 30, 20212022 and December 31, 2020,2021, Park's repurchase agreement borrowings totaled $211$189.5 million and $317$213.8 million, respectively. These borrowings were collateralized with U.S. government and agencysponsored entities' asset-backed securities with a fair value of $319$236.8 million and $366$334.9 million at September 30, 20212022 and December 31, 2020,2021, respectively. Declines in the value of the collateral would require Park to pledge additional securities. As of September 30, 20212022 and December 31, 2020,2021, Park had $909$1,164 million and $439$1,225 million, respectively, of available unpledged securities.
The table below shows the remaining contractual maturity of repurchase agreements by collateral pledged at September 30, 20212022 and December 31, 2020:2021:
| | | September 30, 2021 | | September 30, 2022 |
(in thousands) | (in thousands) | | Remaining Contractual Maturity of the Agreements | (in thousands) | | Remaining Contractual Maturity of the Agreements |
| | | Overnight and Continuous | | Up to 30 days | | 30 - 90 days | | Greater than 90 days | | Total | | | Overnight and Continuous | | Up to 30 days | | 30 - 90 days | | Greater than 90 days | | Total |
U.S. government and agency securities | U.S. government and agency securities | | $ | 210,979 | | | $ | — | | | $ | — | | | $ | — | | | $ | 210,979 | | U.S. government and agency securities | | $ | 189,493 | | | $ | — | | | $ | — | | | $ | — | | | $ | 189,493 | |
| | | December 31, 2020 | | December 31, 2021 |
(in thousands) | (in thousands) | | Remaining Contractual Maturity of the Agreements | (in thousands) | | Remaining Contractual Maturity of the Agreements |
| | | Overnight and Continuous | | Up to 30 days | | 30 - 90 days | | Greater than 90 days | | Total | | | Overnight and Continuous | | Up to 30 days | | 30 - 90 days | | Greater than 90 days | | Total |
U.S. government and agency securities | U.S. government and agency securities | | $ | 317,230 | | | $ | — | | | $ | — | | | $ | — | | | $ | 317,230 | | U.S. government and agency securities | | $ | 213,786 | | | $ | — | | | $ | — | | | $ | — | | | $ | 213,786 | |
Note 14 - Derivatives
Park uses certain derivative financial instruments (or "derivatives") to meet the needs of its clients 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 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 September 30, 2022, Park had no borrowing derivatives. Interest rate swaps with notional amounts totaling $25.0 million at both September 30, 2021 and December 31, 20202021 were designated as cash flow hedges of certain FHLB advances.
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 $30.1$22.8 million and $33.329.7 million at September 30, 20212022 and December 31, 2020,2021, respectively.
All of the Company's interest rate swaps were determined to be fully effective during each of the three-month and the nine-month periods ended September 30, 20212022 and September 30, 2020.2021. 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"Other assets" and other liabilities"Other liabilities" with changes in fair value recorded in other"Other comprehensive income.(loss) income". The amount included in accumulated"Accumulated other comprehensive (loss) income, net of tax" would be reclassified to current earnings should the hedges no longer be considered effective. During the nine-month period ended September 30, 2022, Park recognized expense of $66,000 as the result of the early termination of a borrowing interest rate swap. No expense related to early termination was recognized during the three months ended September 30, 2022 or the three months or the nine months ended September 30, 2021. 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 September 30, 20212022 and December 31, 20202021 follows:
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
(In thousands, except weighted average data) | (In thousands, except weighted average data) | | Borrowing Derivatives | | Loan Derivatives | | Borrowing Derivatives | | Loan Derivatives | (In thousands, except weighted average data) | | Borrowing Derivatives | | Loan Derivatives | | Borrowing Derivatives | | Loan Derivatives |
Notional amounts | Notional amounts | | $ | 25,000 | | | $ | 30,118 | | | $ | 25,000 | | | $ | 33,310 | | Notional amounts | | $ | — | | | $ | 22,831 | | | $ | 25,000 | | | $ | 29,651 | |
Weighted average pay rates | Weighted average pay rates | | 2.595 | % | | 4.664 | % | | 2.595 | % | | 4.695 | % | Weighted average pay rates | | — | % | | 4.555 | % | | 2.595 | % | | 4.668 | % |
Weighted average receive rates | Weighted average receive rates | | 0.134 | % | | 4.664 | % | | 0.218 | % | | 4.695 | % | Weighted average receive rates | | — | % | | 4.555 | % | | 0.124 | % | | 4.668 | % |
Weighted average maturity (years) | Weighted average maturity (years) | | 0.7 | | 8.5 | | 1.5 | | 9.3 | Weighted average maturity (years) | | 0.0 | | 8.1 | | 0.5 | | 8.2 |
Unrealized losses | Unrealized losses | | $ | 436 | | | $ | — | | | $ | 885 | | | $ | — | | Unrealized losses | | $ | — | | | $ | — | | | $ | 262 | | | $ | — | |
There was no interest expense recorded on swap transactions for the three months ended September 30, 2022. Interest expense recorded on swap transactions was $157,000 and $140,000 for the three-month period ended September 30, 2021, and was $171,000 and $457,000 for the nine-month periods ended September 30, 20212022 and 2020, respectively, and was $457,000 and $272,000 for the nine-month periods ended September 30, 2021, and 2020, respectively.
Interest Rate Swaps
The following table presents the net gains, (losses), net of income taxes, recorded in OCI and the Consolidated Condensed Statements of Income related to interest rate swaps for the three-month and the nine-month nine-month periods ended September 30, 20212022 and 2020.2021:
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, 20212022 |
(In thousands) | | Amount of Net Gain (Loss) Recognized in OCI (Effective Portion) | Amount of Gain (Loss) Reclassified from OCI to Interest Income | Amount of Gain (Loss)Expense Recognized in Other Non-interest Income (Ineffective Portion)Miscellaneous Expense |
Interest rate contractsswaps | | $ | 117— | | $ | — | | $ | — | |
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, 20202021 |
(In thousands) | | Amount of Net Gain (Loss) Recognized in OCI (Effective Portion) | Amount of Gain (Loss) Reclassified from OCI to Interest Income | Amount of Gain (Loss)Expense Recognized in Other Non-interest Income (Ineffective Portion)Miscellaneous Expense |
Interest rate contractsswaps | | $ | 111117 | | $ | — | | $ | — | |
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2022 |
(In thousands) | | Amount of Net Gain Recognized in OCI (Effective Portion) | Amount of Gain (Loss) Reclassified from OCI to Interest Income | Amount of Expense Recognized in Miscellaneous Expense |
Interest rate swaps | | $ | 154 | | $ | — | | $ | 52 | |
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 |
(In thousands) | | Amount of Net Gain (Loss) Recognized in OCI (Effective Portion) | Amount of Gain (Loss) Reclassified from OCI to Interest Income | Amount of Gain (Loss)Expense Recognized in Other Non-interest Income (Ineffective Portion)Miscellaneous Expense |
Interest rate contractsswaps | | $ | 355 | | $ | — | | $ | — | |
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 |
(In thousands) | | Amount of Gain (Loss) Recognized in OCI (Effective Portion) | Amount of Gain (Loss) Reclassified from OCI to Interest Income | Amount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion) |
Interest rate contracts | | $ | (357) | | $ | — | | $ | — | |
The following tables reflect the interest rate swaps included in the Consolidated Condensed Balance Sheets as of September 30, 20212022 and December 31, 2020.2021.
| (In thousands) | (In thousands) | | September 30, 2021 | | December 31, 2020 | (In thousands) | | September 30, 2022 | | December 31, 2021 |
| Notional Amount | | Fair Value | | Notional Amount | | Fair Value | | Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
Included in other assets: | | | | | | | | | |
Included in "Other assets": | | Included in "Other assets": | | | | | | | | |
Borrowing derivatives - interest rate swaps related to FHLB advances | Borrowing derivatives - interest rate swaps related to FHLB advances | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Borrowing derivatives - interest rate swaps related to FHLB advances | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Loan derivatives - instruments associated with loans | Loan derivatives - instruments associated with loans | | Loan derivatives - instruments associated with loans | |
Matched interest rate swaps with borrower | Matched interest rate swaps with borrower | | 30,118 | | | 2,258 | | | 33,310 | | | 3,934 | | Matched interest rate swaps with borrower | | — | | | — | | | 29,651 | | | 1,952 | |
Matched interest rate swaps with counterparty | Matched interest rate swaps with counterparty | | — | | | — | | | — | | | — | | Matched interest rate swaps with counterparty | | 22,831 | | | 1,622 | | | — | | | — | |
Total included in other assets | | $ | 30,118 | | | $ | 2,258 | | | $ | 33,310 | | | $ | 3,934 | | |
Total included in "Other assets" | | Total included in "Other assets" | | $ | 22,831 | | | $ | 1,622 | | | $ | 29,651 | | | $ | 1,952 | |
| Included in other liabilities: | | | |
Included in "Other liabilities": | | Included in "Other liabilities": | | |
Borrowing derivatives - interest rate swaps related to FHLB advances | Borrowing derivatives - interest rate swaps related to FHLB advances | | $ | 25,000 | | | $ | (436) | | | $ | 25,000 | | | $ | (885) | | Borrowing derivatives - interest rate swaps related to FHLB advances | | $ | — | | | $ | — | | | $ | 25,000 | | | $ | (262) | |
Loan derivatives - instruments associated with loans | Loan derivatives - instruments associated with loans | | | Loan derivatives - instruments associated with loans | | |
Matched interest rate swaps with borrower | Matched interest rate swaps with borrower | | — | | | — | | | — | | | — | | Matched interest rate swaps with borrower | | 22,831 | | | (1,622) | | | — | | | — | |
Matched interest rate swaps with counterparty | Matched interest rate swaps with counterparty | | 30,118 | | | (2,258) | | | 33,310 | | | (3,934) | | Matched interest rate swaps with counterparty | | — | | | — | | | 29,651 | | | (1,952) | |
Total included in other liabilities | | $ | 55,118 | | | $ | (2,694) | | | $ | 58,310 | | | $ | (4,819) | | |
Total included in "Other liabilities" | | Total included in "Other liabilities" | | $ | 22,831 | | | $ | (1,622) | | | $ | 54,651 | | | $ | (2,214) | |
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 Condensed Consolidated Statements of Income.
At September 30, 20212022 and December 31, 20202021, Park had $15.9$5.4 million and $58.2$13.3 million, respectively, of interest rate lock commitments. The fair value of these mortgage banking derivatives was reflected by a derivative asset of $0.4$0.1 million and $1.5$0.3 million at September 30, 20212022 and December 31, 20202021, 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 both September 30, 20212022 and December 31, 20202021, the fair value of the swap liability of $243,000 and $226,000, wasrespectively, represented an estimate of the exposure based upon probability-weighted potential Visa litigation losses.
Note 15 – Accumulated Other Comprehensive (Loss) Income (Loss)
Other comprehensive (loss) income (loss) components, net of income tax, are shown in the following table for the three-monththree-month and nine-monththe nine-month periods ended September 30, 20212022 and 2020:2021:
| (in thousands) | (in thousands) | | Changes in pension plan assets and benefit obligations | | Unrealized net holding gain (loss) on cash flow hedge | | Unrealized gains (losses) on debt securities AFS | | Total | (in thousands) | | Changes in pension plan assets and benefit obligations | | Unrealized net holding (loss) gain on cash flow hedge | | Unrealized (losses) gains on debt securities AFS | | Total |
Beginning balance at July 1, 2022 | | Beginning balance at July 1, 2022 | | $ | (5,792) | | | $ | — | | | $ | (79,612) | | | $ | (85,404) | |
| | | Other comprehensive loss before reclassifications | | — | | | — | | | (39,939) | | | (39,939) | |
Net current period other comprehensive loss | | Net current period other comprehensive loss | | — | | | — | | | (39,939) | | | (39,939) | |
Ending balance at September 30, 2022 | | Ending balance at September 30, 2022 | | $ | (5,792) | | | $ | — | | | $ | (119,551) | | | $ | (125,343) | |
| Beginning balance at July 1, 2021 | Beginning balance at July 1, 2021 | | $ | (34,421) | | | $ | (460) | | | $ | 31,951 | | | $ | (2,930) | | Beginning balance at July 1, 2021 | | $ | (34,421) | | | $ | (460) | | | $ | 31,951 | | | $ | (2,930) | |
| | Other comprehensive income (loss) before reclassifications | | — | | | 117 | | | (4,997) | | | (4,880) | | | Other comprehensive income (loss) before reclassifications | | — | | | 117 | | | (4,997) | | | (4,880) | |
Net current period other comprehensive income (loss) | Net current period other comprehensive income (loss) | | — | | | 117 | | | (4,997) | | | (4,880) | | Net current period other comprehensive income (loss) | | — | | | 117 | | | (4,997) | | | (4,880) | |
Ending balance at September 30, 2021 | Ending balance at September 30, 2021 | | $ | (34,421) | | | $ | (343) | | | $ | 26,954 | | | $ | (7,810) | | Ending balance at September 30, 2021 | | $ | (34,421) | | | $ | (343) | | | $ | 26,954 | | | $ | (7,810) | |
| Beginning balance at July 1, 2020 | | $ | (26,674) | | | $ | (922) | | | $ | 41,457 | | | $ | 13,861 | | |
| Amounts reclassified from accumulated other comprehensive income | | — | | | — | | | 21 | | | 21 | | |
| Other comprehensive income before reclassifications | | — | | | 111 | | | 207 | | | 318 | | |
Net current period other comprehensive income | | — | | | 111 | | | 228 | | | 339 | | |
Ending balance at September 30, 2020 | | $ | (26,674) | | | $ | (811) | | | $ | 41,685 | | | $ | 14,200 | | |
| (in thousands) | (in thousands) | | Changes in pension plan assets and benefit obligations | | Unrealized net holding gain (loss) on cash flow hedge | | Unrealized gains (losses) on debt securities AFS | | Total | (in thousands) | | Changes in pension plan assets and benefit obligations | | Unrealized net holding (loss) gain on cash flow hedge | | Unrealized gains (losses) on debt securities AFS | | Total |
Beginning balance at January 1, 2022 | | Beginning balance at January 1, 2022 | | $ | (5,792) | | | $ | (206) | | | $ | 21,153 | | | $ | 15,155 | |
| | | Other comprehensive income (loss) before reclassifications | | — | | | 154 | | | (140,704) | | | (140,550) | |
| | | Amounts reclassified from other comprehensive loss | | — | | | 52 | | | — | | | 52 | |
Net current period other comprehensive income (loss) | | Net current period other comprehensive income (loss) | | — | | | 206 | | | (140,704) | | | (140,498) | |
Ending balance at September 30, 2022 | | Ending balance at September 30, 2022 | | $ | (5,792) | | | $ | — | | | $ | (119,551) | | | $ | (125,343) | |
| Beginning balance at January 1, 2021 | Beginning balance at January 1, 2021 | | $ | (34,421) | | | $ | (698) | | | $ | 40,690 | | | $ | 5,571 | | Beginning balance at January 1, 2021 | | $ | (34,421) | | | $ | (698) | | | $ | 40,690 | | | $ | 5,571 | |
| | Other comprehensive income (loss) before reclassifications | | — | | | 355 | | | (13,736) | | | (13,381) | | | Other comprehensive income (loss) before reclassifications | | — | | | 355 | | | (13,736) | | | (13,381) | |
Net current period other comprehensive income (loss) | Net current period other comprehensive income (loss) | | — | | | 355 | | | (13,736) | | | (13,381) | | Net current period other comprehensive income (loss) | | — | | | 355 | | | (13,736) | | | (13,381) | |
Ending balance at September 30, 2021 | Ending balance at September 30, 2021 | | $ | (34,421) | | | $ | (343) | | | $ | 26,954 | | | $ | (7,810) | | Ending balance at September 30, 2021 | | $ | (34,421) | | | $ | (343) | | | $ | 26,954 | | | $ | (7,810) | |
| Beginning balance at January 1, 2020 | | $ | (26,674) | | | $ | (454) | | | $ | 17,539 | | | $ | (9,589) | | |
| Amounts reclassified from accumulated other comprehensive income | | — | | | — | | | (2,596) | | | (2,596) | | |
| Other comprehensive (loss) income before reclassifications | | — | | | (357) | | | 26,742 | | | 26,385 | | |
Net current period other comprehensive (loss) income | | — | | | (357) | | | 24,146 | | | 23,789 | | |
Ending balance at September 30, 2020 | | $ | (26,674) | | | $ | (811) | | | $ | 41,685 | | | $ | 14,200 | | |
During the nine-month period ended September 30, 2022, there was $66,000 ($52,000 net of tax) reclassified out of accumulated other comprehensive loss due to a net loss on the early termination of a borrowing interest rate swap. This loss was recorded within "Miscellaneous" other expense on the Consolidated Condensed Statements of Income. During the three-month period ended September 30, 2022, there were no reclassifications out of accumulated other comprehensive (loss) income. During the three-month and nine-monththe nine-month periods ended September 30, 2021, there were no reclassifications out of accumulated other comprehensive income (loss). During the three-month period ended September 30, 2020, there was $27,000 ($21,000 net of tax) reclassified out of accumulated other comprehensive income due to net losses on the sale of debt securities AFS. During the nine-month period ended September 30, 2020, there was $3.3 million ($2.6 million net of tax) reclassified out of accumulated other comprehensive income due to net gains on the sale of debt securities AFS. These gains were recorded within "Net gain on the sale of debt securities" on the Consolidated Condensed Statements of Income.
income.
Note 16 – Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per common share for the three monthsmonth and nine months ended September 30, 20212022 and 2020.2021.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands, except share and per common share data) | (In thousands, except share and per common share data) | | 2021 | | 2020 | | 2021 | | 2020 | (In thousands, except share and per common share data) | | 2022 | | 2021 | | 2022 | | 2021 |
Numerator: | Numerator: | | | | | | | | | Numerator: | | | | | | | | |
Net income | Net income | | $ | 35,434 | | | $ | 30,846 | | | $ | 117,397 | | | $ | 82,723 | | Net income | | $ | 42,068 | | | $ | 35,434 | | | $ | 115,267 | | | $ | 117,397 | |
Denominator: | Denominator: | | | | | | Denominator: | | | | | |
Weighted-average common shares outstanding | Weighted-average common shares outstanding | | 16,292,312 | | | 16,300,720 | | | 16,315,996 | | | 16,300,250 | | Weighted-average common shares outstanding | | 16,253,704 | | | 16,292,312 | | | 16,240,966 | | | 16,315,996 | |
Effect of dilutive PBRSUs and TBRSUs | Effect of dilutive PBRSUs and TBRSUs | | 131,600 | | | 93,072 | | | 129,572 | | | 98,100 | | Effect of dilutive PBRSUs and TBRSUs | | 121,278 | | | 131,600 | | | 114,824 | | | 129,572 | |
Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs | Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs | | 16,423,912 | | | 16,393,792 | | | 16,445,568 | | | 16,398,350 | | Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs | | 16,374,982 | | | 16,423,912 | | | 16,355,790 | | | 16,445,568 | |
Earnings per common share: | Earnings per common share: | | | | | | Earnings per common share: | | | | | |
Basic earnings per common share | Basic earnings per common share | | $ | 2.17 | | | $ | 1.89 | | | $ | 7.20 | | | $ | 5.07 | | Basic earnings per common share | | $ | 2.59 | | | $ | 2.17 | | | $ | 7.10 | | | $ | 7.20 | |
Diluted earnings per common share | Diluted earnings per common share | | $ | 2.16 | | | $ | 1.88 | | | $ | 7.14 | | | $ | 5.04 | | Diluted earnings per common share | | $ | 2.57 | | | $ | 2.16 | | | $ | 7.05 | | | $ | 7.14 | |
Park awarded 61,89052,335 PBRSUs and 62,26561,890 PBRSUs to certain employees during the nine months ended September 30, 20212022 and 2020,2021, respectively. No PBRSU'sPBRSUs were awarded during either of the three months ended September 30, 20212022 or 2020.2021.
Park repurchased an aggregate of 137,659 common shares during botheach of the three months and nine months ended September 30, 2021, to fund the PBRSUs, the TBRSUs and the common shares to be awarded to directors of Park and to directors of Park's subsidiary PNB (and its divisions) and pursuant to Park's previously announced stock repurchase authorizations. Park repurchased an aggregate of 76,000 common shares during the nine months ended September 30, 2020, to fund the PBRSUs, the TBRSUs and common shares to be awarded to directors of Park and to directors of Park's subsidiary PNB (and its divisions). No common shares were repurchased during the three months or the nine months ended September 30, 2020.2022.
Note 17 – Segment Information
The Corporation is a financial holding company headquartered in Newark, Ohio. The reportable segment for the Corporation is its chartered national bank subsidiary, PNB (headquartered in Newark, Ohio). "All Other", which primarily consists of Park as the "Parent Company", GFSC and SEPH, is shown to reconcile the segment totals to the Consolidated Condensed Statements of Income.
Management is required to disclose information about the different types of business activities in which a company engages and also information on the different economic environments in which a company operates, so that the users of the financial statements can better understand the company’s performance, better understand the potential for future cash flows, and make
more informed judgments about the company as a whole. Park has 1one reportable segment, as: (i) discrete financial information
is available for this reportable segment and (ii) the segment is aligned with internal reporting to Park’s Chief Executive Officer, who is the chief operating decision maker.Officer.
| | | | Operating Results for the three months ended September 30, 2021 | | | Operating Results for the three months ended September 30, 2022 |
(In thousands) | (In thousands) | | PNB | | All Other | | Total | (In thousands) | | PNB | | All Other | | Total |
Net interest income (expense) | Net interest income (expense) | | $ | 82,835 | | | $ | (1,233) | | | $ | 81,602 | | Net interest income (expense) | | $ | 92,035 | | | $ | (1,207) | | | $ | 90,828 | |
Provision for (recovery of) credit losses | Provision for (recovery of) credit losses | | 4,276 | | | (2,304) | | | 1,972 | | Provision for (recovery of) credit losses | | 3,235 | | | (45) | | | 3,190 | |
Other income | Other income | | 31,332 | | | 1,079 | | | 32,411 | | Other income | | 28,918 | | | 17,776 | | | 46,694 | |
Other expense | Other expense | | 64,663 | | | 3,826 | | | 68,489 | | Other expense | | 79,070 | | | 3,833 | | | 82,903 | |
Income (loss) before income taxes | | $ | 45,228 | | | $ | (1,676) | | | $ | 43,552 | | |
Income tax expense (benefit) | | 8,777 | | | (659) | | | 8,118 | | |
Net income (loss) | | $ | 36,451 | | | $ | (1,017) | | | $ | 35,434 | | |
Income before income taxes | | Income before income taxes | | $ | 38,648 | | | $ | 12,781 | | | $ | 51,429 | |
Income tax expense | | Income tax expense | | 7,133 | | | 2,228 | | | 9,361 | |
Net income | | Net income | | $ | 31,515 | | | $ | 10,553 | | | $ | 42,068 | |
| Assets (at September 30, 2021) | | $ | 10,012,868 | | | $ | 21,150 | | | $ | 10,034,018 | | |
Assets (at September 30, 2022) | | Assets (at September 30, 2022) | | $ | 9,816,644 | | | $ | 38,403 | | | $ | 9,855,047 | |
| | | | Operating Results for the three months ended September 30, 2020 | | | Operating Results for the three months ended September 30, 2021 |
(In thousands) | (In thousands) | | PNB | | All Other | | Total | (In thousands) | | PNB | | All Other | | Total |
Net interest income | | $ | 83,795 | | | $ | 45 | | | $ | 83,840 | | |
Provision for (recovery of) loan losses | | 13,839 | | | (3) | | | 13,836 | | |
Net interest income (expense) | | Net interest income (expense) | | $ | 82,835 | | | $ | (1,233) | | | $ | 81,602 | |
Provision for (recovery of) credit losses | | Provision for (recovery of) credit losses | | 4,276 | | | (2,304) | | | 1,972 | |
Other income | Other income | | 35,430 | | | 1,128 | | | 36,558 | | Other income | | 31,332 | | | 1,079 | | | 32,411 | |
Other expense | Other expense | | 65,590 | | | 4,269 | | | 69,859 | | Other expense | | 64,663 | | | 3,826 | | | 68,489 | |
Income (loss) before income taxes | Income (loss) before income taxes | | $ | 39,796 | | | $ | (3,093) | | | $ | 36,703 | | Income (loss) before income taxes | | $ | 45,228 | | | $ | (1,676) | | | $ | 43,552 | |
Income tax expense (benefit) | Income tax expense (benefit) | | 6,908 | | | (1,051) | | | 5,857 | | Income tax expense (benefit) | | 8,777 | | | (659) | | | 8,118 | |
Net income (loss) | Net income (loss) | | $ | 32,888 | | | $ | (2,042) | | | $ | 30,846 | | Net income (loss) | | $ | 36,451 | | | $ | (1,017) | | | $ | 35,434 | |
| Assets (at September 30, 2020) | | $ | 9,195,911 | | | $ | 44,095 | | | $ | 9,240,006 | | |
Assets (at September 30, 2021) | | Assets (at September 30, 2021) | | $ | 10,012,868 | | | $ | 21,150 | | | $ | 10,034,018 | |
| | | | | | | | | | | | | | | | | | | | |
| | Operating Results for the nine months ended September 30, 2022 |
(In thousands) | | PNB | | All Other | | Total |
Net interest income (expense) | | $ | 254,818 | | | $ | (2,365) | | | $ | 252,453 | |
Provision for (recovery of) credit losses | | 2,045 | | | (469) | | | 1,576 | |
Other income | | 89,420 | | | 20,123 | | | 109,543 | |
Other expense | | 209,500 | | | 10,824 | | | 220,324 | |
Income before income taxes | | $ | 132,693 | | | $ | 7,403 | | | $ | 140,096 | |
Income tax expense | | 24,770 | | | 59 | | | 24,829 | |
Net income | | $ | 107,923 | | | $ | 7,344 | | | $ | 115,267 | |
| | | | | | | | | | | | | | | | | | | | |
| | Operating Results for the nine months ended September 30, 2021 |
(In thousands) | | PNB | | All Other | | Total |
Net interest income (expense) | | $ | 247,596 | | | $ | (1,409) | | | $ | 246,187 | |
Recovery of credit losses | | (3,670) | | | (3,253) | | | (6,923) | |
Other income | | 95,258 | | | 2,480 | | | 97,738 | |
Other expense | | 195,361 | | | 12,393 | | | 207,754 | |
Income (loss) before income taxes | | $ | 151,163 | | | $ | (8,069) | | | $ | 143,094 | |
Income tax expense (benefit) | | 28,694 | | | (2,997) | | | 25,697 | |
Net income (loss) | | $ | 122,469 | | | $ | (5,072) | | | $ | 117,397 | |
| | | | | | | | | | | | | | | | | | | | |
| | Operating Results for the nine months ended September 30, 2020 |
(In thousands) | | PNB | | All Other | | Total |
Net interest income | | $ | 238,900 | | | $ | 2,409 | | | $ | 241,309 | |
Provision for (recovery of) loan losses | | 32,256 | | | (1,043) | | | 31,213 | |
Other income | | 89,920 | | | 88 | | | 90,008 | |
Other expense | | 187,661 | | | 13,273 | | | 200,934 | |
Income (loss) before income taxes | | $ | 108,903 | | | $ | (9,733) | | | $ | 99,170 | |
Income tax expense (benefit) | | 19,357 | | | (2,910) | | | 16,447 | |
Net income (loss) | | $ | 89,546 | | | $ | (6,823) | | | $ | 82,723 | |
The operating results in the “All Other” column are used to reconcile the segment totals to the Consolidated Condensed Statements of Income for the three-monththree-month and nine-month periodsthe nine-month periods ended September 30, 20212022 and 2020.2021. The reconciling amounts for consolidated total assets for the periods ended September 30, 20212022 and 20202021 consisted of the elimination of intersegment borrowings and the assets of the Parent Company, GFSC and SEPH which were not eliminated.
Note 18 - Share-Based Compensation
The Park National Corporation 2013 Long-Term Incentive Plan (the "2013 Incentive Plan") was adopted by the Board of Directors of Park on January 28, 2013 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 22, 2013. The 2013 Incentive Plan made equity-based awards and cash-based awards available for grant to participants (who could have been employees or non-employee directors) in the form of incentive stock options, nonqualified stock options, SARs, restricted common shares (“Restricted Stock”), restricted stock unit awards that may be settled in common shares, cash or a combination of the two (“Restricted Stock Units”), unrestricted common shares (“Other Stock-Based Awards”) and cash-based awards. Under the 2013 Incentive Plan, 600,000 common shares were authorized to be delivered in connection with grants under the 2013 Incentive Plan. The common shares to be delivered under the 2013 Incentive Plan were 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. As of September 30, 2021, there were no common shares subject to PBRSUs issued under the 2013 Incentive Plan outstanding.
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 Awardsstock appreciation rights ("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 September 30, 2021, 463,1102022, 397,665 common shares were available for future grants under the 2017 Employees 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,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 September 30, 2021, 100,2502022, 86,850 common shares were available for future grants under the 2017 Non-Employee Directors LTIP.
The 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP have replaced the provisions of the 2013 Incentive Plan with respect to the grant of future awards. As a result of the approval of the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP, Park has not granted and will not grant any additional awards under the 2013 Incentive Plan after April 24, 2017. Awards made under the 2013 Incentive Plan have vested or have expired.
During the nine months ended September 30, 20212022 and 2020,2021, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 61,89052,335 common shares and 62,26561,890 common shares, respectively, to certain employees of Park and its subsidiaries. No awards were granted during either of the three months ended September 30, 2021 or 2020.2022 and 2021.
As of September 30, 2021,2022, Park has nonvested PBRSUs as well as TBRSUs. The number of PBRSUs earned or settled will depend on the level of achievement with respect to certain performance criteria over a three-year period and are also subject to subsequent service-based vesting. The number of TBRSUs earned or settled will beare subject to service-based vesting.
A summary of changes in the common shares subject to nonvested PBRSUs and TBRSUs for the nine months ended September 30, 20212022 follows:
| | | | | |
| Common shares subject to PBRSUs and TBRSUs |
Nonvested at January 1, 20212022 | 204,108211,819 | |
Granted | 61,89052,335 | |
Vested | (48,106)(55,464) | |
Forfeited | (1,458)(3,165) | |
Adjustment for performance conditions of PBRSUs (1) | (2,551)(634) | |
Nonvested at September 30, 20212022 (2) | 213,883204,891 | |
(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 and TBRSUs. As of September 30, 2021,2022, an aggregate of 197,311203,578 PBRSUs and TBRSUs are expected to vest.
A summary of awards vested during the three months and the nine months ended September 30, 20212022 and 20202021 follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
PBRSU and TBRSU vested | | 4,427 | | 6,205 | | | 48,106 | | 44,379 | |
PBRSUs and TBRSUs vested | | PBRSUs and TBRSUs vested | | 7,049 | | 4,427 | | 55,464 | | 48,106 |
Common shares withheld to satisfy employee income tax withholding obligations | Common shares withheld to satisfy employee income tax withholding obligations | | 1,348 | | 1,860 | | | 18,429 | | 14,036 | Common shares withheld to satisfy employee income tax withholding obligations | | 2,559 | | 1,348 | | 21,217 | | 18,429 |
Net common shares issued | Net common shares issued | | 3,079 | | | 4,345 | | | 29,677 | | | 30,343 | | Net common shares issued | | 4,490 | | 3,079 | | 34,247 | | 29,677 |
Share-based compensation expense of $1.4 million and $1.2 million was recognized for each of the three-month periods ended September 30, 2022 and 2021, and 2020,respectively, and share-based compensation expense of $4.5$4.8 million and $3.7$4.5 million was recognized for the nine-month periods ended September 30, 20212022 and 2020,2021, respectively.
The following table details expected additional share-based compensation expense related to PBRSUs and TBRSUs outstanding at September 30, 2021:2022:
| (In thousands) | (In thousands) | | (In thousands) | |
Three months ending December 31, 2021 | | $ | 1,204 | | |
2022 | | 3,971 | | |
Three months ending December 31, 2022 | | Three months ending December 31, 2022 | | $ | 1,392 | |
2023 | 2023 | | 2,563 | | 2023 | | 4,487 | |
2024 | 2024 | | 1,059 | | 2024 | | 2,939 | |
2025 | 2025 | | 169 | | 2025 | | 1,228 | |
2026 | | 2026 | | 197 | |
Total | Total | | $ | 8,966 | | Total | | $ | 10,243 | |
Note 19 – Benefit Plans
Park has a noncontributory defined benefit pension plan (the "Pension Plan") covering substantially all of its employees. The Pension Plan provides benefits based on an employee’s years of service and compensation.
There were no Pension Plan contributions for any of the three-month or the nine-month periods ended September 30, 20212022 and 2020.2021. Additionally, no contributions are expected to be made during the remainder of 2022.
The following table shows the components of net periodic pension benefit (income) expense:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Affected Line Item in the Consolidated Condensed Statements of Income | | Three Months Ended September 30, | | Nine Months Ended September 30, | Affected Line Item in the Consolidated Condensed Statements of Income |
(In thousands) | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 | (In thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Service cost | Service cost | | $ | 2,479 | | | $ | 2,080 | | | $ | 7,437 | | | $ | 6,240 | | Employee benefits | Service cost | | $ | 2,437 | | | $ | 2,479 | | | $ | 7,311 | | | $ | 7,437 | | Employee benefits |
Interest cost | Interest cost | | 1,340 | | | 1,320 | | | 4,020 | | | 3,960 | | Other components of net periodic pension benefit income | Interest cost | | 1,426 | | | 1,340 | | | 4,278 | | | 4,020 | | Other components of net periodic pension benefit income |
Expected return on plan assets | Expected return on plan assets | | (3,933) | | | (3,602) | | | (11,799) | | | (10,806) | | Other components of net periodic pension benefit income | Expected return on plan assets | | (4,449) | | | (3,933) | | | (13,347) | | | (11,799) | | Other components of net periodic pension benefit income |
Recognized net actuarial loss and prior service costs | | 555 | | | 294 | | | 1,665 | | | 882 | | Other components of net periodic pension benefit income | |
Net periodic pension benefit expense | | $ | 441 | | | $ | 92 | | | $ | 1,323 | | | $ | 276 | | | |
Recognized net actuarial (gain) loss and prior service costs | | Recognized net actuarial (gain) loss and prior service costs | | (4) | | | 555 | | | (12) | | | 1,665 | | Other components of net periodic pension benefit income |
Net periodic pension benefit (income) expense | | Net periodic pension benefit (income) expense | | $ | (590) | | | $ | 441 | | | $ | (1,770) | | | $ | 1,323 | | |
Park has entered into Supplemental Executive Retirement Plan Agreements (the “SERP Agreements”) with certain key officers of the CorporationPark and its subsidiaries which provide defined pension benefits in excess of limits imposed by federal tax law. The expense
for the Corporation related to the SERP Agreements for the three months and the nine months ended September 30, 20212022 and 20202021 was as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Affected Line Item in the Consolidated Condensed Statements of Income | | Three Months Ended September 30, | | Nine Months Ended September 30, | Affected Line Item in the Consolidated Condensed Statements of Income |
(In thousands) | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 | (In thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Service cost | Service cost | | $ | 203 | | | $ | 218 | | | $ | 611 | | | $ | 801 | | Employee benefits | Service cost | | $ | 212 | | | $ | 203 | | | 637 | | | $ | 611 | | Employee benefits |
Interest cost | Interest cost | | 150 | | | 134 | | | 448 | | | 401 | | Miscellaneous expense | Interest cost | | 183 | | | 150 | | | 549 | | | 448 | | Miscellaneous expense |
Total SERP expense | Total SERP expense | | $ | 353 | | | $ | 352 | | | $ | 1,059 | | | $ | 1,202 | | | Total SERP expense | | $ | 395 | | | $ | 353 | | | $ | 1,186 | | | $ | 1,059 | | |
Note 20 – 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: Level 1 inputs for assets or liabilities that are not actively traded. Also consists of an observable market price for a similar asset or liability. This includes the use of “matrix pricing” to value debt securities absent the exclusive use of quoted prices.
•Level 3: Consists of unobservable inputs that are used to measure fair value when observable market inputs are not available. 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 table presents assets and liabilities measured at fair value on a recurring basis:
| Fair Value Measurements at September 30, 2021 using: | |
Fair Value Measurements at September 30, 2022 using: | | Fair Value Measurements at September 30, 2022 using: |
(In thousands) | (In thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at September 30, 2021 | (In thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at September 30, 2022 |
Assets | Assets | | | | | | | | | Assets | | | | | | | | |
Investment securities: | Investment securities: | | | | | | | | | Investment securities: | | | | | | | | |
Obligations of U.S. Treasury and other U.S. Government sponsored entities | | Obligations of U.S. Treasury and other U.S. Government sponsored entities | | $ | — | | | $ | 38,122 | | | $ | — | | | $ | 38,122 | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | | $ | — | | | $ | 299,094 | | | $ | — | | | $ | 299,094 | | Obligations of states and political subdivisions | | — | | | 393,918 | | | — | | | 393,918 | |
U.S. Government sponsored entities’ asset-backed securities | U.S. Government sponsored entities’ asset-backed securities | | — | | | 857,149 | | | — | | | 857,149 | | U.S. Government sponsored entities’ asset-backed securities | | — | | | 784,863 | | | — | | | 784,863 | |
Collateralized loan obligations | Collateralized loan obligations | | 387,682 | | | — | | | — | | | 387,682 | | Collateralized loan obligations | | — | | | 509,058 | | | — | | | 509,058 | |
Corporate debt securities | Corporate debt securities | | — | | | 9,293 | | | — | | | 9,293 | | Corporate debt securities | | — | | | 16,162 | | | — | | | 16,162 | |
Equity securities | Equity securities | | 1,579 | | | — | | | 491 | | | 2,070 | | Equity securities | | 1,277 | | | — | | | 469 | | | 1,746 | |
Mortgage loans held for sale | Mortgage loans held for sale | | — | | | 8,944 | | | — | | | 8,944 | | Mortgage loans held for sale | | — | | | 1,928 | | | — | | | 1,928 | |
Mortgage IRLCs | Mortgage IRLCs | | — | | | 404 | | | — | | | 404 | | Mortgage IRLCs | | — | | | 102 | | | — | | | 102 | |
Loan interest rate swaps | Loan interest rate swaps | | — | | | 2,258 | | | — | | | 2,258 | | Loan interest rate swaps | | — | | | 1,622 | | | — | | | 1,622 | |
| Liabilities | Liabilities | | | | | | | | | Liabilities | | | | | | | | |
Fair value swap | Fair value swap | | $ | — | | | $ | — | | | $ | 226 | | | $ | 226 | | Fair value swap | | $ | — | | | $ | — | | | $ | 243 | | | $ | 243 | |
Borrowing interest rate swap | Borrowing interest rate swap | | — | | | 436 | | | — | | | 436 | | Borrowing interest rate swap | | — | | | — | | | — | | | — | |
Loan interest rate swaps | Loan interest rate swaps | | — | | | 2,258 | | | — | | | 2,258 | | Loan interest rate swaps | | — | | | 1,622 | | | — | | | 1,622 | |
| Fair Value Measurements at December 31, 2020 using: | |
Fair Value Measurements at December 31, 2021 using: | | Fair Value Measurements at December 31, 2021 using: |
(In thousands) | (In thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at December 31, 2020 | (In thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at December 31, 2021 |
Assets | Assets | | | | | | | | | Assets | | | | | | | | |
Investment securities: | Investment securities: | | | | | | | | | Investment securities: | | | | | | | | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | | $ | — | | | $ | 305,218 | | | $ | — | | | $ | 305,218 | | Obligations of states and political subdivisions | | $ | — | | | $ | 389,591 | | | $ | — | | | $ | 389,591 | |
U.S. Government sponsored entities’ asset-backed securities | U.S. Government sponsored entities’ asset-backed securities | | — | | | 752,109 | | | — | | | 752,109 | | U.S. Government sponsored entities’ asset-backed securities | | — | | | 854,463 | | | — | | | 854,463 | |
Collateralized loan obligations | | Collateralized loan obligations | | — | | | 498,674 | | | — | | | 498,674 | |
Corporate debt securities | Corporate debt securities | | — | | | 2,014 | | | — | | | 2,014 | | Corporate debt securities | | — | | | 11,412 | | | — | | | 11,412 | |
Equity securities | Equity securities | | 2,026 | | | — | | | 485 | | | 2,511 | | Equity securities | | 1,630 | | | — | | | 499 | | | 2,129 | |
Mortgage loans held for sale | Mortgage loans held for sale | | — | | | 31,666 | | | — | | | 31,666 | | Mortgage loans held for sale | | — | | | 9,387 | | | — | | | 9,387 | |
Mortgage IRLCs | Mortgage IRLCs | | — | | | 1,545 | | | — | | | 1,545 | | Mortgage IRLCs | | — | | | 333 | | | — | | | 333 | |
Loan interest rate swaps | Loan interest rate swaps | | — | | | 3,934 | | | — | | | 3,934 | | Loan interest rate swaps | | — | | | 1,952 | | | — | | | 1,952 | |
| Liabilities | Liabilities | | | | | | | | | Liabilities | | | | | | | | |
Fair value swap | Fair value swap | | $ | — | | | $ | — | | | $ | 226 | | | $ | 226 | | Fair value swap | | $ | — | | | $ | — | | | $ | 226 | | | $ | 226 | |
Borrowing interest rate swap | Borrowing interest rate swap | | — | | | 885 | | | — | | | 885 | | Borrowing interest rate swap | | — | | | 262 | | | — | | | 262 | |
Loan interest rate swaps | Loan interest rate swaps | | — | | | 3,934 | | | — | | | 3,934 | | Loan interest rate swaps | | — | | | 1,952 | | | — | | | 1,952 | |
The following methods and assumptions were used by the Company in determining the fair value of the financial assets and liabilities discussed above:
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 discounted cash flows (Level 3).
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.losses and is classified as 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 below present a reconciliation of the beginning and ending balances of the Level 3 inputs for the three-month and nine-monthnine-month periods ended September 30, 20212022 and 2020,2021, for financial instruments measured on a recurring basis and classified as Level 3:
| Level 3 Fair Value Measurements | Level 3 Fair Value Measurements | Level 3 Fair Value Measurements |
Three months ended September 30, 2021 and 2020 | |
Three months ended September 30, 2022 and 2021 | | Three months ended September 30, 2022 and 2021 |
(In thousands) | (In thousands) | | Equity Securities | | Fair value swap | (In thousands) | | Equity securities | | Fair value swap |
Balance at July 1, 2022 | | Balance at July 1, 2022 | | $ | 491 | | | $ | (447) | |
Total losses | | Total losses | | | | |
Included in other income / expense | | Included in other income / expense | | (22) | | | — | |
Purchases, sales, issuances and settlements, other, net | | Purchases, sales, issuances and settlements, other, net | | — | | | 204 | |
Balance at September 30, 2022 | | Balance at September 30, 2022 | | $ | 469 | | | $ | (243) | |
| Balance at July 1, 2021 | Balance at July 1, 2021 | | $ | 490 | | | $ | (226) | | Balance at July 1, 2021 | | $ | 490 | | | $ | (226) | |
Total gains | Total gains | | | | | Total gains | | | | |
Included in other income | Included in other income | | 1 | | | — | | Included in other income | | 1 | | | — | |
Balance at September 30, 2021 | Balance at September 30, 2021 | | $ | 491 | | | $ | (226) | | Balance at September 30, 2021 | | $ | 491 | | | $ | (226) | |
| Balance at July 1, 2020 | | $ | 471 | | | $ | (226) | | |
Total gains | | | | | |
Included in other income | | 13 | | | — | | |
Balance at September 30, 2020 | | $ | 484 | | | $ | (226) | | |
| | | | | | | | | | | | | | |
Level 3 Fair Value Measurements |
Nine months ended September 30, 2021 and 2020 |
(In thousands) | | Equity Securities | | Fair value swap |
Balance at January 1, 2021 | | $ | 485 | | | $ | (226) | |
Total gains | | | | |
Included in other income | | 6 | | | — | |
Balance at September 30, 2021 | | $ | 491 | | | $ | (226) | |
| | | | |
Balance at January 1, 2020 | | $ | 456 | | | $ | (226) | |
Total gains | | | | |
Included in other income | | 28 | | | — | |
Balance at September 30, 2020 | | $ | 484 | | | $ | (226) | |
| | | | | | | | | | | | | | |
Level 3 Fair Value Measurements |
Nine months ended September 30, 2022 and 2021 |
(In thousands) | | Equity securities | | Fair value swap |
Balance at January 1, 2022 | | $ | 499 | | | $ | (226) | |
Total losses | | | | |
Included in other income / expense | | (30) | | | (221) | |
Purchases, sales, issuances and settlements, other, net | | — | | | 204 | |
Balance at September 30, 2022 | | $ | 469 | | | $ | (243) | |
| | | | |
Balance at January 1, 2021 | | $ | 485 | | | $ | (226) | |
Total gains | | | | |
Included in other income | | 6 | | | — | |
Balance at September 30, 2021 | | $ | 491 | | 491 | $ | (226) | |
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:
Impaired Loans:Individually evaluated collateral dependent loans: When a loan is considered impaired,individually evaluated, it is valued at the lower of cost or fair value. Collateral dependent impaired loans which are individually evaluated and carried at fair value have been partially charged-offcharged off or receive specific 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 client and the client’s business, resulting in a Level 3 fair value classification. ImpairedIndividually evaluated loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Additionally, updated independent valuations are obtained annually for all impairedcollateral dependent loans in accordance with Company policy.
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 impaired 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 properties.
•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.
Other repossessed assets: Other repossessed assets are initially recorded at fair value less costs to sell when acquired. The carrying value of other repossessed assets 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. As of September 30, 2021 andAt December 31, 2020,2021, other repossessed assets primarily consisted of aircraft acquired as part of a loan workout. Fair value is based on Aircraft Bluebook and VREF Aircraft Value Reference values based on the model of aircraft and adjustments for flight hours, features and other variables. Such adjustments result in a Level 3 classification of the inputs for determining fair value. There were no repossessed assets carried at fair value at September 30, 2022.
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. CollateralIndividually evaluated collateral dependent impaired 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 September 30, 20212022 and December 31, 2020,2021, there were no PCD 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 September 30, 2021 using: | |
Fair Value Measurements at September 30, 2022 using: | | Fair Value Measurements at September 30, 2022 using: |
(In thousands) | (In thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at September 30, 2021 | (In thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at September 30, 2022 |
Impaired loans recorded at fair value: | | | | | | | | | |
Individually evaluated collateral dependent loans recorded at fair value: | | Individually evaluated collateral dependent loans recorded at fair value: | | | | | | | | |
Commercial real estate | Commercial real estate | | $ | — | | | $ | — | | | $ | 571 | | | $ | 571 | | Commercial real estate | | $ | — | | | $ | — | | | $ | 4,685 | | | $ | 4,685 | |
Residential real estate | Residential real estate | | — | | | — | | | 277 | | | 277 | | Residential real estate | | — | | | — | | | 204 | | | 204 | |
Total impaired loans recorded at fair value | | $ | — | | | $ | — | | | $ | 848 | | | $ | 848 | | |
Total individually evaluated collateral dependent loans recorded at fair value | | Total individually evaluated collateral dependent loans recorded at fair value | | $ | — | | | $ | — | | | $ | 4,889 | | | $ | 4,889 | |
| MSRs | MSRs | | $ | — | | | $ | 14,286 | | | $ | — | | | $ | 14,286 | | MSRs | | $ | — | | | $ | 1,673 | | | $ | — | | | $ | 1,673 | |
| OREO recorded at fair value: | OREO recorded at fair value: | | OREO recorded at fair value: | |
Residential real estate | Residential real estate | | — | | | — | | | 735 | | | 735 | | Residential real estate | | — | | | — | | | — | | | — | |
Total OREO recorded at fair value | Total OREO recorded at fair value | | $ | — | | | $ | — | | | $ | 735 | | | $ | 735 | | Total OREO recorded at fair value | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Other repossessed assets | Other repossessed assets | | $ | — | | | $ | — | | | $ | 3,164 | | | $ | 3,164 | | Other repossessed assets | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Fair Value Measurements at December 31, 2020 using: | |
Fair Value Measurements at December 31, 2021 using: | | Fair Value Measurements at December 31, 2021 using: |
(In thousands) | (In thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at December 31, 2020 | (In thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at December 31, 2021 |
Impaired loans recorded at fair value: | | | | | | | | | |
Individually evaluated collateral dependent loans recorded at fair value: | | Individually evaluated collateral dependent loans recorded at fair value: | | | | | | | | |
Commercial real estate | Commercial real estate | | $ | — | | | $ | — | | | $ | 6,749 | | | $ | 6,749 | | Commercial real estate | | $ | — | | | $ | — | | | $ | 831 | | | $ | 831 | |
Residential real estate | Residential real estate | | — | | | — | | | 175 | | | 175 | | Residential real estate | | — | | | — | | | 272 | | | 272 | |
Total impaired loans recorded at fair value | | $ | — | | | $ | — | | | $ | 6,924 | | | $ | 6,924 | | |
Total individually evaluated collateral dependent loans recorded at fair value | | Total individually evaluated collateral dependent loans recorded at fair value | | $ | — | | | $ | — | | | $ | 1,103 | | | $ | 1,103 | |
| MSRs | MSRs | | $ | — | | | $ | 12,179 | | | $ | — | | | $ | 12,179 | | MSRs | | $ | — | | | $ | 13,482 | | | $ | — | | | $ | 13,482 | |
| OREO recorded at fair value: | OREO recorded at fair value: | | OREO recorded at fair value: | |
Residential real estate | Residential real estate | | — | | | — | | | 735 | | | 735 | | Residential real estate | | — | | | — | | | 775 | | | 775 | |
Total OREO recorded at fair value | Total OREO recorded at fair value | | $ | — | | | $ | — | | | $ | 735 | | | $ | 735 | | Total OREO recorded at fair value | | $ | — | | | $ | — | | | $ | 775 | | | $ | 775 | |
| Other repossessed assets | Other repossessed assets | | $ | — | | | $ | — | | | $ | 3,164 | | | $ | 3,164 | | Other repossessed assets | | $ | — | | | $ | — | | | $ | 2,750 | | | $ | 2,750 | |
The table below provides additional detail on those impairedindividually evaluated loans which are recorded at fair value as well as the remaining impairedindividually evaluated loan portfolio not included above. The remaining impairedindividually 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 |
(In thousands) | | Loan Balance | | Prior Charge-Offs | | Specific Valuation Allowance | | Carrying Balance |
Impaired loans recorded at fair value | | $ | 1,028 | | | $ | 240 | | | $ | 180 | | | $ | 848 | |
Remaining impaired loans | | 78,236 | | | 448 | | | 3,286 | | | 74,950 | |
Total impaired loans | | $ | 79,264 | | | $ | 688 | | | $ | 3,466 | | | $ | 75,798 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 |
(In thousands) | | Loan Balance | | Prior Charge-Offs | | Specific Valuation Allowance | | Carrying Balance |
Total individually evaluated collateral dependent loans recorded at fair value | | $ | 6,042 | | | $ | 543 | | | $ | 1,153 | | | $ | 4,889 | |
Remaining individually evaluated loans | | 37,628 | | | 252 | | | 597 | | | 37,031 | |
Total individually evaluated loans | | $ | 43,670 | | | $ | 795 | | | $ | 1,750 | | | $ | 41,920 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
(In thousands) | | Recorded Investment | | Prior Charge-Offs | | Specific Valuation Allowance | | Carrying Balance |
Impaired loans recorded at fair value | | $ | 8,256 | | | $ | 269 | | | $ | 1,332 | | | $ | 6,924 | |
Remaining impaired loans | | 100,199 | | | 386 | | | 4,102 | | | 96,097 | |
Total impaired loans | | $ | 108,455 | | | $ | 655 | | | $ | 5,434 | | | $ | 103,021 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
(In thousands) | | Loan Balance | | Prior Charge-Offs | | Specific Valuation Allowance | | Carrying Balance |
Total individually evaluated collateral dependent loans recorded at fair value | | $ | 1,291 | | | $ | 240 | | | $ | 188 | | | $ | 1,103 | |
Remaining individually evaluated loans | | 73,211 | | | 384 | | | 1,428 | | | 71,783 | |
Total individually evaluated loans | | $ | 74,502 | | | $ | 624 | | | $ | 1,616 | | | $ | 72,886 | |
The income (expense) income from credit adjustments related to impairedindividually evaluated loans carried at fair value was $(83,000)$7,000 and $(3.1) million$(83,000) for the three-month periods ended September 30, 20212022 and 2020,2021, respectively, and was $462,000$(1.0) million and $(3.5) million$462,000 for the nine-month periods ended September 30, 20212022 and 2020,2021, respectively.
MSRs totaled $14.6$16.2 million at September 30, 2021.2022. Of this $14.6$16.2 million MSR carrying balance, $14.3$1.7 million waswere recorded at fair value and included a valuation allowance of $2.2$0.2 million. The remaining $0.3$14.5 million waswere recorded at cost, as the fair value exceeded cost at September 30, 2021.2022. At December 31, 2020,2021, MSRs totaled $12.2$15.3 million. Of this $12.2$15.3 million MSR carrying balance, $12.2$13.5 million waswere recorded at fair value and included a valuation allowance of $3.2$1.6 million. The remaining $31,000 was$1.8 million were recorded at cost, as the fair value exceeded cost at December 31, 2020. 2021. The income (expense) income relatedrelated to MSRs carried at fair value during the three monthsthree-month periods ended September 30, 2022 and 2021 was $59,000 and 2020 was $(39,000) and $(198,000), respectively, and was $1.0$1.4 million and $(2.0)$1.0 million for the nine monthsnine-month periods ended September 30, 2022 and 2021, and 2020, respectively.
Total OREO held by Park at September 30, 20212022 and December 31, 20202021 was $0.8$1.4 million and $1.4 million, respectively. Approximately 90% and 51% of$775,000 respectively. At September 30, 2022, there was no OREO held by Park at September 30, 2021 and December 31, 2020, respectively,that was carried at fair value due to fair value adjustments made subsequent to the initial OREO measurement. At bothDecember 31, 2021, all of Park's OREO was carried at fair value. There was $12.0 million and $11.3 million of income related to OREO fair value adjustments for the three-month and the nine-month periods ended September 30, 2021 and December 31, 2020, OREO held at fair value, less estimated selling costs, amounted to $735,000. 2022, respectively. There was no income or expense related to OREO fair value adjustments for either of the three-month or nine-month periodsperiod ended September 30, 2021. The net2021. There was $13,000 of income related to OREO fair value adjustments was $115,000 and $80,000 for the three-month and nine-month periodsnine-month period ended September 30, 2020, respectively2021.
Other repossessed assets totaled $3.6$0.4 million at September 30, 2021,2022, of which $3.2 millionthere were no repossessed assets recorded at fair value. Other repossessed assets totaled $3.6$3.3 million at December 31, 2020,2021, of which $3.2$2.8 million were recorded at fair value. There was no expense related to fair value adjustments on other repossessed assets during eitherany of the three-month periods or the nine-month periods ended September 30, 2021. There was $207,000 of expense related to fair value adjustments on other repossessed assets during the three-month2022 and nine month periods ended September 30, 2020.
2021.
The following tables present qualitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at September 30, 20212022 and December 31, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 20212022 |
(In thousands) | | Fair Value | | Valuation Technique | | Unobservable Input(s) | | Range (Weighted Average) |
ImpairedIndividually evaluated collateral dependent loans: | | | | | | | | |
Commercial real estate | | $ | 5714,685 | | | Sales comparison approach | | Adj to comparables | | 0.0% - 232.0% (25.9%85.7% (11.9%) |
| | | | Income approach | | Capitalization rate | | 7.5% - 8.3% (8.1%) |
| | | | Cost approach | | Accumulated depreciation | | 26.0% (26.0%) |
| | | | | | | | |
Residential real estate | | $ | 277204 | | | Sales comparison approach | | Adj to comparables | | 0.5%1.9% - 64.3% (9.5%) |
| | | | Cost approach | | Accumulated depreciation | | 8.3% (8.3%) |
| | | | | | | | |
Other real estate owned: | | | | | | | | |
Residential real estate | | $ | 735 | | | Sales comparison approach | | Adj to comparables | | 5.0% - 32.5% (19.1%119.8% (17.4%) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 20202021 |
(In thousands) | | Fair Value | | Valuation Technique | | Unobservable Input(s) | | Range (Weighted Average) |
ImpairedIndividually evaluated collateral dependent loans: | | | | | | | | |
Commercial real estate | | $ | 6,749831 | | | Sales comparison approach | | Adj to comparables | | 0.0% - 139.0% (11.8%) |
| | | | Income approach | | Capitalization rate | | 9.3% - 20.0% (10.3%) |
| | | | Cost approach | | Entrepreneurial profit | | 10.0% (10.0%) |
| | | | Cost approach | | Accumulated depreciation | | 2.6% (2.6%232.0% (28.3%) |
| | | | | | | | |
Residential real estate | | $ | 175272 | | | Sales comparison approach | | Adj to comparables | | 2.0%0.5% - 47.8% (11.9%78.6% (11.6%) |
| | | | Cost approach | | Accumulated depreciation | | 8.3% (8.3%) |
| | | | | | | | |
Other real estate owned: | | | | | | | | |
| | | | | | | | |
Residential real estate | | $ | 735775 | | | Sales comparison approach | | Adj to comparables | | 7.8%5.0% - 9.9% (8.9%32.5% (19.1%) |
Assets Measured at Net Asset Value:
Park's portfolio of equity investments in limited partnerships which provide mezzanine funding ("Partnership Investments")Investments are valued using the NAV practical expedient in accordance with ASC 820.
At September 30, 20212022 and December 31, 2020,2021, Park had Partnership Investments with a NAV of $15.6$23.6 million and $15.4$18.0 million, respectively. At September 30, 20212022 and December 31, 2020,2021, Park had $5.7$20.0 million and $6.2$8.4 million, respectively, in unfunded commitments related to these Partnership Investments. For the three-month periods ended September 30, 20212022 and 2020,2021, Park recognized income of $513,000$97,000 and $1.3 million,$512,000, respectively, and for the nine-month periods ended September 30, 20212022 and 2020,2021, Park recognized income (expense) of $2.6 million and $2.4 million, and $(41,000), respectively, related to these Partnership Investments.
The fair value of certain financial instruments at September 30, 20212022 and December 31, 2020,2021, was as follows:
| | | September 30, 2021 | | September 30, 2022 |
| | | | | Fair Value Measurements | | | | | Fair Value Measurements |
(In thousands) | (In thousands) | | Carrying value | | Level 1 | | Level 2 | | Level 3 | | Total fair value | (In thousands) | | Carrying value | | Level 1 | | Level 2 | | Level 3 | | Total fair value |
Financial assets: | Financial assets: | | | | | | | | | | | Financial assets: | | | | | | | | | | |
Cash and money market instruments | Cash and money market instruments | | $ | 877,395 | | | $ | 877,395 | | | $ | — | | | $ | — | | | $ | 877,395 | | Cash and money market instruments | | $ | 207,433 | | | $ | 207,433 | | | $ | — | | | $ | — | | | $ | 207,433 | |
Investment securities (1) | Investment securities (1) | | 1,553,218 | | | 387,682 | | | 1,165,536 | | | — | | | 1,553,218 | | Investment securities (1) | | 1,742,123 | | | — | | | 1,742,123 | | | — | | | 1,742,123 | |
Other investment securities (2) | Other investment securities (2) | | 2,070 | | | 1,579 | | | — | | | 491 | | | 2,070 | | Other investment securities (2) | | 1,746 | | | 1,277 | | | — | | | 469 | | | 1,746 | |
| Mortgage IRLCs | | Mortgage IRLCs | | 102 | | | — | | | 102 | | | — | | | 102 | |
Mortgage loans held for sale | Mortgage loans held for sale | | 8,944 | | | — | | | 8,944 | | | — | | | 8,944 | | Mortgage loans held for sale | | 1,928 | | | — | | | 1,928 | | | — | | | 1,928 | |
Mortgage IRLCs | | 404 | | | — | | | 404 | | | — | | | 404 | | |
Impaired loans carried at fair value | | 848 | | | — | | | — | | | 848 | | | 848 | | |
Individually evaluated loans carried at fair value | | Individually evaluated loans carried at fair value | | 4,889 | | | — | | | — | | | 4,889 | | | 4,889 | |
Other loans, net | Other loans, net | | 6,810,092 | | | — | | | — | | | 6,834,592 | | | 6,834,592 | | Other loans, net | | 7,012,366 | | | — | | | — | | | 6,910,287 | | | 6,910,287 | |
Loans receivable, net | Loans receivable, net | | $ | 6,820,288 | | | $ | — | | | $ | 9,348 | | | $ | 6,835,440 | | | $ | 6,844,788 | | Loans receivable, net | | $ | 7,019,285 | | | $ | — | | | $ | 2,030 | | | $ | 6,915,176 | | | $ | 6,917,206 | |
| Financial liabilities: | Financial liabilities: | | | | | | | | | | | Financial liabilities: | | | | | | | | | | |
Time deposits | Time deposits | | $ | 725,203 | | | $ | — | | | $ | 749,710 | | | $ | — | | | $ | 749,710 | | Time deposits | | $ | 613,222 | | | $ | — | | | $ | 615,544 | | | $ | — | | | $ | 615,544 | |
Other | Other | | 5,389 | | | 5,389 | | | — | | | — | | | 5,389 | | Other | | 5,280 | | | 5,280 | | | — | | | — | | | 5,280 | |
Deposits (excluding demand deposits) | Deposits (excluding demand deposits) | | $ | 730,592 | | | $ | 5,389 | | | $ | 749,710 | | | $ | — | | | $ | 755,099 | | Deposits (excluding demand deposits) | | $ | 618,502 | | | $ | 5,280 | | | $ | 615,544 | | | $ | — | | | $ | 620,824 | |
| Short-term borrowings | Short-term borrowings | | $ | 235,979 | | | $ | — | | | $ | 235,979 | | | $ | — | | | $ | 235,979 | | Short-term borrowings | | $ | 189,493 | | | $ | — | | | $ | 189,493 | | | $ | — | | | $ | 189,493 | |
Subordinated notes | Subordinated notes | | 188,099 | | | — | | | 197,119 | | | — | | | 197,119 | | Subordinated notes | | 188,551 | | | — | | | 178,812 | | | — | | | 178,812 | |
| Derivative financial instruments - assets: | Derivative financial instruments - assets: | | Derivative financial instruments - assets: | |
Loan interest rate swaps | Loan interest rate swaps | | 2,258 | | | — | | | 2,258 | | | — | | | 2,258 | | Loan interest rate swaps | | $ | 1,622 | | | $ | — | | | $ | 1,622 | | | $ | — | | | $ | 1,622 | |
| Derivative financial instruments - liabilities: | Derivative financial instruments - liabilities: | | | | | | | | | | | Derivative financial instruments - liabilities: | | | | | | | | | | |
Fair value swap | Fair value swap | | 226 | | | — | | | — | | | 226 | | | 226 | | Fair value swap | | $ | 243 | | | $ | — | | | $ | — | | | $ | 243 | | | $ | 243 | |
Borrowing interest rate swap | Borrowing interest rate swap | | 436 | | | — | | | 436 | | | — | | | 436 | | Borrowing interest rate swap | | — | | | — | | | — | | | — | | | — | |
Loan interest rate swaps | Loan interest rate swaps | | 2,258 | | | — | | | 2,258 | | | — | | | 2,258 | | Loan interest rate swaps | | 1,622 | | | — | | | 1,622 | | | — | | | 1,622 | |
(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.
Table of Contents
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | | | Fair Value Measurements |
(In thousands) | | Carrying value | | Level 1 | | Level 2 | | Level 3 | | Total fair value |
Financial assets: | | | | | | | | | | |
Cash and money market instruments | | $ | 370,474 | | | $ | 370,474 | | | $ | — | | | $ | — | | | $ | 370,474 | |
Investment securities (1) | | 1,059,341 | | | — | | | 1,059,341 | | | — | | | 1,059,341 | |
Other investment securities (2) | | 2,511 | | | 2,026 | | | — | | | 485 | | | 2,511 | |
| | | | | | | | | | |
Mortgage loans held for sale | | 31,666 | | | — | | | 31,666 | | | — | | | 31,666 | |
Mortgage IRLCs | | 1,545 | | | — | | | 1,545 | | | — | | | 1,545 | |
Impaired loans carried at fair value | | 6,924 | | | — | | | — | | | 6,924 | | | 6,924 | |
Other loans, net | | 7,051,975 | | | — | | | — | | | 7,072,339 | | | 7,072,339 | |
Loans receivable, net | | $ | 7,092,110 | | | $ | — | | | $ | 33,211 | | | $ | 7,079,263 | | | $ | 7,112,474 | |
| | | | | | | | | | |
Financial liabilities: | | | | | | | | | | |
Time deposits | | $ | 864,573 | | | $ | — | | | $ | 870,804 | | | — | | | $ | 870,804 | |
Other | | 1,379 | | | 1,379 | | | — | | | — | | | 1,379 | |
Deposits (excluding demand deposits) | | $ | 865,952 | | | $ | 1,379 | | | $ | 870,804 | | | $ | — | | | $ | 872,183 | |
| | | | | | | | | | |
Short-term borrowings | | $ | 342,230 | | | $ | — | | | $ | 342,230 | | | $ | — | | | $ | 342,230 | |
Long-term debt | | 32,500 | | | — | | | 31,376 | | | — | | | 31,376 | |
Subordinated notes | | 187,774 | | | — | | | 179,147 | | | — | | | 179,147 | |
| | | | | | | | | | |
Derivative financial instruments - assets: | | | | | | | | | | |
Loan interest rate swaps | | 3,934 | | | — | | | 3,934 | | | — | | | 3,934 | |
| | | | | | | | | | |
Derivative financial instruments - liabilities: | | | | | | | | | | |
Fair value swap | | $ | 226 | | | $ | — | | | $ | — | | | $ | 226 | | | $ | 226 | |
Borrowing interest rate swap | | 885 | | | — | | | 885 | | | — | | | 885 | |
Loan interest rate swaps | | 3,934 | | | — | | | 3,934 | | | — | | | 3,934 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | | | Fair Value Measurements |
(In thousands) | | Carrying value | | Level 1 | | Level 2 | | Level 3 | | Total fair value |
Financial assets: | | | | | | | | | | |
Cash and money market instruments | | $ | 219,180 | | | $ | 219,180 | | | $ | — | | | $ | — | | | $ | 219,180 | |
Investment securities (1) | | 1,754,140 | | | — | | | 1,754,140 | | | — | | | 1,754,140 | |
Other investment securities (2) | | 2,129 | | | 1,630 | | | — | | | 499 | | | 2,129 | |
| | | | | | | | | | |
Mortgage loans held for sale | | 9,387 | | | — | | | 9,387 | | | — | | | 9,387 | |
Mortgage IRLCs | | 333 | | | — | | | 333 | | | — | | | 333 | |
Individually evaluated loans carried at fair value | | 1,103 | | | — | | | — | | | 1,103 | | | 1,103 | |
Other loans, net | | 6,777,102 | | | — | | | — | | | 6,783,848 | | | 6,783,848 | |
Loans receivable, net | | $ | 6,787,925 | | | $ | — | | | $ | 9,720 | | | $ | 6,784,951 | | | $ | 6,794,671 | |
| | | | | | | | | | |
Financial liabilities: | | | | | | | | | | |
Time deposits | | $ | 711,660 | | | $ | — | | | $ | 714,307 | | | — | | | $ | 714,307 | |
Other | | 1,465 | | | 1,465 | | | — | | | — | | | 1,465 | |
Deposits (excluding demand deposits) | | $ | 713,125 | | | $ | 1,465 | | | $ | 714,307 | | | $ | — | | | $ | 715,772 | |
| | | | | | | | | | |
Short-term borrowings | | $ | 238,786 | | | $ | — | | | $ | 238,786 | | | $ | — | | | $ | 238,786 | |
Subordinated notes | | 188,210 | | | — | | | 207,912 | | | — | | | 207,912 | |
| | | | | | | | | | |
Derivative financial instruments - assets: | | | | | | | | | | |
Loan interest rate swaps | | $ | 1,952 | | | $ | — | | | $ | 1,952 | | | $ | — | | | $ | 1,952 | |
| | | | | | | | | | |
Derivative financial instruments - liabilities: | | | | | | | | | | |
Fair value swap | | $ | 226 | | | $ | — | | | $ | — | | | $ | 226 | | | $ | 226 | |
Borrowing interest rate swap | | 262 | | | — | | | 262 | | | — | | | 262 | |
Loan interest rate swaps | | 1,952 | | | — | | | 1,952 | | | — | | | 1,952 | |
(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.
Note 21 - 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 Condensed Statements of Income. The following table presents the Corporation's sources of other income by revenue stream and operating segment for the three-month and the nine-month periods ended September 30, 20212022 and September 30, 2020.2021.
| | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 |
Revenue by Operating Segment (in thousands) | Revenue by Operating Segment (in thousands) | | PNB | | All Other | | Total | Revenue by Operating Segment (in thousands) | | PNB | | All Other | | Total |
Income from fiduciary activities | Income from fiduciary activities | | | | | | | Income from fiduciary activities | | | | | | |
Personal trust and agency accounts | Personal trust and agency accounts | | $ | 2,637 | | | $ | — | | | $ | 2,637 | | Personal trust and agency accounts | | $ | 2,411 | | | $ | — | | | $ | 2,411 | |
Employee benefit and retirement-related accounts | Employee benefit and retirement-related accounts | | 2,506 | | | — | | | 2,506 | | Employee benefit and retirement-related accounts | | 2,353 | | | — | | | 2,353 | |
Investment management and investment advisory agency accounts | Investment management and investment advisory agency accounts | | 3,220 | | | — | | | 3,220 | | Investment management and investment advisory agency accounts | | 3,000 | | | — | | | 3,000 | |
Other | Other | | 457 | | | — | | | 457 | | Other | | 452 | | | — | | | 452 | |
Service charges on deposit accounts | Service charges on deposit accounts | | Service charges on deposit accounts | |
Non-sufficient funds (NSF) fees | Non-sufficient funds (NSF) fees | | 1,498 | | | — | | | 1,498 | | Non-sufficient funds (NSF) fees | | 1,722 | | | — | | | 1,722 | |
Demand deposit account (DDA) charges | Demand deposit account (DDA) charges | | 762 | | | — | | | 762 | | Demand deposit account (DDA) charges | | 996 | | | — | | | 996 | |
Other | Other | | 129 | | | — | | | 129 | | Other | | 141 | | | — | | | 141 | |
Other service income (1) | Other service income (1) | | Other service income (1) | |
Credit card | Credit card | | 690 | | | 2 | | | 692 | | Credit card | | 734 | | | — | | | 734 | |
HELOC | HELOC | | 100 | | | — | | | 100 | | HELOC | | 103 | | | — | | | 103 | |
Installment | Installment | | 34 | | | — | | | 34 | | Installment | | 40 | | | — | | | 40 | |
Real estate | Real estate | | 5,418 | | | — | | | 5,418 | | Real estate | | 1,692 | | | — | | | 1,692 | |
Commercial | Commercial | | 281 | | | 143 | | | 424 | | Commercial | | 384 | | | 3 | | | 387 | |
Debit card fee income | Debit card fee income | | 6,453 | | | — | | | 6,453 | | Debit card fee income | | 6,514 | | | — | | | 6,514 | |
Bank owned life insurance income (2) | Bank owned life insurance income (2) | | 1,022 | | | 440 | | | 1,462 | | Bank owned life insurance income (2) | | 1,133 | | | 52 | | | 1,185 | |
ATM fees | ATM fees | | 622 | | | — | | | 622 | | ATM fees | | 610 | | | — | | | 610 | |
Gain on sale of OREO, net | Gain on sale of OREO, net | | 3 | | | — | | | 3 | | Gain on sale of OREO, net | | — | | | 5,607 | | | 5,607 | |
OREO valuation markup | | OREO valuation markup | | — | | | 12,009 | | | 12,009 | |
Gain on equity securities, net (2) | Gain on equity securities, net (2) | | 429 | | | 180 | | | 609 | | Gain on equity securities, net (2) | | 25 | | | 33 | | | 58 | |
Other components of net periodic pension benefit income (2) | Other components of net periodic pension benefit income (2) | | 1,987 | | | 51 | | | 2,038 | | Other components of net periodic pension benefit income (2) | | 2,955 | | | 72 | | | 3,027 | |
Miscellaneous (3) | Miscellaneous (3) | | 3,084 | | | 263 | | | 3,347 | | Miscellaneous (3) | | 3,653 | | | — | | | 3,653 | |
Total other income | Total other income | | $ | 31,332 | | | $ | 1,079 | | | $ | 32,411 | | Total other income | | $ | 28,918 | | | $ | 17,776 | | | $ | 46,694 | |
(1) Of the $3.0 million of aggregate revenue included within "Other service income", approximately $1.4 million is within the scope of ASC 606, with the remaining $1.6 million consisting primarily of certain residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $3.7 million, all of which are within scope of ASC 606.
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 |
Revenue by Operating Segment (in thousands) | | PNB | | All Other | | Total |
Income from fiduciary activities | | | | | | |
Personal trust and agency accounts | | $ | 2,637 | | | $ | — | | | $ | 2,637 | |
Employee benefit and retirement-related accounts | | 2,506 | | | — | | | 2,506 | |
Investment management and investment advisory agency accounts | | 3,220 | | | — | | | 3,220 | |
Other | | 457 | | | — | | | 457 | |
Service charges on deposit accounts | | | | | | |
Non-sufficient funds (NSF) fees | | 1,498 | | | — | | | 1,498 | |
Demand deposit account (DDA) charges | | 762 | | | — | | | 762 | |
Other | | 129 | | | — | | | 129 | |
Other service income (1) | | | | | | |
Credit card | | 690 | | | 2 | | | 692 | |
HELOC | | 100 | | | — | | | 100 | |
Installment | | 34 | | | — | | | 34 | |
Real estate | | 5,418 | | | — | | | 5,418 | |
Commercial | | 281 | | | 143 | | | 424 | |
Debit card fee income | | 6,453 | | | — | | | 6,453 | |
Bank owned life insurance income (2) | | 1,022 | | | 440 | | | 1,462 | |
ATM fees | | 622 | | | — | | | 622 | |
Gain on sale of OREO, net | | 3 | | | — | | | 3 | |
OREO valuation markup | | — | | | — | | | — | |
Gain on equity securities, net (2) | | 429 | | | 180 | | | 609 | |
Other components of net periodic pension benefit income (2) | | 1,987 | | | 51 | | | 2,038 | |
Miscellaneous (3) | | 3,084 | | | 263 | | | 3,347 | |
Total other income | | $ | 31,332 | | | $ | 1,079 | | | $ | 32,411 | |
(1) Of the $6.7 million of aggregate revenue included within "Other service income", approximately $1.3 million is within the scope of ASC 606, with the remaining $5.4 million consisting primarily of certain residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $3.3 million, all of which are within scope of ASC 606.
Table of Contents
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 |
Revenue by Operating Segment (in thousands) | | PNB | | All Other | | Total |
Income from fiduciary activities | | | | | | |
Personal trust and agency accounts | | $ | 2,290 | | | $ | — | | | $ | 2,290 | |
Employee benefit and retirement-related accounts | | 1,967 | | | — | | | 1,967 | |
Investment management and investment advisory agency accounts | | 2,695 | | | — | | | 2,695 | |
Other | | 383 | | | — | | | 383 | |
Service charges on deposit accounts | | | | | | |
Non-sufficient funds (NSF) fees | | 1,201 | | | — | | | 1,201 | |
Demand deposit account (DDA) charges | | 787 | | | — | | | 787 | |
Other | | 130 | | | — | | | 130 | |
Other service income (1) | | | | | | |
Credit card | | 487 | | | 1 | | | 488 | |
HELOC | | 108 | | | — | | | 108 | |
Installment | | 43 | | | — | | | 43 | |
Real estate | | 11,806 | | | — | | | 11,806 | |
Commercial | | 567 | | | 35 | | | 602 | |
Debit card fee income | | 5,853 | | | — | | | 5,853 | |
Bank owned life insurance income (2) | | 1,109 | | | 83 | | | 1,192 | |
ATM fees | | 491 | | | — | | | 491 | |
Gain on sale of OREO, net | | 198 | | | 371 | | | 569 | |
Net loss on sale of debt securities (2) | | (27) | | | — | | | (27) | |
Gain on equity securities, net (2) | | 739 | | | 462 | | | 1,201 | |
Other components of net periodic pension benefit income (2) | | 1,940 | | | 48 | | | 1,988 | |
Miscellaneous (3) | | 2,663 | | | 128 | | | 2,791 | |
Total other income | | $ | 35,430 | | | $ | 1,128 | | | $ | 36,558 | |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2022 |
Revenue by Operating Segment (in thousands) | | PNB | | All Other | | Total |
Income from fiduciary activities | | | | | | |
Personal trust and agency accounts | | $ | 7,681 | | | $ | — | | | $ | 7,681 | |
Employee benefit and retirement-related accounts | | 7,384 | | | — | | | 7,384 | |
Investment management and investment advisory agency accounts | | 9,403 | | | — | | | 9,403 | |
Other | | 1,404 | | | — | | | 1,404 | |
Service charges on deposit accounts | | | | | | |
Non-sufficient funds (NSF) fees | | 4,658 | | | — | | | 4,658 | |
Demand deposit account (DDA) charges | | 2,425 | | | — | | | 2,425 | |
Other | | 413 | | | — | | | 413 | |
Other service income (1) | | | | | | |
Credit card | | 2,091 | | | — | | | 2,091 | |
HELOC | | 297 | | | — | | | 297 | |
Installment | | 128 | | | — | | | 128 | |
Real estate | | 8,685 | | | — | | | 8,685 | |
Commercial | | 1,039 | | | 475 | | | 1,514 | |
Debit card fee income | | 19,371 | | | — | | | 19,371 | |
Bank owned life insurance income (2) | | 3,356 | | | 1,378 | | | 4,734 | |
ATM fees | | 1,725 | | | — | | | 1,725 | |
Gain on sale of OREO, net | | 4 | | | 5,607 | | | 5,611 | |
OREO valuation markup | | 30 | | | 12,009 | | | 12,039 | |
Gain on equity securities, net (2) | | 2,285 | | | 835 | | | 3,120 | |
Other components of net periodic pension benefit income (2) | | 8,864 | | | 217 | | | 9,081 | |
Miscellaneous (3) | | 8,177 | | | (398) | | | 7,779 | |
Total other income | | $ | 89,420 | | | $ | 20,123 | | | $ | 109,543 | |
(1) Of the $13.0$12.7 million of aggregate revenue included within "Other service income", approximately $1.3$4.3 million is within the scope of ASC 606, with the remaining $11.7$8.4 million consisting primarily of certain residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $2.8$7.8 million, all of which are within scope of ASC 606.
Table of Contents
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 |
Revenue by Operating Segment (in thousands) | | PNB | | All Other | | Total |
Income from fiduciary activities | | | | | | |
Personal trust and agency accounts | | $ | 7,650 | | | $ | — | | | $ | 7,650 | |
Employee benefit and retirement-related accounts | | 7,170 | | | — | | | 7,170 | |
Investment management and investment advisory agency accounts | | 9,345 | | | — | | | 9,345 | |
Other | | 1,397 | | | — | | | 1,397 | |
Service charges on deposit accounts | | | | | | |
Non-sufficient funds (NSF) fees | | 3,776 | | | — | | | 3,776 | |
Demand deposit account (DDA) charges | | 2,325 | | | — | | | 2,325 | |
Other | | 374 | | | — | | | 374 | |
Other service income (1) | | | | | | |
Credit card | | 1,906 | | | 2 | | | 1,908 | |
HELOC | | 288 | | | — | | | 288 | |
Installment | | 114 | | | — | | | 114 | |
Real estate | | 19,867 | | | — | | | 19,867 | |
Commercial | | 1,063 | | | 204 | | | 1,267 | |
Debit card fee income | | 19,297 | | | — | | | 19,297 | |
Bank owned life insurance income (2) | | 3,169 | | | 607 | | | 3,776 | |
ATM fees | | 1,807 | | | — | | | 1,807 | |
Loss on sale of OREO, net | | (26) | | | — | | | (26) | |
Gain on equity securities, net (2) | | 1,758 | | | 1,128 | | | 2,886 | |
Other components of net periodic pension benefit income (2) | | 5,960 | | | 154 | | | 6,114 | |
Miscellaneous (3) | | 8,018 | | | 385 | | | 8,403 | |
Total other income | | $ | 95,258 | | | $ | 2,480 | | | $ | 97,738 | |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 |
Revenue by Operating Segment (in thousands) | | PNB | | All Other | | Total |
Income from fiduciary activities | | | | | | |
Personal trust and agency accounts | | $ | 7,650 | | | $ | — | | | $ | 7,650 | |
Employee benefit and retirement-related accounts | | 7,170 | | | — | | | 7,170 | |
Investment management and investment advisory agency accounts | | 9,345 | | | — | | | 9,345 | |
Other | | 1,397 | | | — | | | 1,397 | |
Service charges on deposit accounts | | | | | | |
Non-sufficient funds (NSF) fees | | 3,776 | | | — | | | 3,776 | |
Demand deposit account (DDA) charges | | 2,325 | | | — | | | 2,325 | |
Other | | 374 | | | — | | | 374 | |
Other service income (1) | | | | | | |
Credit card | | 1,906 | | | 2 | | | 1,908 | |
HELOC | | 288 | | | — | | | 288 | |
Installment | | 114 | | | — | | | 114 | |
Real estate | | 19,867 | | | — | | | 19,867 | |
Commercial | | 1,063 | | | 204 | | | 1,267 | |
Debit card fee income | | 19,297 | | | — | | | 19,297 | |
Bank owned life insurance income (2) | | 3,169 | | | 607 | | | 3,776 | |
ATM fees | | 1,807 | | | — | | | 1,807 | |
Loss on sale of OREO, net | | (26) | | | — | | | (26) | |
OREO valuation markup | | 13 | | | — | | | 13 | |
Gain on equity securities, net (2) | | 1,758 | | | 1,128 | | | 2,886 | |
Other components of net periodic pension benefit income (2) | | 5,960 | | | 154 | | | 6,114 | |
Miscellaneous (3) | | 8,005 | | | 385 | | | 8,390 | |
Total other income | | $ | 95,258 | | | $ | 2,480 | | | $ | 97,738 | |
(1) Of the $23.4 million of aggregate revenue included within "Other service income", approximately $3.8 million is within the scope of ASC 606, with the remaining $19.6 million consisting primarily of certain residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $8.4 million, all of which are within scope of ASC 606.
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 |
Revenue by Operating Segment (in thousands) | | PNB | | All Other | | Total |
Income from fiduciary activities | | | | | | |
Personal trust and agency accounts | | $ | 6,550 | | | $ | — | | | $ | 6,550 | |
Employee benefit and retirement-related accounts | | 5,702 | | | — | | | 5,702 | |
Investment management and investment advisory agency accounts | | 7,852 | | | — | | | 7,852 | |
Other | | 1,137 | | | — | | | 1,137 | |
Service charges on deposit accounts | | | | | | |
Non-sufficient funds (NSF) fees | | 3,644 | | | — | | | 3,644 | |
Demand deposit account (DDA) charges | | 2,289 | | | — | | | 2,289 | |
Other | | 389 | | | — | | | 389 | |
Other service income (1) | | | | | | |
Credit card | | 1,544 | | | 4 | | | 1,548 | |
HELOC | | 319 | | | — | | | 319 | |
Installment | | 144 | | | — | | | 144 | |
Real estate | | 22,228 | | | — | | | 22,228 | |
Commercial | | 1,245 | | | 87 | | | 1,332 | |
Debit card fee income | | 16,373 | | | — | | | 16,373 | |
Bank owned life insurance income (2) | | 3,452 | | | 167 | | | 3,619 | |
ATM fees | | 1,341 | | | — | | | 1,341 | |
Gain on sale of OREO, net | | 843 | | | 371 | | | 1,214 | |
Net gain on sale of debt securities (2) | | 3,286 | | | — | | | 3,286 | |
Gain (loss) on equity securities, net (2) | | 113 | | | (862) | | | (749) | |
Other components of net periodic pension benefit income (2) | | 5,820 | | | 144 | | | 5,964 | |
Miscellaneous (3) | | 5,649 | | | 177 | | | 5,826 | |
Total other income | | $ | 89,920 | | | $ | 88 | | | $ | 90,008 | |
(1) Of the $25.6 million of aggregate revenue included within "Other service income", approximately $3.7 million is within the scope of ASC 606, with the remaining $21.9 million consisting primarily of certain residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $5.8 million, all of which are within 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 trust 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 itsthe Corporation's deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, 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"Other service income,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 itsthe 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 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements.
Risks and uncertainties that could cause actual results to differ materially include, without limitation:
•the ever-changing effects of the global novel coronavirus (COVID-19) pandemic - - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants or mutations thereof - - on economies (local, national and international), supply chains and financial markets, on the labor market, including the potential for a sustained reduction in labor force participation, and on our customers (including potential changes in their banking preferences and behaviors), counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social or other activities), the availability and effectiveness of vaccines, and the implementation of fiscal stimulus packages;
•the impact of future governmental and regulatory actions upon our participation in and execution of government programs related to the COVID-19 pandemic;
•Park's ability to execute our business plan successfully and within the expected timeframe as well as our ability to manage strategic initiatives in light of the impact of the COVID-19 pandemic and the various responses to the COVID-19 pandemic;initiatives;
•generalcurrent and future economic and financial market conditions, specifically in the real estate markets and the credit markets, either nationally or in the states in which Park and our subsidiaries do business, may experience a weaker recovery than anticipated,including the effects of higher unemployment rates, an acceleration in the pace of inflation, U.S. fiscal debt, budget and tax matters, geopolitical matters (including the impact of the Russia-Ukraine conflict and associated sanctions), and any slowdown in global economic growth, in addition to the continuing impact of the COVID-19 pandemic and recovery therefrom on our customers’ operations and financial condition, eitherany of which may result in adverse impacts on the demand for loan, deposit and other financial services, delinquencies, defaults and counterparties' inability to meet credit and other obligations and the possible impairment of collectability of loans;
•factors that can impact the performance of our loan portfolio, including changes in real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance, including any loans acquired in acquisition transactions;
•the effect of monetary and other fiscal policies (including the impact of money supply, andmarket interest rate policies and policies impacting inflation, of the Federal Reserve Board)Board, the U.S. Treasury and other governmental agencies) as well as disruption in the liquidity and functioning of U.S. financial markets, as a result of the COVID-19 pandemic and government policies implemented in response thereto, may adversely impact prepayment penalty income, mortgage banking income, income from fiduciary activities, the value of securities, deposits and other financial instruments, in addition to the loan demand and the performance of our loan portfolio, and the interest rate sensitivity of our consolidated balance sheet as well as reduce interest margins;
•changes in the federal, state, or local tax laws may adversely affect the fair values of net deferred tax assets and obligations of state and political subdivisions held in Park's investment securities portfolio and otherwise negatively impact our financial performance;
•the impact of the results of the 2020 U.S. elections,changes in federal, state and local governmental policy, including on the regulatory landscape, capital markets, elevated government debt, potential changes in tax policy,legislation that may increase tax rates, infrastructure spending and social programs;
•changes in laws or requirements imposed by Park's regulators impacting Park's capital actions, including dividend payments and stock repurchases;
•changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior,behaviors, changes in business and economic conditions, (including as a result of the COVID-19 pandemic and reactions thereto), legislative and regulatory initiatives, (including those undertaken in response to the COVID-19 pandemic), or other factors may be different than anticipated;
•changes in unemployment levels in the states in which Park and our subsidiaries do business may be different than anticipated due to the continuing impact of the COVID-19 pandemic;
•changes in customers', suppliers', and other counterparties' performance and creditworthiness, and Park's expectations regarding future credit losses and our allowance for credit losses, may be different than anticipated due to the continuing impact of and the various responses to the COVID-19 pandemic;inflationary pressures;
•Park may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;
•the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;
•the adequacy of our internal controls and risk management program in the event of changes in the market, economic, operational (including those which may result from more of our associates working remotely), asset/liability repricing, legal, compliance, strategic, cybersecurity, liquidity, credit and interest rate risks associated with Park's business;
•competitive pressures among financial services organizations could increase significantly, including product and pricing pressures (which could in turn impact our credit spreads), changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and ourPark's ability to attract, develop and retain qualified banking professionals;
•uncertainty regarding the nature, timing, cost and effect of changes in banking regulations or other regulatory or legislative requirements affecting the respective businesses of Park and our subsidiaries, including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry, specifically the reforms provided for in the Coronavirus Aid, Relief and Economic Security (CARES) Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the Basel III regulatory capital reforms, as well as regulations already adopted and which may be adopted in the future by the relevant regulatory agencies, including the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve Board, to implement the provisions of the CARES Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the provisions of the American Rescue Plan Act of 2021, the provisions of the Dodd-Frank Act, and the Basel III regulatory capital reforms;
•the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (the "FASB"), the SEC, the Public Company Accounting Oversight Board and other regulatory agencies, may adversely affect Park's reported financial condition or results of operations;
•Park's assumptions and estimates used in applying critical accounting policies and modeling, including under the CECL model, which may prove unreliable, inaccurate or not predictive of actual results;
•the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions;
•the impact of Park's ability to anticipate and respond to technological changes on Park's ability to respond to customer needs and meet competitive demands;
•operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Park and our subsidiaries are highly dependent;
•the ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Park's third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Park and/or result in Park incurring a financial loss;
•a failure in or breach of Park's operational or security systems or infrastructure, or those of our third-party vendors and other service providers, resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems, including as a result of cyber attacks;
•the impact on Park's business and operating results of any costs associated with obtaining rights in intellectual property claimed by others and of adequacy of Park's intellectual property protection in general;
•the existence or exacerbation of general geopolitical instability and uncertainty as well as the effect of trade policies (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, closing of border crossings and changes in the relationship of the U.S. and its global trading partners);
•the impact on financial markets and the economy of any changes in the credit ratings of the U.S. Treasury obligations and other U.S. government-backed debt, as well as issues surrounding the levels of U.S., European and Asian government debt and concerns regarding the growth rates and financial stability of certain sovereign governments,
supranationals and financial institutions in Europe and Asia and the risk they may face difficulties servicing their sovereign debt;
•the effect of a fall in stock market prices on Park's asset and wealth management businesses;
•our litigation and regulatory compliance exposure, including the costs and effects of any adverse developments in legal proceedings or other claims and the costs and effects of unfavorable resolution of regulatory and other governmental examinations or other inquiries;
•continued availability of earnings and excess capital sufficient for the lawful and prudent declaration of dividends;
•the impact on Park's business, personnel, facilities or systems of losses related to acts of fraud, scams and schemes of third parties;
•the impact of widespread natural and other disasters, pandemics (including the COVID-19 pandemic), dislocations, regional or national protests and civil unrest (including any resulting branch closures or damages), military or terrorist activities or international hostilities (especially in light of the Russia-Ukraine conflict) on the economy and financial markets generally and on us or our counterparties specifically;
•anya worsening of the foregoing factors,U.S. economy due to financial, political, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially affect our business, including our customers' willingness to conduct banking transactions and their ability to pay on existing obligations;shocks;
•the effect of healthcare laws in the U.S. and potential changes for such laws, especially in light of the COVID-19 pandemic, which may increase our healthcare and other costs and negatively impact our operations and financial results;
•risk and uncertainties associated with Park's entry into new geographic markets with our most recent acquisitions, including expected revenue synergies and cost savings from recent acquisitions not being fully realized or realized within the expected time frame;
•uncertainty surrounding the discontinuation oftransition from the London Inter-Bank Offered Rate (LIBOR) and otherto an alternate reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;rate;
•and other risk factors relating to the banking industry as detailed from time to time in Park's reports filed with the SEC including those described in "Item 1A. Risk Factors" of Part I of Park's Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.
Park does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions that may be made to update any forward-looking statement to reflect the events or circumstances after the date on which the forward-looking statement was made, or reflect the occurrence of unanticipated events, except to the extent required by applicable law.
Non-GAAP Financial Measures
This Management's Discussion and Analysis (or "MD&A") 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 measure, as well as the reconciliation to the comparable U.S. GAAP financial measure, 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), gain (loss)gains (losses) on equity securities, net, and asset valuation writedowns,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-GAAP RatiosFinancial Measures
Park's management uses certain non-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 the tangible book value per share.share and pre-tax, pre-provision net income.
Management has included in the tables included within the "Items Impacting Comparability" section of this MD&A information relating to the annualized return on average tangible equity, and the annualized return on average tangible assets, the tangible equity to tangible assets ratio, tangible book value per share and pre-tax, pre-provision net income for the three months and the nine months ended and at September 30, 20212022 and September 30, 2020.2021. For purposesthe purpose of calculating the annualized return on average tangible equity, a non-GAAP financial measure, net income for each period is divided by average tangible equity during the period. Average tangible equity equals average shareholders' equity during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating the annualized return on average tangible assets, a non-GAAP financial measure, net income for each period is divided by average tangible assets during the period. Average tangible assets equals average assets during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating the tangible equity to tangible assets ratio, a non-GAAP financial measure, tangible equity is divided by tangible assets. Tangible equity equals total shareholders' equity less goodwill and other intangible assets, in each case at period end. Tangible assets equal total assets less goodwill and other intangible assets, in each case at period end. For the purpose of calculating tangible book value per share, a non-GAAP financial measure, tangible equity is divided by the number of common shares outstanding, in each case at period end. For the purpose of calculating pre-tax, pre-provision net income, a non-GAAP financial measure, income taxes and the provision for (recovery of) credit losses are added back to net income, in each case during the applicable period.
Management believes that the disclosure of the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio, and the tangible book value per share 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 "Items Impacting Comparability" section of this MD&A, Park has provided a reconciliation of average tangible equity to average shareholders' equity, average tangible assets to average assets, tangible equity to total shareholders' equity, and tangible assets to total assets, and pre-tax, pre-provision net income to net income solely for the purpose of complying with SEC Regulation G and not as an indication that the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio, and the tangible book value per share and pre-tax, pre-provision net income are substitutes for the annualized return on average equity, the annualized return on average assets, the total shareholders' equity to total assets ratio, and the book value per share and net income, respectively, as determined in accordance with U.S. GAAP.
FTE (fully taxable equivalent) RatiosFinancial Measures
Interest income, yields, and ratios on a FTE basis are considered non-U.S. GAAPnon-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 corporate income tax rate of 21 percent. In the tables included within the "Items Impacting Comparability" section of this MD&A, Park has provided detaila reconciliation of FTE interest income solely for the purpose of complying with SEC Regulation G and not as an indication that FTE interest income, yields and ratios are substitutes for interest income, yields and ratios, as determined in accordance with U.S. GAAP.
Paycheck Protection Program ("PPP") Loans
Through September 30, 2021, Park had originated $768.5$764.7 million in loans as part of the PPP. These loans are not typical of Park's loan portfolio in that they are part of a specific government program to support businesses during the COVID-19 pandemic and are 100% guaranteed by the SBA. As such, management considers growth in the loan portfolio excluding PPP loans, the total allowance for credit losses to total loans ratio (excluding PPP loans), and general reserve on collectively evaluated loans as a percentage of total collectively evaluated loans (excluding PPP loans) in addition to the related U.S. GAAP metrics which are not adjusted for PPP loans.
Critical Accounting Policies
Note 1 of the Notes to Consolidated Financial Statements included in Park’s 20202021 Form 10-K as updated in Note 2 of the Notes to Unaudited Consolidated Condensed Financial Statements in this Quarterly Report on Form 10-Q, lists significant accounting policies used in the development and presentation of Park’s consolidated financial statements. The accounting and reporting policies 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 financial statements and the accompanying notes. Actual results could differ from those estimates.
The COVID-19 pandemic has caused significant, unprecedented disruption around the world that has affected daily living and negatively impacted the global economy. Additionally, geopolitical conflict (including the conflict in Ukraine) and inflationary pressures have added uncertainty to the overall economic environment. The effects of the COVID-19 pandemic, geopolitical conflict, and inflation may meaningfully impact significant estimates such as the allowance for credit losses, goodwill, and pension plan obligations and related expenses.
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 impairedindividually 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 most significant judgments impacting the ACL estimate is the economic forecast for Ohio unemployment, Ohio GDP, and Ohio HPI. Changes in the economic forecast could significantly affect the estimated credit losses which could potentially lead to materially different allowance levels from one reporting period to the next.
In calculating the ACL, management weighs several different scenarios, including a baseline (most likely) scenario and an 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 considers among other things that: (1) the military conflict between Russia and Ukraine worsens significantly and persists longer than anticipated resulting in a disruption in oil supply and increased inflation; (2) supply chain issues erode, with increased shortages of many goods, also boosting inflation; (3) inflation remains elevated, which leads to a recession and increased unemployment; (4) the Federal Reserve Board continues to increase interest rates, at a higher degree than the baseline scenario, to combat high inflation affecting consumer spending as well as causing businesses to have higher costs associated with obtaining capital, therefore slowing down growth; and (5) new cases, hospitalizations and deaths from COVID-19 start to rise significantly again, slowing growth in spending on air travel, retail and hotels. The adverse scenario forecasts Ohio unemployment for the next twelve months to range from 6.3% to 8.3%. Excluding consideration of general reserve adjustments, this sensitivity analysis would result in a hypothetical increase in Park's ACL of $23.5 million as of September 30, 2022 if only the adverse scenario was used. Excluding consideration of general reserve adjustments, a corresponding $23.5 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"Credit Metrics and Provision for (Recovery of) Credit Losses”Losses" section withinof this MD&A for additional discussion.
Fair Value: U.S. GAAP requires management to establish a fair value hierarchy, which has the objective of maximizing the use of observable market inputs. U.S. GAAP also requires enhanced disclosures regarding the inputs used to calculate fair value. These are classified as Level 1, Level 2, and Level 3. Level 3 inputs are those with significant unobservable inputs that reflect a company’s own assumptions about the market for a particular instrument. Some of these inputs could be based on internal models and cash flow analyses. The large majority of Park’s assets whose fair value is determined using Level 2 inputs consists of debt securities AFS. The fair value of these debt securities AFS is calculated largely through the use of matrix pricing, which is a mathematical technique widely used in the financial services industry to value debt securities without relying exclusively on quoted market prices for the specific debt securities but rather relying on the debt securities’ relationship to other benchmark quoted debt securities. Please see Note 20 - Fair Value of the Notes to Unaudited Consolidated Condensed Financial Statements in this Quarterly Report on Form 10-Q for additional information on fair value.
Goodwill: Management believes that the accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies. U.S. GAAP establishes standards for the impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in each business acquired. Park’s goodwill, as of September 30, 2021,2022, relates to the value inherent in the banking industry and that value is dependent upon the ability of Park’s national bank subsidiary, PNB, to provide quality, cost-effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base, the inability to deliver cost-effective services over sustained periods or significant credit problems could lead to impairment of goodwill that could, in turn, adversely impact earnings in future periods.
U.S. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Park evaluates goodwill for impairment during the second quarter of each year, with financial data as of March 31. Based on the qualitative analysis performed as of April 1, 2021,2022, the Company determined that goodwill for Park's reporting unit, PNB, was not impaired. Management continues to monitor economic factors, including economic conditions as a result of the COVID-19 pandemic and responses thereto, to evaluate goodwill impairment. The fair value of the goodwill, which resides on the books of PNB,
is estimatedevaluated for potential impairment by reviewing the past and projected operating results for PNB, deposit and loan totals for PNB and banking industry comparable information.
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 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.
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.
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 expense and obligation.
Comparison of Results of Operations
For the Three Months and the Nine Months Ended September 30, 20212022 and 20202021
Summary Discussion of Results
Net income for the three months ended September 30, 20212022 was $35.4$42.1 million, compared to $30.8$35.4 million for the third quarter of 2020.2021. Diluted earnings per common share were $2.57 for the third quarter of 2022, compared to $2.16 for the third quarter of 2021, compared to $1.88 for the third quarter of 2020.2021. Weighted average diluted common shares outstanding were 16,423,91216,374,982 for the third quarter of 2021,2022, compared to 16,393,79216,423,912 weighted average diluted common shares outstanding for the third quarter of 2020.2021.
Net income for the nine months ended September 30, 20212022 was $117.4$115.3 million, compared to $82.7$117.4 million for the first nine months of 2020.2021. Diluted earnings per common share were $7.05 for the first nine months of 2022, compared to $7.14 for the first nine months of 2021, compared to $5.04 for the
first nine months of 2020.2021. Weighted average diluted common shares outstanding were 16,445,56816,355,790 for the first nine months of 2021,2022, compared to 16,398,35016,445,568 weighted average diluted common shares outstanding for the first nine months of 2020.2021.
COVID-19 Considerations
Banking has been identified by federalDuring 2022 and state governmental authorities to be an essential service and Park is fully committed to continue serving our customers and communities through the COVID-19 public health crisis. For those in our communities experiencing a financial hardship, Park has offered various methods of support including loan modifications, payment deferral programs, participation in the CARES Act PPP, participation in additional PPP loans authorized under the Consolidated Appropriations Act, 2021, and various other case by case accommodations. Throughout the pandemic, Park has implemented various physical distancing guidelines to help protect associates, such as allowing associates to work from home, where practical, while maintaining customer service via our online banking services, mobile app, and ATMs, by keeping drive-thru lanes open to serve customers, maintaining selective branch office openings, and offering other banking services by appointment when necessary. As of September 30, 2021, all branches have returned to normal operations.
During 2021 and 2020, Park provided calamity pay and special one-time bonuses to certain associates related to the COVID-19 pandemic. The cost of the calamity pay and special bonuses amounted to $744,000was $747,000 and $1.5 million for the three-month periodnine months ended September 30, 2020,2022 and $1.5 million and $2.9 million for the nine-month periods ended September 30, 2021, and 2020, respectively, and is included within salaries expense. There waswere no calamity pay orand special bonusbonuses paid during either of the three-month periodthree months ended September 30, 2022 and 2021.
Paycheck Protection Program: During 2020 and 2021, Park approved and funded 4,4397,701 loans totaling $543.1$764.7 million underas part of the PPP's first round of loans. These first round PPP loans had an average principal balance of $122,000. Of the $543.1 million in first round PPP loans, 21 loans totaling $68.2 million had a principal balance that was greater than $2 million.PPP. For its assistance in making and retaining the 4,439these loans, Park has received an aggregate of $20.2$33.1 million in fees from the SBA, of which $6.4$2.9 million and $13.7$14.0 million were recognized within loan interest income during the nine months ended September 30, 2022 and 2021, and the twelve months ended December 31, 2020, respectively. Park funded the PPP loans with excess on-balance sheet liquidity. At September 30, 2021,2022, the remaining balance of the first round PPP loans funded in 2020 was $14.1$5.7 million.
During 2021, Park offered additional PPP loans as authorized under the Consolidated Appropriations Act, 2021, signed into law on December 27, 2020. Through September 30, 2021, Park had approved and funded 3,262 loans totaling $221.6 million under the second round of PPP loans. These additional second round PPP loans had an average principal balance of $68,000. None of the $221.6 million in additional second round PPP loans had a principal balance that was greater than $2 million. For its assistance in making and retaining the 3,262 second round of PPP loans, Park has received an aggregate of $12.9 million in fees from the SBA, of which $7.6 million was recognized within loan interest income during the nine months ended September 30, 2021. Park funded the second round PPP loans with excess on-balance sheet liquidity. At September 30, 2021, the remaining balance of second round PPP loans funded in 2021 was $122.3 million.
As of October 29, 2021, Park has submitted approximately 6,458 repayment requests on behalf of borrowers under the PPP to the SBA and has received $653.4 million in payments from the SBA.
Loan Modifications: During the twenty-one months ended September 30, 2021, Park modified a total of 5,131 consumer loans, with an aggregate balance of $79.5 million, and modified a total of 1,406 commercial loans, with an aggregate balance of $513.3 million, in each case related to a hardship caused by the COVID-19 pandemic, and responses thereto. Park has worked with borrowers and provided modifications in the form of either interest only deferral or principal and interest deferral, in each case, for initial periods of up to 90 days. As necessary, Park made available a second 90-day interest only deferral or principal and interest deferral bringing the total potential deferral period to six months. Modifications were structured in a manner to best address each individual customer's then current situation. A majority of these modifications were excluded from TDRthe troubled debt restructuring ("TDR") classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. ModifiedThe modified loans arewere considered current and continuecontinued to accrue interest during the deferral period.
Of the $592.8 million of COVID-19 modifications during the twenty-one months ended September 30, 2021, $30.8 million, or 0.45% of total loans, remained in deferral as of September 30, 2021 and $6.8 million were at least 30 days past due in accordance with the modified terms at September 30, 2021.
Financial Results by Segment
The table below reflects the net income (loss) by segment for the first, second and third quarters of 2021,2022, for the first nine months of each of 2022 and 2021 and 2020(the nine months ended September 30) and for the years ended December 31, 20202021 and 2019.2020. Park's segments include PNBThe Park National Bank ("PNB") and "All Other" which primarily consists of Park as the "Parent Company", GFSC,Guardian Financial Services Company ("GFSC") and SEPH. SEPH is a non-bank subsidiary of Park, holding former Vision Bank OREO property and non-performing loans.SE Property Holdings, LLC ("SEPH").
| (In thousands) | (In thousands) | Q3 2021 | | Q2 2021 | | Q1 2021 | | Nine months YTD 2021 | | Nine months YTD 2020 | | 2020 | | 2019 | (In thousands) | Q3 2022 | Q2 2022 | Q1 2022 | | Nine months YTD 2022 | Nine months YTD 2021 | | 2021 | | 2020 |
PNB | PNB | $ | 36,451 | | | $ | 40,896 | | | $ | 45,122 | | | $ | 122,469 | | | $ | 89,546 | | | $ | 123,730 | | | $ | 113,600 | | PNB | $ | 31,515 | | $ | 34,940 | | $ | 41,468 | | | $ | 107,923 | | $ | 122,469 | | | $ | 159,461 | | | $ | 123,730 | |
All Other | All Other | (1,017) | | | (1,764) | | | (2,291) | | | (5,072) | | | (6,823) | | | 4,193 | | | (10,900) | | All Other | 10,553 | | (616) | | (2,593) | | | 7,344 | | (5,072) | | | (5,516) | | | 4,193 | |
Total Park | Total Park | $ | 35,434 | | | $ | 39,132 | | | $ | 42,831 | | | $ | 117,397 | | | $ | 82,723 | | | $ | 127,923 | | | $ | 102,700 | | Total Park | $ | 42,068 | | $ | 34,324 | | $ | 38,875 | | | $ | 115,267 | | $ | 117,397 | | | $ | 153,945 | | | $ | 127,923 | |
Highlights from the three-month and the nine-month periods ended September 30, 2022 and 2021 include:
•Net income for the nine months ended September 30, 20212022 of $117.4$115.3 million represented a $34.7$2.1 million, or 41.9%1.8%, increasedecrease compared to $82.7$117.4 million for the nine months ended September 30, 2020. 2021.
•Pre-tax, pre-provision net income for the nine months ended September 30, 2022 of $141.7 million represented a $5.5 million, or 4.0%, increase compared to $136.2 million for the nine months ended September 30, 2021.
•During the three months and the nine months ended September 20, 2022, Park recorded interest income of $361,000 and $3.0 million, respectively, related to PPP loans, compared to $4.6 million and $15.5 million for the three months and the nine months ended September 30, 2021, respectively.
•Park recognized a $5.6 million gain on the sale of OREO, net, during the three months and the nine months ended September 30, 2022 related to former Vision Bank relationships. There was no gain on the sale of OREO, net, related to former Vision Bank relationships during the three months and the nine months ended September 30, 2021.
•Park recognized a $12.0 million OREO valuation markup during the three months and the nine months ended September 30, 2022 related to the foreclosure and subsequent sale of a property collateralizing a former Vision Bank relationship. There was no OREO valuation markup related to former Vision Bank relationships during the three months and the nine months ended September 30, 2021.
•During the three months and the nine months ended September 30, 2022, Park recorded income of $1.2 million as a result of an annual Visa incentive, compared to $1.1 million during the three months and the nine months ended September 30, 2021.
•During the three months and the nine months ended September 30, 2022, Park paid $1.8 million in one-time bonuses and accrued an additional $1.5 million for future one-time bonuses for additional associates. There were no similar one-time bonuses paid or accrued during the three months or the nine months ended September 30, 2021.
•During the three months and the nine months ended September 30, 2022, Park incurred expenses of $1.3 million and $1.7 million, respectively, in direct expenses related to the collection of payments on former Vision Bank loan relationships, compared to $254,000 and $661,000 for the three months and the nine months ended September 30, 2021, respectively.
•During the three months and the nine months ended September 30, 2022, Park contributed $4.0 million to its charitable foundation. There was no contribution made by Park to its charitable foundation during the three months ended September 20, 2021 and a $4.0 million contribution made by Park to its charitable foundation during the nine months ended September 30, 2021.
•PNB loan growth (excluding PPP loans) of 2.20% and 4.45% for the three months and the nine months ended September 30, 2022, respectively, compared to declines (excluding PPP loans) of (0.13)% and (0.89%) for the three months and the nine months ended September 30, 2021, respectively.
•Park experienced continued good credit quality with annualized net charge-offs as a percentage of average loans of 0.04% and 0.02% for the three months and the nine months ended September 30, 2022, respectively, compared to annualized net recoveries as a percentage of average loans of 0.15% and 0.06% for the three months and the nine months ended September 30, 2021, respectively.
Net income for each of the three and nine months ended September 30, 20212022 and 20202021 included several items of income and expense that impactimpacted comparability of period results. These items are detailed in the "Items Impacting Comparability" section within this MD&A.
Table of 2021, Park adopted FASB Accounting Standards Update 2016-13, Contents
Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 established the CECL methodology for estimating the allowance for credit losses. This standard was adopted prospectively on January 1, 2021, resulting in a $6.1 million increase to the allowance for credit losses and a $3.9 million increase to the allowance for unfunded credit losses. A cumulative effect adjustment resulting in a $8.0 million decrease to retained earnings and a $2.1 million increase to deferred tax assets was also recorded as of the adoption of ASU 2016-13. Refer to the “Credit Metrics and Provision for (Recovery of) Credit Losses” section for further detail.
The following discussion provides additional information regarding the PNB segment, that is made up of PNB, followed by additional information regarding All Other, which consists of the Parent Company, GFSC and SEPH.Other.
The Park National Bank (PNB)
The table below reflects PNB's net income for the first, second and third quarters of 2021,2022, for the first nine months of each of 2022 and 2021 and 2020(the nine months ended September 30) and for the years ended December 31, 20202021 and 2019.2020.
| (In thousands) | (In thousands) | Q3 2021 | Q2 2021 | Q1 2021 | Nine months YTD 2021 | Nine months YTD 2020 | 2020 | 2019 | (In thousands) | Q3 2022 | Q2 2022 | Q1 2022 | Nine months YTD 2022 | Nine months YTD 2021 | 2021 | 2020 |
Net interest income | Net interest income | $ | 82,835 | | $ | 82,675 | | $ | 82,086 | | $ | 247,596 | | $ | 238,900 | | $ | 326,375 | | $ | 293,130 | | Net interest income | $ | 92,035 | | $ | 83,411 | | $ | 79,372 | | $ | 254,818 | | $ | 247,596 | | $ | 328,398 | | $ | 326,375 | |
Provision for (recovery of) credit losses (1) | Provision for (recovery of) credit losses (1) | 4,276 | | (3,752) | | (4,194) | | (3,670) | | 32,256 | | 30,813 | | 8,356 | | Provision for (recovery of) credit losses (1) | 3,235 | | 3,357 | | (4,547) | | 2,045 | | (3,670) | | (8,554) | | 30,813 | |
Other income | Other income | 31,332 | | 31,126 | | 32,800 | | 95,258 | | 89,920 | | 124,231 | | 92,392 | | Other income | 28,918 | | 29,255 | | 31,247 | | 89,420 | | 95,258 | | 126,802 | | 124,231 | |
Other expense | Other expense | 64,663 | | 67,122 | | 63,576 | | 195,361 | | 187,661 | | 268,938 | | 237,433 | | Other expense | 79,070 | | 66,214 | | 64,216 | | 209,500 | | 195,361 | | 266,678 | | 268,938 | |
Income before income taxes | Income before income taxes | $ | 45,228 | | $ | 50,431 | | $ | 55,504 | | $ | 151,163 | | $ | 108,903 | | $ | 150,855 | | $ | 139,733 | | Income before income taxes | $ | 38,648 | | $ | 43,095 | | $ | 50,950 | | $ | 132,693 | | $ | 151,163 | | $ | 197,076 | | $ | 150,855 | |
Income tax expense | Income tax expense | 8,777 | | 9,535 | | 10,382 | | 28,694 | | 19,357 | | 27,125 | | 26,133 | | Income tax expense | 7,133 | | 8,155 | | 9,482 | | 24,770 | | 28,694 | | 37,615 | | 27,125 | |
Net income | Net income | $ | 36,451 | | $ | 40,896 | | $ | 45,122 | | $ | 122,469 | | $ | 89,546 | | $ | 123,730 | | $ | 113,600 | | Net income | $ | 31,515 | | $ | 34,940 | | $ | 41,468 | | $ | 107,923 | | $ | 122,469 | | $ | 159,461 | | $ | 123,730 | |
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of September 30, 2021 and the related provision for (recovery of) credit losses for all periods subsequent to the three months ended March 31, 2021, June 30, 2021, and September 30, 2021 and the nine months ended September 30, 2021date of adoption were calculated utilizing this new guidance.
Net interest income of $254.8 million for the nine months ended September 30, 2022 represented a $7.2 million, or 2.9%, increase compared to $247.6 million for the nine months ended September 30, 2021 represented a $8.7 million, or 3.6%, increase compared to $238.9 million for the nine months ended September 30, 2020.2021. The increase was a result of a $16.9$12.0 million decreaseincrease in interest expense,income, partially offset by a $8.2$4.8 million decreaseincrease in interest income.expense.
The $8.2$12.0 million decreaseincrease in interest income was primarily due to a $1.9$15.2 million decreaseincrease in investment income, andpartially offset by a $6.3$3.1 million decrease in interest income on loans. The decrease$15.2 million increase in investment income was primarily the result of a decrease$251.2 million increase in the
yield onaverage investments, which decreased 31 basis points to 2.31%including money market investments, from $1.97 billion for the nine months ended September 30, 2021 compared to 2.62%$2.22 billion for the nine months ended September 30, 2020.2022. The increase was also the result of an increase in the yield on investments, which increased 78 basis points to 2.28% for the nine months ended September 30, 2022, compared to 1.50% for the nine months ended September 30, 2021. The decrease in interest income on loans was primarily the result of a $12.5 million decrease in interest income on PPP loans, which was partially offset by a $9.4 million increase in interest income on all other loans. Excluding PPP loans, there was a $123.2 million increase in average loans from $6.75 billion for the nine months ended September 30, 2021 to $6.87 billion for the nine months ended September 30, 2022. Additionally, there was a 11 basis point increase in the yield onexcluding PPP loans which decreased 22 basis pointsfrom 4.33% for the nine months ended September 30, 2021 to 4.44% for the nine months ended September 30, 2021, compared to 4.66% for the nine months ended September 30, 2020. The decrease in yield on loans was partially offset by a $169.4 million increase in average loans from $6.89 billion for the nine months ended September 30, 2020 to $7.06 billion for the nine months ended September 30, 2021. The increase in average loans was impacted by the addition of average PPP loans of approximately $309.0 million and $312.2 million for the nine months ended September 30, 2021 and 2020, respectively, and also resulted in interest and fee income of $15.5 million and $8.7 million for the nine months ended September 30, 2021 and 2020, respectively. Excluding the impact of PPP loans, the yield on loans was 4.33% for the nine months ended September 30, 2021, a decrease of 38 basis points compared to 4.71% for the nine months ended September 30, 2020.2022.
The $16.9$4.8 million decreaseincrease in interest expense was primarily due to a $13.8$4.6 million decreaseincrease in interest expense on deposits, as well as a $3.1 million decrease$189,000 increase in interest expense on borrowings. The decreaseincrease in interest expense on deposits was partially the result of a decrease in the cost of deposits of 34 basis points, from 0.47% for the nine months ended September 30, 2020 to 0.13% for the nine months ended September 30, 2021. The decrease was also the result of a $63.7$8.5 million decreaseincrease in average on-balance sheet interest bearing deposits from $5.35 billion for the nine months ended September 30, 2020, to $5.28 billion for the nine months ended September 30, 2021.2021, to $5.29 billion for nine months ended September 30, 2022 as well as the result of an increase in the cost of deposits of 11 basis points, from 0.13% for the nine months ended September 30, 2021 to 0.24% for the nine months ended September 30, 2022. The decreaseincrease in on-balance sheet interest bearing deposits consisted of declineswas due to increases in both higher-cost time deposits and transaction accounts, and waswhich were partially offset by an increasedecreases in both savings and time deposits. During the nine months ended September 30, 20212022 and the year ended December 31, 2020,2021, Park made the decision to participatecontinue its participation in a one-way sell (OWS) program to transfer deposits off balance sheet in order to manage growth of the balance sheet. This decision also contributed to a decline in interest bearing deposits.
The decrease in interest expense on borrowings was partially the resultprovision for credit losses of a $78.3 million decrease in average borrowings from $400.1$2.0 million for the nine months ended September 30, 2020,2022 represented a difference of $5.7 million, compared to $321.8 million for the nine months ended September 30, 2021. The cost of borrowings also decreased by 91 basis points, from 1.53% for the nine months ended September 30, 2020 to 0.62% for the nine months ended September 30, 2021.
Thea recovery of credit losses of $3.7 million for the nine months ended September 30, 2021 represented a difference of $35.9 million, compared to a provision for credit losses of $32.3 million for the nine months ended September 30, 2020.2021. Refer to the “Credit Metrics and Provision for (Recovery of) Credit Losses” section for additional details regarding the level of the provision for (recovery of) credit losses recognized in each period presented above.
Other income of $89.4 million for the nine months ended September 30, 2022 represented a decrease of $5.8 million, or 6.1%, compared to $95.3 million for the nine months ended September 30, 2021 represented an increase of $5.32021. The $5.8 million or 5.9%, compared to $89.9 million for the nine months ended September 30, 2020. The $5.3 million increasedecrease was primarily related to (i) a $4.3 million increase in income from fiduciary activities; (ii) a $2.9 million increase in debit card fee income; (iii) a $2.4 million increase in miscellaneous income, primarily related to a refund of a consumer insurance product, an increase in income from printed check sales and an increase in gain on sale of assets; and (iv) a $1.6 million increase in gain (loss) on equity securities, net. These increases were partially offset by a $3.3 million decrease in gain on sale of debt securities and a $2.2$11.0 million decrease in other service income, which was primarily due to a declinedeclines in fee income from mortgage loan originations and mortgage servicing rights, partially offset by an increase in investor rate locks and mortgage loans held for sale, partially offset by an increase in fee income from mortgage loan originations and the valuation of mortgage servicing rights.
sale. This decrease in other service income was partially offset by increases of (i) $2.9 million in other components of net periodic benefit income; (ii) $1.0 million in income from service charges on deposit accounts; (iii) $527,000 in gain on equity securities, net; (iv) $495,000 in gain on sale of loans recorded in miscellaneous income; and (v) $310,000 in income from fiduciary activities.
A summary of mortgage loan originations for each quarter of 2021, the nine monthsyear ended September 30,December 31, 2021 and 2020, as well as the first three quarters within each nine-month period, asof 2022 follows.
| (In thousands) | (In thousands) | Q1 2021 | Q2 2021 | Q3 2021 | Nine months ended September 30, 2021 | Q1 2020 | Q2 2020 | Q3 2020 | Nine months ended September 30, 2020 | (In thousands) | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | 2021 | Q1 2022 | Q2 2022 | Q3 2022 |
Mortgage Origination Volume | | |
Mortgage Loan Origination Volume | | Mortgage Loan Origination Volume | |
Sold | Sold | $ | 191,116 | | $ | 142,398 | | $ | 123,757 | | $ | 457,271 | | $ | 85,030 | | $ | 248,339 | | $ | 355,755 | | $ | 689,124 | | Sold | $ | 191,116 | | $ | 142,398 | | $ | 123,757 | | $ | 98,007 | | $ | 555,278 | | $ | 69,053 | | $ | 50,013 | | $ | 27,025 | |
Portfolio | Portfolio | 82,613 | | 74,670 | | 66,718 | | 224,001 | | 56,018 | | 64,351 | | 61,227 | | 181,596 | | Portfolio | 82,613 | | 74,670 | | 66,718 | | 60,685 | | 284,686 | | 53,498 | | 63,104 | | 90,551 | |
Construction | Construction | 28,987 | | 37,266 | | 28,486 | | 94,739 | | 33,109 | | 33,754 | | 40,560 | | 107,423 | | Construction | 28,987 | | 37,266 | | 28,486 | | 24,816 | | 119,555 | | 32,928 | | 34,044 | | 34,026 | |
Service released | Service released | 1,266 | | 2,204 | | 4,537 | | 8,007 | | 3,794 | | 2,362 | | 2,275 | | 8,431 | | Service released | 1,266 | | 2,204 | | 4,537 | | 5,795 | | 13,802 | | 4,660 | | 4,580 | | 2,537 | |
Total mortgage originations | $ | 303,982 | | $ | 256,538 | | $ | 223,498 | | $ | 784,018 | | $ | 177,951 | | $ | 348,806 | | $ | 459,817 | | $ | 986,574 | | |
Total mortgage loan originations | | Total mortgage loan originations | $ | 303,982 | | $ | 256,538 | | $ | 223,498 | | $ | 189,303 | | $ | 973,321 | | $ | 160,139 | | $ | 151,741 | | $ | 154,139 | |
| Refinances as a % of Total Originations | 71.1 | % | 50.0 | % | 44.8 | % | 56.7 | % | 48.1 | % | 67.8 | % | 68.5 | % | 64.6 | % | |
Refinances as a % of Total Mortgage Loan Originations | | Refinances as a % of Total Mortgage Loan Originations | 71.1 | % | 50.0 | % | 44.8 | % | 44.2 | % | 54.2 | % | 41.7 | % | 25.9 | % | 24.0 | % |
Total mortgage loan originations decreased $202.6$318.0 million, or 20.5%40.6%, to $466.0 million for the nine months ended September 30, 2022 compared to $784.0 million for the nine months ended September 30, 2021 compared to $986.6 million for the nine months ended September 30, 2020.2021.
The table below reflects PNB's other expense for the nine months ended September 30, 20212022 and 2020.2021.
| (Dollars in thousands) | (Dollars in thousands) | 2021 | 2020 | change | % change | (Dollars in thousands) | 2022 | 2021 | change | % change |
Other expense: | Other expense: | | Other expense: | |
Salaries | Salaries | $ | 86,194 | | $ | 86,736 | | $ | (542) | | (0.6) | % | Salaries | $ | 96,340 | | $ | 86,194 | | $ | 10,146 | | 11.8 | % |
Employee benefits | Employee benefits | 30,451 | | 29,113 | | 1,338 | | 4.6 | % | Employee benefits | 30,221 | | 30,451 | | (230) | | (0.8) | % |
Occupancy expense | Occupancy expense | 9,440 | | 10,395 | | (955) | | (9.2) | % | Occupancy expense | 9,699 | | 9,440 | | 259 | | 2.7 | % |
Furniture and equipment expense | Furniture and equipment expense | 8,157 | | 13,834 | | (5,677) | | (41.0) | % | Furniture and equipment expense | 8,782 | | 8,157 | | 625 | | 7.7 | % |
Data processing fees | Data processing fees | 22,426 | | 8,338 | | 14,088 | | 169.0 | % | Data processing fees | 23,844 | | 22,426 | | 1,418 | | 6.3 | % |
Professional fees and services | Professional fees and services | 14,332 | | 16,961 | | (2,629) | | (15.5) | % | Professional fees and services | 16,020 | | 14,332 | | 1,688 | | 11.8 | % |
Marketing | Marketing | 4,354 | | 4,073 | | 281 | | 6.9 | % | Marketing | 3,922 | | 4,354 | | (432) | | (9.9) | % |
Insurance | Insurance | 4,080 | | 4,090 | | (10) | | (0.2) | % | Insurance | 3,875 | | 4,080 | | (205) | | (5.0) | % |
Communication | Communication | 2,650 | | 2,894 | | (244) | | (8.4) | % | Communication | 2,894 | | 2,650 | | 244 | | 9.2 | % |
State tax expense | State tax expense | 2,986 | | 2,792 | | 194 | | 6.9 | % | State tax expense | 3,332 | | 2,986 | | 346 | | 11.6 | % |
Amortization of intangible assets | Amortization of intangible assets | 1,378 | | 1,738 | | (360) | | (20.7) | % | Amortization of intangible assets | 1,146 | | 1,378 | | (232) | | (16.8) | % |
FHLB prepayment penalty | — | | 1,793 | | (1,793) | | N.M. | |
Foundation contributions | Foundation contributions | 4,000 | | — | | 4,000 | | N.M. | Foundation contributions | 4,000 | | 4,000 | | — | | N.M. |
Miscellaneous | Miscellaneous | 4,913 | | 4,904 | | 9 | | 0.2 | % | Miscellaneous | 5,425 | | 4,913 | | 512 | | 10.4 | % |
Total other expense | Total other expense | $ | 195,361 | | $ | 187,661 | | $ | 7,700 | | 4.1 | % | Total other expense | $ | 209,500 | | $ | 195,361 | | $ | 14,139 | | 7.2 | % |
OtherTotal other expense of $209.5 million for the nine months ended September 30, 2022 represented an increase of $14.1 million, or 7.2%, compared to $195.4 million for the nine months ended September 30, 2021 represented an2021. The increase of $7.7 million, or 4.1%, compared to $187.7 million for the nine months ended September 30, 2020. The decrease in salaries expense was primarily related to a decreaseincreases in base salary expense, and additional compensation expense partially offset by increases inand officer incentive expense and share-based compensation expense. The increase in employee benefits expense was primarily related to increased pension plan expense, payroll tax expense and group insurance costs. The decrease in occupancy expense was primarily related to a decrease in lease expense. The decrease in furniture and equipment expense was primarily related to a change in the classification under which software and related maintenance costs are expensed, which are now classified under data processing fees. The impact of this decrease in furniture and equipment expense was partially offset by an increase in depreciation expense on equipment.expense. The increase in data processing fees was primarily related to increasedan increase in software data processing expense, partially offset by a decrease in debit card processing costsexpense. The increase in professional fees and services expense was primarily due to increases in legal expense, recruiting fees and directors fees, which were partially offset by decreases in other credit related costs. The decrease in marketing expense was due to a decrease in advertising expenses. The increase in miscellaneous expense was due to increased supplies expense, training and travel related expenses and increases in non-loan related losses.
and other data processing and software costs, partially due to the previously mentioned change in classification from furniture and equipment expense and a change in expensing software costs from other fees within professional fees and services to data processing fees. The decrease in professional fees and services was primarily related to decreased title, appraisal and credit costs and decreases in other fees (due to the change in expensing software costs under data processing fees), partially offset by increases in management and consulting expenses. The decrease in the FHLB prepayment penalty was due to a $1.8 prepayment penalty on FHLB borrowings of $50 million repaid during the nine months ended September 30, 2020; there was no similar prepayment in the same period of 2021. The increase in foundation contributions was due to a $4.0 million contribution to Park's charitable foundation during the nine months ended September 30, 2021, with no similar contribution made during the nine months ended September 30, 2020. The 2020 contribution to Park's charitable foundation was made during the fourth quarter of 2020. Park does not expect to make any additional contributions to Park's charitable foundation in 2021.
The table below provides certain balance sheet information and financial ratios for PNB as of or for the nine months ended September 30, 2022 and 2021 and 2020 and as of or for the year ended December 31, 2020.2021.
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | | % change from 12/31/20 | % change from 9/30/20 | (Dollars in thousands) | September 30, 2022 | December 31, 2021 | September 30, 2021 | | % change from 12/31/21 | % change from 09/30/21 |
Loans less PPP | $ | 6,773,762 | | $ | 6,834,269 | | $ | 6,720,619 | | | (0.89) | % | 0.79 | % | |
Loans | Loans | 6,905,245 | | 7,165,840 | | 7,263,380 | | | (3.64) | % | (4.93) | % | Loans | 7,102,503 | | 6,868,935 | | 6,905,245 | | | 3.40 | % | 2.86 | % |
Loans less PPP loans (1) | | Loans less PPP loans (1) | 7,096,788 | | 6,794,515 | | 6,773,762 | | | 4.45 | % | 4.77 | % |
Allowance for credit losses (1) | Allowance for credit losses (1) | 87,992 | | 84,321 | | 85,249 | | | 4.35 | % | 3.22 | % | Allowance for credit losses (1) | 83,947 | | 83,111 | | 87,992 | | | 1.01 | % | (4.60) | % |
Net loans | Net loans | 6,817,253 | | 7,081,519 | | 7,178,131 | | | (3.73) | % | (5.03) | % | Net loans | 7,018,556 | | 6,785,824 | | 6,817,253 | | | 3.43 | % | 2.95 | % |
Investment securities | Investment securities | 1,601,376 | | 1,114,742 | | 1,088,149 | | | 43.65 | % | 47.17 | % | Investment securities | 1,805,163 | | 1,807,392 | | 1,601,376 | | | (0.12) | % | 12.73 | % |
Total assets | Total assets | 10,012,868 | | 9,236,915 | | 9,195,911 | | | 8.40 | % | 8.88 | % | Total assets | 9,816,644 | | 9,538,217 | | 10,012,868 | | | 2.92 | % | (1.96) | % |
Total deposits | Total deposits | 8,603,171 | | 7,820,983 | | 7,725,562 | | | 10.00 | % | 11.36 | % | Total deposits | 8,606,272 | | 8,157,720 | | 8,603,171 | | | 5.50 | % | 0.04 | % |
Average assets (2) | Average assets (2) | 9,819,220 | | 9,198,141 | | 9,171,998 | | | 6.75 | % | 7.06 | % | Average assets (2) | 9,934,726 | | 9,814,766 | | 9,819,220 | | | 1.22 | % | 1.18 | % |
Efficiency ratio (3) | Efficiency ratio (3) | 56.63 | % | 59.31 | % | 56.70 | % | | (4.52) | % | (0.12) | % | Efficiency ratio (3) | 60.40 | % | 58.21 | % | 56.63 | % | | 3.76 | % | 6.66 | % |
Return on average assets (4) | Return on average assets (4) | 1.67 | % | 1.35 | % | 1.30 | % | | 23.70 | % | 28.46 | % | Return on average assets (4) | 1.45 | % | 1.62 | % | 1.67 | % | | (10.49) | % | (13.17) | % |
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses asExcludes $5.7 million, $74.4 million and $131.5 million of PPP loans at September 30, 2022, December 31, 2021 and the related provision for (recovery of) credit losses for the nine months ended September 30, 2021 were calculated utilizing this new guidance.2021.
(2) Average assets for the nine months ended September 30, 20212022 and 20202021 and for the year ended December 31, 2020.2021.
(3) Calculated utilizingEfficiency ratio is calculated by dividing total other expense by the sum of fully taxable equivalent net interest income whichand other income. Fully taxable equivalent net interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustments were $2.6 million for the nine months ended September 30, 2022, $2.1 million for the nine months ended September 30, 2021 $2.2 million for the nine months ended September 30, 2020 and $2.9 million for the year ended December 31, 2020.2021.
(4) Annualized for the nine months ended September 30, 20212022 and 2020.2021.
Loans outstanding at September 30, 20212022 were $6.91$7.10 billion, compared to $7.17$6.87 billion at December 31, 2020, a decrease2021, an increase of $260.6 million, or 3.6%.$233.6 million. Loans outstanding at September 30, 20212022 were $6.91$7.10 billion, compared to $7.26$6.91 billion at September 30, 2020, a decrease2021, an increase of $358.1 million, or 4.9%.$197.3 million. Excluding $131.5 million, $331.6$5.7 million and $542.8$74.4 million of PPP loans at September 30, 2021,2022 and December 31, 2020 and September 30, 2020,2021, respectively, loans outstanding were $7.10 billion at September 30, 2022, compared to $6.79 billion at December 31, 2021, an increase of $302.3 million. Excluding $5.7 million and $131.5 million of PPP loans at September 30, 2022 and 2021, respectively, loans outstanding were $7.10 billion at September 30, 2022, compared to $6.77 billion at September 30, 2021, compared to $6.83 billion at December 31, 2020, a decrease of $60.5 million, or 0.9%, and an increase of
$53.1 million, or 0.8%, compared to $6.72 billion at September 30, 2020. $323.0 million. The table below breaks out the change in loans outstanding, by loan type.
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | | change from 12/31/20 | % change from 12/31/20 | change from 9/30/20 | % change from 9/30/20 | (Dollars in thousands) | September 30, 2022 | December 31, 2021 | September 30, 2021 | | change from 12/31/21 | % change from 12/31/21 | change from 09/30/21 | % change from 09/30/21 |
Home equity | Home equity | $ | 166,557 | | $ | 182,131 | | $ | 194,445 | | | $ | (15,574) | | (8.55) | % | $ | (27,888) | | (14.34) | % | Home equity | $ | 167,072 | | $ | 165,691 | | $ | 166,557 | | | $ | 1,381 | | 0.83 | % | $ | 515 | | 0.31 | % |
Installment | Installment | 1,711,781 | | 1,650,620 | | 1,633,730 | | | 61,161 | | 3.71 | % | 78,051 | | 4.78 | % | Installment | 1,948,819 | | 1,685,687 | | 1,711,781 | | | 263,132 | | 15.61 | % | 237,038 | | 13.85 | % |
Real estate | Real estate | 1,165,045 | | 1,213,820 | | 1,232,196 | | | (48,775) | | (4.02) | % | (67,151) | | (5.45) | % | Real estate | 1,171,079 | | 1,142,991 | | 1,165,045 | | | 28,088 | | 2.46 | % | 6,034 | | 0.52 | % |
Commercial (excluding PPP) | 3,725,362 | | 3,784,153 | | 3,654,342 | | | (58,791) | | (1.55) | % | 71,020 | | 1.94 | % | |
Commercial (excluding PPP loans) (1) | | Commercial (excluding PPP loans) (1) | 3,807,976 | | 3,797,673 | | 3,725,362 | | | 10,303 | | 0.27 | % | 82,614 | | 2.22 | % |
PPP loans | PPP loans | 131,483 | | 331,571 | | 542,761 | | | (200,088) | | (60.35) | % | (411,278) | | (75.78) | % | PPP loans | 5,715 | | 74,420 | | 131,483 | | | (68,705) | | (92.32) | % | (125,768) | | (95.65) | % |
Other | Other | 5,017 | | 3,545 | | 5,906 | | | 1,472 | | 41.52 | % | (889) | | (15.05) | % | Other | 1,842 | | 2,473 | | 5,017 | | | (631) | | (25.52) | % | (3,175) | | (63.28) | % |
Total loans | Total loans | $ | 6,905,245 | | $ | 7,165,840 | | $ | 7,263,380 | | | $ | (260,595) | | (3.64) | % | $ | (358,135) | | (4.93) | % | Total loans | $ | 7,102,503 | | $ | 6,868,935 | | $ | 6,905,245 | | | $ | 233,568 | | 3.40 | % | $ | 197,258 | | 2.86 | % |
Total loans (excluding PPP) | $ | 6,773,762 | | $ | 6,834,269 | | $ | 6,720,619 | | | $ | (60,507) | | (0.89) | % | $ | 53,143 | | 0.79 | % | |
Total loans (excluding PPP loans) | | Total loans (excluding PPP loans) | $ | 7,096,788 | | $ | 6,794,515 | | $ | 6,773,762 | | | $ | 302,273 | | 4.45 | % | $ | 323,026 | | 4.77 | % |
(1) Excludes $5.7 million of PPP loans at September 30, 2022, $74.4 million of PPP loans at December 31, 2021 and $131.5 million of PPP loans at September 30, 2021.
Loans outstanding at September 30, 2022 were $7.10 billion, compared to $6.96 billion at June 30, 2022, an increase of $144.9 million. Excluding $5.7 million and $13.4 million of PPP loans at September 30, 2022 and June 30, 2022, respectively, loans outstanding were $7.10 billion at September 30, 2022, compared to $6.94 billion at June 30, 2022, an increase of $152.6 million.
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2022 | June 30, 2022 | | change from 06/30/22 | % change from 06/30/22 |
Home equity | $ | 167,072 | | $ | 162,616 | | | $ | 4,456 | | 2.74 | % |
Installment | 1,948,819 | | 1,820,500 | | | 128,319 | | 7.05 | % |
Real estate | 1,171,079 | | 1,134,763 | | | 36,316 | | 3.20 | % |
Commercial (excluding PPP loans) (1) | 3,807,976 | | 3,821,686 | | | (13,710) | | (0.36) | % |
PPP loans | 5,715 | | 13,428 | | | (7,713) | | (57.44) | % |
Other | 1,842 | | 4,618 | | | (2,776) | | (60.11) | % |
Total loans | $ | 7,102,503 | | $ | 6,957,611 | | | $ | 144,892 | | 2.08 | % |
Total loans (excluding PPP loans) | $ | 7,096,788 | | $ | 6,944,183 | | | $ | 152,605 | | 2.20 | % |
(1) Excludes $5.7 million of PPP loans at September 30, 2022 and $13.4 million of PPP loans at June 30, 2022.
PNB's allowance for credit losses increased by $3.7 million,$836,000, or 4.4%1.0%, to $88.0$83.9 million at September 30, 2021,2022, compared to $84.3$83.1 million at December 31, 2020. This increase included a $6.7 million increase to the allowance for credit losses as the result of the adoption of ASU 2016-13.2021. Net recoveries were $638,000, or 0.01% of total average loans, for the nine months ended September 30, 2021 and net charge-offs were $1.2 million, or 0.02% of total average loans, for the nine months ended September 30, 2022 and were $640,000, or 0.01% of total average loans, for the year ended December 31, 2020.2021. Refer to the “Credit Metrics and Provision for (Recovery of) Credit Losses” section for additional information regarding PNB's loan portfolio and the level of provision for (recovery of) credit losses recognized in each period presented.
Total deposits at September 30, 20212022 were $8.60$8.61 billion, compared to $7.82$8.16 billion at December 31, 2020,2021, an increase of $782.2$448.6 million, or 10.0%5.5%. Total deposits at September 30, 2022 were $8.61 billion, compared to $8.60 million at September 30, 2021, an increase of $3.1 million, or 0.04%. During the nine months ended September 30, 2022 and 2021 and the year ended December 31, 2020,2021, Park made the decision to participatecontinue participation in a one-way sell (OWS) programtwo programs to transfer deposits off balance sheet in order to manage growth of the balance sheet, as deposits increased significantly throughout the COVID-19 pandemic. At September 30, 2021,2022, December 31, 20202021 and September 30, 2020,2021, Park had $818.3$766.2 million, $710.1$983.1 million and $773.3$818.3 million, respectively, in OWS insured cash sweep deposits which were off-balance sheet. Total deposits would have increased $890.4$231.7 million, or 10.4%2.5%, compared to December 31, 20202021 had the $818.3$766.2 million and $710.1$983.1 million in deposits remained on the balance sheet at the respective dates. Total deposits would have increased $922.7decreased $49.1 million, or 10.9%0.5%, compared to September 30, 20202021 had the $766.2 million and $818.3 million and $773.3 millionin deposits remained on the balance sheet at the respective dates. The table below breaks out the change in deposit balances, by deposit type.
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | | change from 12/31/20 | % change from 12/31/20 | change from 9/30/20 | % change from 9/30/20 | (Dollars in thousands) | September 30, 2022 | December 31, 2021 | September 30, 2021 | | change from 12/31/21 | % change from 12/31/21 | change from 09/30/21 | % change from 09/30/21 |
Non-interest bearing deposits | Non-interest bearing deposits | $ | 3,221,859 | | $ | 2,978,005 | | $ | 2,831,767 | | | $ | 243,854 | | 8.2 | % | $ | 390,092 | | 13.8 | % | Non-interest bearing deposits | $ | 3,435,307 | | $ | 3,320,413 | | $ | 3,221,859 | | | $ | 114,894 | | 3.5 | % | $ | 213,448 | | 6.6 | % |
Transaction accounts | Transaction accounts | 1,620,375 | | 1,381,479 | | 1,365,783 | | | 238,896 | | 17.3 | % | 254,592 | | 18.6 | % | Transaction accounts | 1,989,340 | | 1,502,876 | | 1,620,375 | | | 486,464 | | 32.4 | % | 368,965 | | 22.8 | % |
Savings | Savings | 3,035,734 | | 2,596,926 | | 2,596,811 | | | 438,808 | | 16.9 | % | 438,923 | | 16.9 | % | Savings | 2,568,404 | | 2,622,771 | | 3,035,734 | | | (54,367) | | (2.1) | % | (467,330) | | (15.4) | % |
Certificates of deposits | 725,203 | | 864,573 | | 931,201 | | | (139,370) | | (16.1) | % | (205,998) | | (22.1) | % | |
Certificates of deposit | | Certificates of deposit | 613,222 | | 711,660 | | 725,203 | | | (98,438) | | (13.8) | % | (111,981) | | (15.4) | % |
Total deposits | Total deposits | $ | 8,603,171 | | $ | 7,820,983 | | $ | 7,725,562 | | | $ | 782,188 | | 10.0 | % | $ | 877,609 | | 11.4 | % | Total deposits | $ | 8,606,273 | | $ | 8,157,720 | | $ | 8,603,171 | | | $ | 448,553 | | 5.5 | % | $ | 3,102 | | — | % |
OWS insured cash sweep deposits | 818,340 | | 710,101 | | 773,273 | | | 108,239 | | 15.2 | % | 45,067 | | 5.8 | % | |
Total deposits including OWS deposits | $ | 9,421,511 | | $ | 8,531,084 | | $ | 8,498,835 | | | $ | 890,427 | | 10.4 | % | $ | 922,676 | | 10.9 | % | |
Off balance sheet deposits | | Off balance sheet deposits | 766,184 | | 983,053 | | 818,340 | | | (216,869) | | (22.1) | % | (52,156) | | (6.4) | % |
Total deposits including off balance sheet deposits | | Total deposits including off balance sheet deposits | $ | 9,372,457 | | $ | 9,140,773 | | $ | 9,421,511 | | | $ | 231,684 | | 2.5 | % | $ | (49,054) | | (0.5) | % |
All Other
The table below reflects All Other net income (loss) income for the first, second and third quarters of 2021,2022, for the first nine months of each of 2022 and 2021 and 2020(the nine months ended September 30) and for the years ended December 31, 20202021 and 2019.2020.
| (In thousands) | (In thousands) | Q3 2021 | Q2 2021 | Q1 2021 | Nine months YTD 2021 | Nine months YTD 2020 | 2020 | 2019 | (In thousands) | Q3 2022 | Q2 2022 | Q1 2022 | Nine months YTD 2022 | Nine months YTD 2021 | 2021 | 2020 |
Net interest (expense) income | Net interest (expense) income | $ | (1,233) | | $ | 1,176 | | $ | (1,352) | | $ | (1,409) | | $ | 2,409 | | $ | 1,255 | | $ | 4,607 | | Net interest (expense) income | $ | (1,207) | | $ | 528 | | $ | (1,686) | | $ | (2,365) | | $ | (1,409) | | $ | 1,495 | | $ | 1,255 | |
Recovery of credit losses (1) | Recovery of credit losses (1) | (2,304) | | (288) | | (661) | | (3,253) | | (1,043) | | (18,759) | | (2,185) | | Recovery of credit losses (1) | (45) | | (366) | | (58) | | (469) | | (3,253) | | (3,362) | | (18,759) | |
Other income | Other income | 1,079 | | 112 | | 1,289 | | 2,480 | | 88 | | 1,433 | | 4,801 | | Other income | 17,776 | | 1,938 | | 409 | | 20,123 | | 2,480 | | 3,142 | | 1,433 | |
Other expense | Other expense | 3,826 | | 4,278 | | 4,289 | | 12,393 | | 13,273 | | 17,657 | | 26,555 | | Other expense | 3,833 | | 3,834 | | 3,157 | | 10,824 | | 12,393 | | 16,840 | | 17,657 | |
Net (loss) income before income tax benefit | $ | (1,676) | | $ | (2,702) | | $ | (3,691) | | $ | (8,069) | | $ | (9,733) | | $ | 3,790 | | $ | (14,962) | | |
Income tax benefit | (659) | | (938) | | (1,400) | | (2,997) | | (2,910) | | (403) | | (4,062) | | |
Net (loss) income | $ | (1,017) | | $ | (1,764) | | $ | (2,291) | | $ | (5,072) | | $ | (6,823) | | $ | 4,193 | | $ | (10,900) | | |
Net income (loss) before income tax benefit | | Net income (loss) before income tax benefit | $ | 12,781 | | $ | (1,002) | | $ | (4,376) | | $ | 7,403 | | $ | (8,069) | | $ | (8,841) | | $ | 3,790 | |
Income tax expense (benefit) | | Income tax expense (benefit) | 2,228 | | (386) | | (1,783) | | 59 | | (2,997) | | (3,325) | | (403) | |
Net income (loss) | | Net income (loss) | $ | 10,553 | | $ | (616) | | $ | (2,593) | | $ | 7,344 | | $ | (5,072) | | $ | (5,516) | | $ | 4,193 | |
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of September 30, 2021 and the related provision for (recovery of)recovery of credit losses for all periods subsequent to the three months ended March 31, 2021, June 30, 2021, and September 30, 2021 and the nine months ended September 30, 2021date of adoption were calculated utilizing this new guidance.
The net interest (expense) income for All Other included, for all periods presented, interest income on subordinated debt investments in PNB, which were eliminated in the consolidated Park National Corporation totals, as well as interest income on GFSC loans and SEPH impaired loan relationships. The net interest (expense) income for All Other included for the nine months ended September 30, 2021 and 2020 and the year ended December 31, 2020, interest expense on $175.0 million aggregate principal amount of 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030 issued by Park in August 2020 (the "Park Subordinated Notes").
Net interest (expense) income reflected net interest expense of $2.4 million for the nine months ended September 30, 2022, compared to $1.4 million for the nine months ended September 30, 2021, compared to net interest income of $2.4 million for the nine months ended September 30, 2020.2021. The change was largely the result of an increasea decrease of $371,000 in loan interest income related to payment collections at SEPH, and a decrease of $791,000 in net interest income from GFSC, partially offset by a decrease in interest expense on borrowings of $4.6 million,$196,000 mainly related to the Park Subordinated Notes, and a decrease of $2.0 million in net interest income from GFSC, which were partially offset by an increase of $3.0 million in loan interest income.Notes.
SEPH had net recoveries of $2.6 million for the nine months ended September 30, 2021, compared to net recoveries of $1.4 million for the nine months ended September 30, 2020, and GFSC had net recoveries of $11,000 for the nine months ended September 30, 2021, compared to net charge-offs of $536,000 for the nine months ended September 30, 2020. Refer to the “Credit Metrics and Provision for (Recovery of) Credit Losses” section for additional information regarding the All Other loan portfolio and the level of recovery of credit losses recognized in each period presented.
All Other had other income of $20.1 million for the nine months ended September 30, 2022, compared to $2.5 million for the nine months ended September 30, 2021, compared2021. The change was largely due to $88,000a $12.0 million increase in income from an OREO valuation markup, a $5.6 million increase in gain on the sale of OREO, net, a $771,000 increase in income from bank owned life insurance, mainly related to a death benefit payout, and a $222,000 increase in gain (loss) on equity securities, net, which went from a $361,000 gain for the nine months ended September 30, 2020.2021 to a $584,000 gain for the nine months ended September 30, 2022. The change was largelyforgoing increases were partially offset by $594,000 decrease in income due to an OREO devaluation and a $1.0 million increase$516,000 decrease in income related to Partnership Investments, which went from a $203,000 loss for the nine months ended September 30, 2020 to a $767,000 gain for the nine months ended September 30, 2021 and a $844,000 difference in gain (loss) on equity securities, net, which went from a $659,000 loss for the nine months ended September 30, 2020 to a $185,000$251,000 gain for the nine months ended September 30, 2021.2022.
All Other had other expense of $10.8 million for the nine months ended September 30, 2022, compared to $12.4 million for the nine months ended September 30, 2021, compared to $13.3 million for the nine months ended September 30, 2020.2021. The decrease was largely due to a $600,000$428,000 decrease in merger-related expenses associated with the Carolina Alliance acquisition.occupancy expense, a $316,000 decrease in salaries expense, a $305,000 decrease in professional fees and services, and a $278,000 decrease in other insurance expense.
The table below provides certain balance sheet information for All Other as of or for the nine months ended September 30, 2022 and 2021 and 2020 and as of or for the year ended December 31, 2020.2021.
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | December 31, 2020 | September 30, 2020 | | % change from 12/31/20 | % change from 9/30/20 | (Dollars in thousands) | September 30, 2022 | December 31, 2021 | September 30, 2021 | | % change from 12/31/21 | % change from 9/30/21 |
Loans | Loans | $ | 3,172 | | $ | 11,945 | | $ | 15,166 | | | (73.44) | % | (79.08) | % | Loans | $ | 743 | | $ | 2,187 | | $ | 3,172 | | | (66.03) | % | (76.58) | % |
Allowance for credit losses (1) | Allowance for credit losses (1) | 137 | | 1,354 | | 1,789 | | | (89.88) | % | (92.34) | % | Allowance for credit losses (1) | 14 | | 86 | | 137 | | | (83.72) | % | (89.78) | % |
Net loans | Net loans | 3,035 | | 10,591 | | 13,377 | | | (71.34) | % | (77.31) | % | Net loans | 729 | | 2,101 | | 3,035 | | | (65.30) | % | (75.98) | % |
Total assets | Total assets | 21,150 | | 42,106 | | 44,095 | | | (49.77) | % | (52.04) | % | Total assets | 38,403 | | 22,037 | | 21,150 | | | 74.27 | % | 81.57 | % |
Average assets (2)(1) | Average assets (2)(1) | 34,237 | | 43,492 | | 44,497 | | | (21.28) | % | (23.06) | % | Average assets (2)(1) | 30,137 | | 32,692 | | 34,237 | | | (7.82) | % | (11.98) | % |
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of September 30, 2021 and the related provision for (recovery of) credit losses for the three months ended March 31, 2021, June 30, 2021, and September 30, 2021 and the nine months ended September 30, 2021 were calculated utilizing this new guidance.
(2) Average assets for the nine months ended September 30, 2022 and 2021, and 2020 and for the year ended December 31, 2020.2021.
Park National Corporation
The table below reflects Park's consolidated net income for the first, second and third quarters of 2021,2022, for the first nine months of each of 2022 and 2021 and 2020(the nine months ended September 30) and for the years ended December 31, 20202021 and 2019.2020.
| (In thousands) | (In thousands) | Q3 2021 | Q2 2021 | Q1 2021 | Nine months YTD 2021 | Nine months YTD 2020 | 2020 | 2019 | (In thousands) | Q3 2022 | Q2 2022 | Q1 2022 | Nine months YTD 2022 | Nine months YTD 2021 | 2021 | 2020 |
Net interest income | Net interest income | $ | 81,602 | | $ | 83,851 | | $ | 80,734 | | $ | 246,187 | | $ | 241,309 | | $ | 327,630 | | $ | 297,737 | | Net interest income | $ | 90,828 | | $ | 83,939 | | $ | 77,686 | | $ | 252,453 | | $ | 246,187 | | $ | 329,893 | | $ | 327,630 | |
Provision for (recovery of) credit losses (1) | Provision for (recovery of) credit losses (1) | 1,972 | | (4,040) | | (4,855) | | (6,923) | | 31,213 | | 12,054 | | 6,171 | | Provision for (recovery of) credit losses (1) | 3,190 | | 2,991 | | (4,605) | | 1,576 | | (6,923) | | (11,916) | | 12,054 | |
Other income | Other income | 32,411 | | 31,238 | | 34,089 | | 97,738 | | 90,008 | | 125,664 | | 97,193 | | Other income | 46,694 | | 31,193 | | 31,656 | | 109,543 | | 97,738 | | 129,944 | | 125,664 | |
Other expense | Other expense | 68,489 | | 71,400 | | 67,865 | | 207,754 | | 200,934 | | 286,595 | | 263,988 | | Other expense | 82,903 | | 70,048 | | 67,373 | | 220,324 | | 207,754 | | 283,518 | | 286,595 | |
Income before income taxes | Income before income taxes | $ | 43,552 | | $ | 47,729 | | $ | 51,813 | | $ | 143,094 | | $ | 99,170 | | $ | 154,645 | | $ | 124,771 | | Income before income taxes | $ | 51,429 | | $ | 42,093 | | $ | 46,574 | | $ | 140,096 | | $ | 143,094 | | $ | 188,235 | | $ | 154,645 | |
Income tax expense | Income tax expense | 8,118 | | 8,597 | | 8,982 | | 25,697 | | 16,447 | | 26,722 | | 22,071 | | Income tax expense | 9,361 | | 7,769 | | 7,699 | | 24,829 | | 25,697 | | 34,290 | | 26,722 | |
Net income | Net income | $ | 35,434 | | $ | 39,132 | | $ | 42,831 | | $ | 117,397 | | $ | 82,723 | | $ | 127,923 | | $ | 102,700 | | Net income | $ | 42,068 | | $ | 34,324 | | $ | 38,875 | | $ | 115,267 | | $ | 117,397 | | $ | 153,945 | | $ | 127,923 | |
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of September 30, 2021 and the related provision for (recovery of) credit losses for all periods subsequent to the three months ended March 31, 2021, June 30, 2021, and September 30, 2021 and the nine months ended September 30, 2021date of adoption were calculated utilizing this new guidance.
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.
Comparison for the Third Quarters of 20212022 and 20202021
Net interest income decreasedincreased by $2.2$9.2 million, or 2.7%11.3%, to $90.8 million for the third quarter of 2022, compared to $81.6 million for the third quarter of 2021, compared to $83.8 million for the third quarter of 2020.2021. See the discussion under the table below.
| | | Three months ended September 30, 2021 | | Three months ended September 30, 2020 | | Three months ended September 30, 2022 | | Three months ended September 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | | Average balance | Interest | Tax equivalent yield/cost | | Average balance | Interest | Tax equivalent yield/cost | (Dollars in thousands) | | Average balance | Interest | Tax equivalent yield/cost | | Average balance | Interest | Tax equivalent yield/cost |
Loans (1) | Loans (1) | | $ | 6,956,064 | | $ | 78,304 | | 4.47 | % | | $ | 7,247,021 | | $ | 82,780 | | 4.54 | % | Loans (1) | | $ | 7,039,040 | | $ | 83,677 | | 4.72 | % | | $ | 6,956,064 | | $ | 78,304 | | 4.47 | % |
Taxable investments | Taxable investments | | 1,121,281 | | 4,904 | | 1.74 | % | | 976,389 | | 4,841 | | 1.97 | % | Taxable investments | | 1,528,169 | | 10,319 | | 2.68 | % | | 1,121,281 | | 4,904 | | 1.74 | % |
Tax-exempt investments (2) | Tax-exempt investments (2) | | 277,810 | | 2,569 | | 3.67 | % | | 280,085 | | 2,588 | | 3.68 | % | Tax-exempt investments (2) | | 424,643 | | 3,700 | | 3.46 | % | | 277,810 | | 2,569 | | 3.67 | % |
Money market instruments | Money market instruments | | 895,784 | | 360 | | 0.16 | % | | 223,563 | | 63 | | 0.11 | % | Money market instruments | | 573,858 | | 3,180 | | 2.20 | % | | 895,784 | | 360 | | 0.16 | % |
Interest earning assets | Interest earning assets | | $ | 9,250,939 | | $ | 86,137 | | 3.69 | % | | $ | 8,727,058 | | $ | 90,272 | | 4.12 | % | Interest earning assets | | $ | 9,565,710 | | $ | 100,876 | | 4.18 | % | | $ | 9,250,939 | | $ | 86,137 | | 3.69 | % |
| Interest bearing deposits | Interest bearing deposits | | $ | 5,459,400 | | 1,446 | | 0.11 | % | | $ | 5,309,718 | | 3,465 | | 0.26 | % | Interest bearing deposits | | $ | 5,679,989 | | 6,582 | | 0.46 | % | | $ | 5,459,400 | | 1,446 | | 0.11 | % |
Short-term borrowings | Short-term borrowings | | 273,538 | | 187 | | 0.27 | % | | 320,871 | | 217 | | 0.27 | % | Short-term borrowings | | 196,816 | | 306 | | 0.62 | % | | 273,538 | | 187 | | 0.27 | % |
Long-term debt | Long-term debt | | 197,610 | | 2,185 | | 4.39 | % | | 231,581 | | 2,044 | | 3.51 | % | Long-term debt | | 188,494 | | 2,228 | | 4.69 | % | | 197,610 | | 2,185 | | 4.39 | % |
Interest bearing liabilities | Interest bearing liabilities | | $ | 5,930,548 | | $ | 3,818 | | 0.26 | % | | $ | 5,862,170 | | $ | 5,726 | | 0.39 | % | Interest bearing liabilities | | $ | 6,065,299 | | $ | 9,116 | | 0.60 | % | | $ | 5,930,548 | | $ | 3,818 | | 0.26 | % |
Excess interest earning assets | Excess interest earning assets | | $ | 3,320,391 | | | $ | 2,864,888 | | | | Excess interest earning assets | | $ | 3,500,411 | | | $ | 3,320,391 | | | |
Tax equivalent net interest income | Tax equivalent net interest income | | $ | 82,319 | | | $ | 84,546 | | | Tax equivalent net interest income | | $ | 91,760 | | | $ | 82,319 | | |
Net interest spread | Net interest spread | | | | 3.43 | % | | | | 3.73 | % | Net interest spread | | | | 3.58 | % | | | | 3.43 | % |
Net interest margin | Net interest margin | | | | 3.53 | % | | | | 3.85 | % | Net interest margin | | | | 3.81 | % | | | | 3.53 | % |
(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $177,000$155,000 for the three months ended September 30, 20212022 and $163,000$177,000 for the same period of 2020.2021.
(2) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $540,000$777,000 for the three months ended September 30, 20212022 and $543,000$540,000 for the same period of 2020.2021.
Average interest earning assets for the third quarter of 20212022 increased by $523.9$314.8 million, or 6.0%3.4%, to $9,251 million, compared to $8,727$9,566 million for the third quarter of 2020.2022, compared to $9,251 million for the third quarter of 2021. The average yield on interest earning assets decreasedincreased by 4349 basis points to 4.18% for the third quarter of 2022, compared to 3.69% for the third quarter of 2021, compared to 4.12% for the third quarter of 2020.2021.
Interest income for the three months ended September 30, 20212022 and 20202021 included purchase accounting accretion of $799,000$494,000 and $1.0 million,$799,000, respectively, related to the acquisitions of NewDominion and Carolina Alliance, as well as $414,000$649,000 and $8,000,$414,000, respectively, of interest income related to payments received on certain SEPH impairednonaccrual loan relationships, some of which are participated with PNB. Interest income for the three months ended September 30, 20212022 and 20202021 also included $4.6 million$361,000 and $5.1$4.6 million, respectively, of income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the yield on loans was 4.25%4.64% and 4.54%4.25% for the three months ended September 30, 20212022 and 2020,2021, respectively, and the yield on earning assets was 3.52%4.13% and 4.08%3.52% for the three months ended September 30, 20212022 and 2020,2021, respectively.
Average interest bearing liabilities for the third quarter of 20212022 increased by $68.4$134.8 million, or 1.2%2.3%, to $5,931$6,065 million, compared to $5,862$5,931 million for the third quarter of 2020.2021. The average cost of interest bearing liabilities decreasedincreased by 1334 basis points to 0.60% for the third quarter of 2022, compared to 0.26% for the third quarter of 2021, compared to 0.39% for the third quarter of 2020.2021. During the three monthsyear ended September 30,December 31, 2020, Park made the decision to participate in a OWS program in order to manage growth of the balance sheet. At September 30, 20212022 and 2020,2021, Park had $818.3$766.2 million and $773.3$818.3 million, respectively, in OWS insured cash sweep deposits which were off-balance sheet. ExcludingManagement from time to time has elected to move these funds both on and off the impact ofbalance sheet throughout the quarter due to favorable interest rate conditions and other factors. When on the balance sheet, these off-balance sheet OWS deposits are included in the average cost of interest bearing liabilities would have been 0.22% and 0.34% for the third quarter of 2021 and 2020, respectively.
related interest expense.
Interest expense for the three months ended September 30, 2021 and 2020 included a benefit from purchase accounting accretion of $8,000 and $42,000, respectively, related to the acquisitions of NewDominion and Carolina Alliance. Excluding the impact of this income, the average cost of interest bearing liabilities was unchanged at 0.26% for the three months ended September 30, 2021 and 0.39% for the three months ended September 30, 2020.
Removing the impacts of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance, the interest income related to payments on certain SEPH impairednonaccrual loan relationships and the interest income related to PPP loans, the net interest margin was 3.35%3.75% and 3.80%3.35% for the three months ended September 30, 20212022 and 2020,2021, respectively.
Yield on Loans: Average loan balances decreased $291.0increased $83.0 million, or 4.0%1.2%, to $7,039 million for the third quarter of 2022, compared to $6,956 million for the third quarter of 2021, compared to $7,247 million for the third quarter of 2020.2021. The average yield on the loan portfolio decreasedincreased by 725 basis points to 4.72% for the third quarter of 2022, compared to 4.47% for the third quarter of 2021, compared to 4.54% for the third quarter of 2020.2021. Average loans for the third quarters of 2022 and 2021 and 2020 included $194.8$9.7 million and $542.8$194.8 million, respectively, of PPP loans.
The table below shows the average balance and tax equivalent yield by type of loan for the three months ended September 30, 20212022 and 2020.2021. | | | Three months ended September 30, 2021 | | Three months ended September 30, 2020 | | Three months ended September 30, 2022 | | Three months ended September 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | | Average balance | | Tax equivalent yield | | Average balance | | Tax equivalent yield | (Dollars in thousands) | | Average balance | | Tax equivalent yield | | Average balance | | Tax equivalent yield |
Home equity loans | Home equity loans | | $ | 166,796 | | | 3.67 | % | | $ | 199,299 | | | 3.78 | % | Home equity loans | | $ | 164,766 | | | 5.45 | % | | $ | 166,796 | | | 3.67 | % |
Installment loans | Installment loans | | 1,711,240 | | | 4.76 | % | | 1,599,373 | | | 5.13 | % | Installment loans | | 1,912,912 | | | 4.74 | % | | 1,711,240 | | | 4.76 | % |
Real estate loans | Real estate loans | | 1,173,116 | | | 3.69 | % | | 1,284,116 | | | 4.02 | % | Real estate loans | | 1,147,402 | | | 3.85 | % | | 1,173,116 | | | 3.69 | % |
Commercial loans (1) | Commercial loans (1) | | 3,901,243 | | | 4.60 | % | | 4,160,079 | | | 4.51 | % | Commercial loans (1) | | 3,808,863 | | | 4.93 | % | | 3,901,243 | | | 4.60 | % |
Other | Other | | 3,669 | | | 9.15 | % | | 4,154 | | | 9.28 | % | Other | | 5,097 | | | 6.85 | % | | 3,669 | | | 9.15 | % |
Total loans and leases before allowance | | $ | 6,956,064 | | | 4.47 | % | | $ | 7,247,021 | | | 4.54 | % | |
Total loans before allowance | | Total loans before allowance | | $ | 7,039,040 | | | 4.72 | % | | $ | 6,956,064 | | | 4.47 | % |
(1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $177,000$155,000 for the three months ended September 30, 20212022 and $163,000$177,000 for the same period of 2020.2021.
Loan interest income for the three months ended September 30, 20212022 and 20202021 included the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance, interest income related to payments on certain SEPH impairednonaccrual loan relationships and interest income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, (a) the yield on home equity loans was 5.40%, the yield on installment loans was unchanged at 4.74%, the yield on real estate loans was 3.82%, the yield on commercial loans was 4.80% and the yield on total loans and leases before allowance was 4.64% for the three months ended September 30, 2022; and (b) the yield on home equity loans was 3.38%, the yield on installment loans was unchanged at 4.76%, the yield on real estate loans was 3.65%, the yield on commercial loans was 4.24% and the yield on total loans and leases before allowance was 4.25% for the three months ended September 30, 2021; and (b) the yield on home equity loans was 3.61%, the yield on installment loans was unchanged at 5.13%, the yield on real estate loans was 4.00%, the yield on commercial loans was 4.52% and the yield on total loans and leases before allowance was unchanged at 4.54% for the three months ended September 30, 2020.2021.
Cost of Deposits: Average interest bearing deposit balances increased $149.7$220.6 million, or 2.8%4.0%, to $5,680 million for the third quarter of 2022, compared to $5,459 million for the third quarter of 2021, compared to $5,310 for the third quarter of 2020.2021. The average cost of funds on deposit balances decreasedincreased by 1535 basis points to 0.46% for the third quarter of 2022, compared to 0.11% for the third quarter of 2021, compared to 0.26% for the third quarter of 2020.2021.
The table below shows for the three months ended September 30, 20212022 and 2020,2021, the average balance and cost of funds by type of deposit.
| | | Three months ended September 30, 2021 | | Three months ended September 30, 2020 | | Three months ended September 30, 2022 | | Three months ended September 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | | Average balance | | Cost of funds | | Average balance | | Cost of funds | (Dollars in thousands) | | Average balance | | Cost of funds | | Average balance | | Cost of funds |
Transaction accounts | Transaction accounts | | $ | 1,643,234 | | | 0.02 | % | | $ | 1,732,893 | | | 0.07 | % | Transaction accounts | | $ | 2,197,169 | | | 0.38 | % | | $ | 1,643,234 | | | 0.02 | % |
Savings deposits and clubs | Savings deposits and clubs | | 3,071,014 | | | 0.04 | % | | 2,609,808 | | | 0.08 | % | Savings deposits and clubs | | 2,837,613 | | | 0.51 | % | | 3,071,014 | | | 0.04 | % |
Time deposits | Time deposits | | 745,152 | | | 0.54 | % | | 967,017 | | | 1.10 | % | Time deposits | | 645,207 | | | 0.51 | % | | 745,152 | | | 0.54 | % |
Total interest bearing deposits | Total interest bearing deposits | | $ | 5,459,400 | | | 0.11 | % | | $ | 5,309,718 | | | 0.26 | % | Total interest bearing deposits | | $ | 5,679,989 | | | 0.46 | % | | $ | 5,459,400 | | | 0.11 | % |
Deposit interest expense for the three months ended September 30, 2021 and 2020 included the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance of $8,000 and $42,000, respectively. Excluding this income, the cost of funds for time deposits was unchanged 0.54% and the cost of total interest bearing deposits was unchanged at 0.11% for the three months ended September 30, 2021, and the cost of funds for time deposits was 1.11% and the cost of total interest bearing deposits was unchanged at 0.26% for the three months ended September 30, 2020.
Comparison for the First Nine Months of 20212022 and 20202021
Net interest income increased by $4.9$6.3 million, or 2.0%2.5%, to $252.5 million for the first nine months of 2022, compared to $246.2 million for the first nine months of 2021, compared to $241.3 million for the first nine months of 2020.2021. See the discussion under the table below.
| | | Nine months ended September 30, 2021 | | Nine months ended September 30, 2020 | | Nine months ended September 30, 2022 | | Nine months ended September 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | | Average balance | Interest | Tax equivalent yield/cost | | Average balance | Interest | Tax equivalent yield/cost | (Dollars in thousands) | | Average balance | Interest | Tax equivalent yield/cost | | Average balance | Interest | Tax equivalent yield/cost |
Loans (1) | Loans (1) | | $ | 7,062,336 | | $ | 238,568 | | 4.52 | % | | $ | 6,904,900 | | $ | 243,913 | | 4.72 | % | Loans (1) | | $ | 6,904,019 | | $ | 234,209 | | 4.54 | % | | $ | 7,062,336 | | $ | 238,568 | | 4.52 | % |
Taxable investments | Taxable investments | | 969,628 | | 13,760 | | 1.90 | % | | 905,665 | | 15,398 | | 2.27 | % | Taxable investments | | 1,469,586 | | 24,073 | | 2.19 | % | | 969,628 | | 13,760 | | 1.90 | % |
Tax-exempt investments (2) | Tax-exempt investments (2) | | 278,379 | | 7,719 | | 3.71 | % | | 292,672 | | 8,096 | | 3.69 | % | Tax-exempt investments (2) | | 398,405 | | 10,185 | | 3.42 | % | | 278,379 | | 7,719 | | 3.71 | % |
Money market instruments | Money market instruments | | 724,561 | | 689 | | 0.13 | % | | 286,909 | | 667 | | 0.31 | % | Money market instruments | | 357,514 | | 3,593 | | 1.34 | % | | 724,561 | | 689 | | 0.13 | % |
Interest earning assets | Interest earning assets | | $ | 9,034,904 | | $ | 260,736 | | 3.86 | % | | $ | 8,390,146 | | $ | 268,074 | | 4.27 | % | Interest earning assets | | $ | 9,129,524 | | $ | 272,060 | | 3.98 | % | | $ | 9,034,904 | | $ | 260,736 | | 3.86 | % |
| Interest bearing deposits | Interest bearing deposits | | $ | 5,284,664 | | 5,102 | | 0.13 | % | | $ | 5,350,009 | | 18,945 | | 0.47 | % | Interest bearing deposits | | $ | 5,292,194 | | 9,694 | | 0.24 | % | | $ | 5,284,664 | | 5,102 | | 0.13 | % |
Short-term borrowings | Short-term borrowings | | 296,132 | | 552 | | 0.25 | % | | 264,842 | | 912 | | 0.46 | % | Short-term borrowings | | 203,888 | | 740 | | 0.49 | % | | 296,132 | | 552 | | 0.25 | % |
Long-term debt | Long-term debt | | 211,857 | | 6,746 | | 4.26 | % | | 190,285 | | 4,754 | | 3.34 | % | Long-term debt | | 188,381 | | 6,550 | | 4.65 | % | | 211,857 | | 6,746 | | 4.26 | % |
Interest bearing liabilities | Interest bearing liabilities | | $ | 5,792,653 | | $ | 12,400 | | 0.29 | % | | $ | 5,805,136 | | $ | 24,611 | | 0.57 | % | Interest bearing liabilities | | $ | 5,684,463 | | $ | 16,984 | | 0.40 | % | | $ | 5,792,653 | | $ | 12,400 | | 0.29 | % |
Excess interest earning assets | Excess interest earning assets | | $ | 3,242,251 | | | $ | 2,585,010 | | | | Excess interest earning assets | | $ | 3,445,061 | | | $ | 3,242,251 | | | |
Tax equivalent net interest income | Tax equivalent net interest income | | $ | 248,336 | | | $ | 243,463 | | | Tax equivalent net interest income | | $ | 255,076 | | | $ | 248,336 | | |
Net interest spread | Net interest spread | | | | 3.57 | % | | | | 3.70 | % | Net interest spread | | | | 3.58 | % | | | | 3.57 | % |
Net interest margin | Net interest margin | | | | 3.67 | % | | | | 3.88 | % | Net interest margin | | | | 3.74 | % | | | | 3.67 | % |
(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $528,000$484,000 for the nine months ended September 30, 20212022 and $454,000$528,000 for the same period of 2020.2021.
(2) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $1.6$2.1 million for the nine months ended September 30, 20212022 and $1.7$1.6 million for the same period of 2020.2021.
Average interest earning assets for the first nine months of 20212022 increased by $644.8$94.6 million, or 7.7%1.0%, to $9,035 million, compared to $8,390$9,130 million for the first nine months of 2020.2022, compared to $9,035 million for the first nine months of 2021. The average yield on interest earning assets decreasedincreased by 4112 basis points to 3.98% for the first nine months of 2022, compared to 3.86% for the first nine months of 2021, compared to 4.27% for the first nine months of 2020.2021.
Interest income for the nine months ended September 30, 20212022 and 20202021 included purchase accounting accretion of $2.7$1.5 million and $3.6$2.7 million, respectively, related to the acquisitions of NewDominion and Carolina Alliance, as well as $3.4$3.0 million and $351,000,$3.4 million, respectively, of interest income related to payments received on certain SEPH impairednonaccrual loan relationships, some of which are participated with PNB. Interest income for the nine months ended September 30, 20212022 and 20202021 also included $15.5$3.0 million and $8.7$15.5 million, respectively, of income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the yield on loans was 4.29%4.41% and 4.68%4.29% for the nine months ended September 30, 20212022 and 2020,2021, respectively, and the yield on earning assets was 3.66%3.89% and 4.22%3.66% for the nine months ended September 30, 20212022 and 2020,2021, respectively.
Average interest bearing liabilities for the first nine months of 20212022 decreased by $12.5$108.2 million, or 0.2%1.9%, to $5,793$5,684 million, compared to $5,805$5,793 million for the first nine months of 2020.2021. The average cost of interest bearing liabilities decreasedincreased by 2811 basis points to 0.40% for the first nine months of 2022, compared to 0.29% for the first nine months of 2021, compared to 0.57% for the first nine months of 2020.2021. During the nine monthsyear ended September 30,December 31, 2020, Park made the decision to participate in a OWS program in order to manage the growth of the balance sheet. At September 30, 20212022 and 2020,2021, Park had $818.3$766.2 million and $773.3$818.3 million, respectively, in OWS insured cash sweep deposits which were off-balance sheet. ExcludingManagement from time to time has elected to move these funds both on and off the impact ofbalance sheet throughout the quarter due to favorable interest rate conditions and other factors. When on the balance sheet, these off-balance sheet OWS deposits are included in the average cost of interest bearing liabilities would have been 0.25% and 0.55% for the first nine months of 2021 and 2020, respectively.
Interest expense for the nine months ended September 30, 2021 and 2020 included a benefit from purchase accounting accretion of $39,000 and $194,000, respectively, related to the acquisitions of NewDominion and Carolina Alliance. Excluding the impact of this income, the average cost of interest bearing liabilities was unchanged at 0.13% for the nine months ended September 30, 2021 and 0.48% for the nine months ended September 30, 2020.expense.
Removing the impacts of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance, the interest income related to payments on certain SEPH impairednonaccrual loan relationships and the interest income related to PPP loans, the net interest margin was 3.47%3.64% and 3.81%3.47% for the nine months ended September 30, 2022 and 2021, and 2020, respectively.
Yield on Loans: Average loan balances increased $157decreased $158.3 million, or 2.3%2.2%, to $6,904 million for the first nine of 2022, compared to $7,062 million for the first nine months of 2021, compared to $6,905 million for the first nine months of 2020.2021. The average yield on the loan portfolio decreasedincreased by 202 basis points to 4.54% for the first nine months of 2022, compared to 4.52% for the first nine months of 2021, compared to 4.72% for the first nine months of 2020.2021. Average loans for the first nine months of 2022 and 2021 and 2020 included $309.0$32.3 million and $312.2$309.0 million, respectively, of PPP loans.
The table below shows the average balance and tax equivalent yield by type of loan for the nine months ended September 30, 20212022 and 2020.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2021 | | Nine months ended September 30, 2020 |
(Dollars in thousands) | | Average balance | | Tax equivalent yield | | Average balance | | Tax equivalent yield |
Home equity loans | | $ | 169,892 | | | 3.79 | % | | $ | 211,421 | | | 4.11 | % |
Installment loans | | 1,684,026 | | | 4.83 | % | | 1,510,580 | | | 5.23 | % |
Real estate loans | | 1,185,141 | | | 3.79 | % | | 1,284,858 | | | 4.14 | % |
Commercial loans (1) | | 4,020,498 | | | 4.63 | % | | 3,893,807 | | | 4.74 | % |
Other | | 2,779 | | | 12.21 | % | | 4,234 | | | 10.10 | % |
Total loans and leases before allowance | | $ | 7,062,336 | | | 4.52 | % | | $ | 6,904,900 | | | 4.72 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2022 | | Nine months ended September 30, 2021 |
(Dollars in thousands) | | Average balance | | Tax equivalent yield | | Average balance | | Tax equivalent yield |
Home equity loans | | $ | 162,371 | | | 4.38 | % | | $ | 169,892 | | | 3.79 | % |
Installment loans | | 1,778,231 | | | 4.69 | % | | 1,684,026 | | | 4.83 | % |
Real estate loans | | 1,133,199 | | | 3.76 | % | | 1,185,141 | | | 3.79 | % |
Commercial loans (1) | | 3,826,017 | | | 4.70 | % | | 4,020,498 | | | 4.63 | % |
Other | | 4,201 | | | 8.01 | % | | 2,779 | | | 12.21 | % |
Total loans before allowance | | $ | 6,904,019 | | | 4.54 | % | | $ | 7,062,336 | | | 4.52 | % |
(1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $528,000$484,000 for the nine months ended September 30, 20212022 and $454,000$528,000 for the same period of 2020.2021.
Loan interest income for the nine months ended September 30, 20212022 and 20202021 included the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance, interest income related to payments on certain SEPH impairednonaccrual loan relationships and interest income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, (a) the yield on home equity loans was 4.28%, the yield on installment loans was unchanged at 4.69%, the yield on real estate loans was 3.74%, the yield on commercial loans was 4.49% and the yield on total loans and leases before allowance was 4.41% for the nine months ended September 30, 2022; and (b) the yield on home equity loans was 3.43%, the yield on installment loans was unchanged at 4.83%, the yield on real estate loans was 3.76%, the yield on commercial loans was 4.25% and the yield on total loans and leases before allowance was 4.29% for the nine months ended September 30, 2021; and (b) the yield on home equity loans was 3.93%, the yield on installment loans was unchanged at 5.23%, the yield on real estate loans was 4.10%, the yield on commercial loans was 4.69% and the yield on total loans and leases before allowance was 4.68% for the nine months ended September 30, 2020.2021.
Cost of Deposits: Average interest bearing deposit balances decreased $65.3increased $7.5 million, or 1.2%0.1%, to $5,285$5,292 million for the first nine months of 2021,2022, compared to $5,350$5,285 for the first nine months of 2020.2021. The average cost of funds on deposit balances decreasedincreased by 3411 basis points to 0.24% for the first nine months of 2022, compared to 0.13% for the first nine months of 2021, compared to 0.47% for the first nine months of 2020.2021.
The table below shows for the nine months ended September 30, 20212022 and 2020,2021, the average balance and cost of funds by type of deposit.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2021 | | Nine months ended September 30, 2020 |
(Dollars in thousands) | | Average balance | | Cost of funds | | Average balance | | Cost of funds |
Transaction accounts | | $ | 1,543,451 | | | 0.02 | % | | $ | 1,780,253 | | | 0.26 | % |
Savings deposits and clubs | | 2,947,088 | | | 0.04 | % | | 2,538,193 | | | 0.27 | % |
Time deposits | | 794,125 | | | 0.65 | % | | 1,031,563 | | | 1.33 | % |
Total interest bearing deposits | | $ | 5,284,664 | | | 0.13 | % | | $ | 5,350,009 | | | 0.47 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2022 | | Nine months ended September 30, 2021 |
(Dollars in thousands) | | Average balance | | Cost of funds | | Average balance | | Cost of funds |
Transaction accounts | | $ | 1,848,771 | | | 0.19 | % | | $ | 1,543,451 | | | 0.02 | % |
Savings deposits and clubs | | 2,766,837 | | | 0.23 | % | | 2,947,088 | | | 0.04 | % |
Time deposits | | 676,586 | | | 0.45 | % | | 794,125 | | | 0.65 | % |
Total interest bearing deposits | | $ | 5,292,194 | | | 0.24 | % | | $ | 5,284,664 | | | 0.13 | % |
Deposit interest expense for the nine months ended September 30, 2021 and 2020 included the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance of $39,000 and $194,000, respectively. Excluding this income, the cost of funds for time deposits was 0.66% and the cost of total interest bearing deposits was unchanged at 0.13% for the nine months ended September 30, 2021, and the cost of funds for time deposits was 1.36% and the cost of total interest bearing deposits was 0.48% for the nine months ended September 30, 2020.
Yield on Average Interest Earning Assets: The following table shows the tax equivalent yield on average interest earning assets for the nine months ended September 30, 20212022 and for the years ended December 31, 2021, 2020 2019 and 2018.2019.
| | | Loans (1) (3) | | Investments (2) | | Money Market Instruments | | Total(3) | | Loans (1) (3) | | Investments (2) | | Money Market Instruments | | Total(3) |
2018 - year | | 4.98 | % | | 2.72 | % | | 1.93 | % | | 4.46 | % | |
2019 - year | 2019 - year | | 5.19 | % | | 2.76 | % | | 2.33 | % | | 4.70 | % | 2019 - year | | 5.19 | % | | 2.76 | % | | 2.33 | % | | 4.70 | % |
2020 - year | 2020 - year | | 4.71 | % | | 2.66 | % | | 0.26 | % | | 4.28 | % | 2020 - year | | 4.71 | % | | 2.66 | % | | 0.26 | % | | 4.28 | % |
2021 - first nine months | | 4.52 | % | | 2.30 | % | | 0.13 | % | | 3.86 | % | |
2021 - year | | 2021 - year | | 4.53 | % | | 2.22 | % | | 0.13 | % | | 3.86 | % |
2022 - first nine months | | 2022 - first nine months | | 4.54 | % | | 2.45 | % | | 1.34 | % | | 3.98 | % |
(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $528,000$484,000 for the nine months ended September 30, 2021,2022, and $704,000, $623,000, $576,000 and $528,000$576,000 for the years ended December 31, 2021, 2020 2019 and 2018,2019, respectively.
(2) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $1.6$2.1 million for the nine months ended September 30, 2021,2022, and $2.2 million, $2.4$2.2 million and $2.3$2.4 million for the years ended December 31, 2021, 2020 2019 and 2018,2019, respectively.
(3) Interest income for the nine months ended September 30, 20212022 and for the years ended December 31, 2021, 2020 and 2019 and 2018 included $3.4$3.0 million, $8.0 million, $453,000, $256,000 and $3.4 million,$256,000, respectively, related to payments received on certain SEPH impairednonaccrual loan relationships, some of which are participated with PNB, as well as $2.7$1.5 million, $3.3 million, $4.4 million, $5.2 million and $1.1$5.2 million, respectively, of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Interest income for the nine months ended September 30, 20212022 and for the yearyears ended December 31, 2021 and December 31, 2020 included $15.5$3.0 million, $18.0 million and $16.7 million, respectively, of income related to PPP loans. Excluding all of these sources of income described in the preceding sentences of this footnote, the yield on loans was 4.29%4.41%, 4.27%, 4.63%, 5.09% and 4.89%5.09%, for the nine months ended September 30, 2021,2022, and for the years ended December 31, 2021, 2020 2019 and 2018,2019, respectively, and the yield on earning assets was 3.66%3.89%, 3.64%, 4.20%, 4.62% and 4.40%4.62%, for the nine months ended September 30, 20212022 and for the years ended December 31, 2021, 2020 2019 and 2018,2019, respectively.
Cost of Average Interest Bearing Liabilities: The following table shows the cost of funds on average interest bearing liabilities for the nine months ended September 30, 20212022 and for the years ended December 31, 2021, 2020 2019 and 2018.2019.
| | | Interest bearing deposits (1) | | Short-term borrowings | | Long-term debt | | Total (1) | | Interest bearing deposits (1) | | Short-term borrowings | | Long-term debt | | Total (1) |
2018 - year | | 0.72 | % | | 0.74 | % | | 2.38 | % | | 0.86 | % | |
2019 - year | 2019 - year | | 1.01 | % | | 1.15 | % | | 2.77 | % | | 1.12 | % | 2019 - year | | 1.01 | % | | 1.15 | % | | 2.77 | % | | 1.12 | % |
2020 - year | 2020 - year | | 0.41 | % | | 0.40 | % | | 3.55 | % | | 0.52 | % | 2020 - year | | 0.41 | % | | 0.40 | % | | 3.55 | % | | 0.52 | % |
2021 - first nine months | | 0.13 | % | | 0.25 | % | | 4.26 | % | | 0.29 | % | |
2021 - year | | 2021 - year | | 0.12 | % | | 0.27 | % | | 4.32 | % | | 0.28 | % |
2022 - first nine months | | 2022 - first nine months | | 0.24 | % | | 0.49 | % | | 4.65 | % | | 0.40 | % |
(1) Interest expense for the nine months ended September 30, 20212022 and the years ended December 31, 2021, 2020 and 2019 included $6,000, $46,000, $226,000, and 2018 included $39,000, $226,000, $593,000, and $287,000, respectively, of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion (for all of these periods) and Carolina Alliance (for the nine months ended September 30, 2021 and the years ended December 31, 2020 and 2019).Alliance. Excluding this income, for the nine months ended September 30, 20212022 and the years ended December 31, 2021, 2020 2019 and 2018,2019, the cost of funds on interest bearing deposits was 0.13%0.25%, 0.12%, 0.41%, 1.02% and 0.73%1.02%, respectively, and the cost of interest bearing liabilities was 0.29%0.40%, 0.28%, 0.53%, 1.13% and 0.86%1.13%, respectively.
Credit Metrics and Provision for (Recovery of) Credit Losses
The provision for (recovery of) credit losses is the amount added toto/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 (recovery of) 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.
Section 4014 of the CARES Act provided financial institutions with optional temporary relief from having to comply with ASU 2016-13 including the CECL methodology for estimating the allowance for credit losses. This temporary relief was set to expire on the earlier of the date on which the national emergency concerning COVID-19 terminated or December 31, 2020, with adoption being effective retrospectively as of January 1, 2020.
Section 540 of the Consolidated Appropriations Act, 2021, amended Section 4014 of the CARES Act by extending the relief period provided in the CARES Act. The Consolidated Appropriations Act, 2021, modified the CARES Act so that temporary
relief will expire on 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 ASU 2016-13 following the approval of the CARES Act and continued to use the incurred loss methodology for estimating the allowance for credit losses in 2020. ASU 2016-13 requires financial institutions to calculate an allowance utilizing a reasonable and supportable forecast period which Park has established as a one-year period. In the unprecedented circumstances surrounding the COVID-19 pandemic and the response thereto, Park believed that adopting ASU 2016-13 in the first quarter of 2020 would have added an unnecessary level of subjectivity and volatility to the calculation of the allowance for credit losses. With the approval of the Consolidated Appropriations Act, 2021, management elected to further delay adoption of ASU 2016-13 to January 1, 2021. This allowed Park to utilize the CECL standard for the entire year of adoption.
The adoption of ASU 2016-13 on January 1, 2021 resulted in a $6.1 million increase to the allowance for credit losses and a $3.9 million increase to the allowance for unfunded credit losses. A cumulative effect adjustment resulting in an $8.0 million decrease to retained earnings and a $2.1 million increase to deferred tax assets was also recorded.
The table below provides additional information on the provision for (recovery of)recovery of credit losses for the three-month and the nine-month periods ended September 30, 20212022 and 2020.2021.
| | | Three Months Ended September 30, | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(Dollars in thousands) | (Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 | | 2022 | 2021 |
Allowance for credit losses: | Allowance for credit losses: | | Allowance for credit losses: | |
Beginning balance | Beginning balance | $ | 83,577 | | $ | 73,476 | | $ | 85,675 | | $ | 56,679 | | Beginning balance | | $ | 81,448 | | $ | 83,577 | | | $ | 83,197 | | $ | 85,675 | |
Cumulative change in accounting principle; adoption of ASU 2016-13 | Cumulative change in accounting principle; adoption of ASU 2016-13 | — | | — | | 6,090 | | — | | Cumulative change in accounting principle; adoption of ASU 2016-13 | | — | | — | | | — | | 6,090 | |
Charge-offs(1) | Charge-offs(1) | 1,002 | | 1,529 | | 3,773 | | 6,344 | | Charge-offs(1) | | 1,748 | | 1,002 | | | 5,497 | | 3,773 | |
Recoveries | Recoveries | 3,582 | | 1,255 | | 7,060 | | 5,490 | | Recoveries | | 1,071 | | 3,582 | | | 4,685 | | 7,060 | |
Net (recoveries) charge-offs | (2,580) | | 274 | | (3,287) | | 854 | | |
Net charge-offs (recoveries) | | Net charge-offs (recoveries) | | 677 | | (2,580) | | | 812 | | (3,287) | |
Provision for (recovery of) credit losses | Provision for (recovery of) credit losses | 1,972 | | 13,836 | | (6,923) | | 31,213 | | Provision for (recovery of) credit losses | | 3,190 | | 1,972 | | | 1,576 | | (6,923) | |
Ending balance | Ending balance | $ | 88,129 | | 87,038 | | $ | 88,129 | | 87,038 | | Ending balance | | $ | 83,961 | | $ | 88,129 | | | $ | 83,961 | | 88,129 | |
| Net (recoveries) charge-offs as a % of average loans (annualized) | (0.15) | % | 0.02 | % | (0.06) | % | 0.02 | % | |
Net charge-offs (recoveries) as a % of average loans (annualized) | | Net charge-offs (recoveries) as a % of average loans (annualized) | | 0.04 | % | (0.15) | % | | 0.02 | % | (0.06) | % |
(1) Charge-offs for the nine-month period ended September 30, 2022 included $1.2 million in charge-offs prior to the transfer of certain commercial loans to held for sale.
The following table provides additional information related to the allowance for credit losses for Park including information related to specific reserves and general reserves, at September 30, 2021,2022, June 30, 2022, March 31, 2022, December 31, 20202021 and September 30, 2020. Also included is the January 1, 2021 allowance for credit losses calculated under the CECL methodology prescribed in ASU 2016-13.2021.
| Park - Allowance for Credit Losses | Park - Allowance for Credit Losses | Park - Allowance for Credit Losses |
(Dollars in thousands) | (Dollars in thousands) | 9/30/2021 (CECL methodology) | 1/1/2021 (CECL methodology) | 12/31/2020 (Incurred Loss methodology) | 9/30/2020 (Incurred Loss methodology) | (Dollars in thousands) | 9/30/2022 | 6/30/2022 | 3/31/2022 | 12/31/2021 | 9/30/2021 |
Total allowance for credit losses | Total allowance for credit losses | $ | 88,129 | | $ | 91,764 | | $ | 85,675 | | $ | 87,038 | | Total allowance for credit losses | $ | 83,961 | | $ | 81,448 | | $ | 78,861 | | $ | 83,197 | | $ | 88,129 | |
Allowance on PCD loans (PCI loans for the periods ended in 2020) | — | | 52 | | 167 | | 103 | | |
Allowance on purchased loans excluded from the general reserve | — | | — | | 678 | | 371 | | |
Allowance on PCD loans | | Allowance on PCD loans | — | | — | | — | | — | | — | |
Specific reserves on individually evaluated loans | Specific reserves on individually evaluated loans | 3,466 | | 5,434 | | 5,434 | | 8,666 | | Specific reserves on individually evaluated loans | 1,750 | | 1,874 | | 1,513 | | 1,616 | | 3,466 | |
General reserves on collectively evaluated loans | General reserves on collectively evaluated loans | $ | 84,663 | | $ | 86,278 | | $ | 79,396 | | $ | 77,898 | | General reserves on collectively evaluated loans | $ | 82,211 | | $ | 79,574 | | $ | 77,348 | | $ | 81,581 | | $ | 84,663 | |
| Total loans | Total loans | $ | 6,908,417 | | $ | 7,177,537 | | $ | 7,177,785 | | $ | 7,278,546 | | Total loans | $ | 7,103,246 | | $ | 6,958,685 | | $ | 6,821,606 | | $ | 6,871,122 | | $ | 6,908,417 | |
PCD loans (PCI loans for periods ended in 2020) | 8,705 | | 10,903 | | 11,153 | | 11,877 | | |
Purchased loans excluded from collectively evaluated loans | — | | — | | 360,056 | | 393,752 | | |
PCD loans | | PCD loans | 4,867 | | 5,934 | | 6,987 | | 7,149 | | 8,705 | |
Individually evaluated loans | Individually evaluated loans | 79,264 | | 108,274 | | 108,407 | | 116,138 | | Individually evaluated loans | 43,670 | | 42,523 | | 63,209 | | 74,502 | | 79,264 | |
Collectively evaluated loans | Collectively evaluated loans | $ | 6,820,448 | | $ | 7,058,360 | | $ | 6,698,169 | | $ | 6,756,779 | | Collectively evaluated loans | $ | 7,054,709 | | $ | 6,910,228 | | $ | 6,751,410 | | $ | 6,789,471 | | $ | 6,820,448 | |
| Allowance for credit losses as a % of period end loans | Allowance for credit losses as a % of period end loans | 1.28 | % | 1.28 | % | 1.19 | % | 1.20 | % | Allowance for credit losses as a % of period end loans | 1.18 | % | 1.17 | % | 1.16 | % | 1.21 | % | 1.28 | % |
Allowance for credit losses as a % of period end loans (excluding PPP loans) (1) | Allowance for credit losses as a % of period end loans (excluding PPP loans) (1) | 1.30 | % | 1.34 | % | 1.25 | % | 1.28 | % | Allowance for credit losses as a % of period end loans (excluding PPP loans) (1) | 1.18 | % | 1.15 | % | 1.22 | % | 1.22 | % | 1.30 | % |
| General reserve as a % of collectively evaluated loans | General reserve as a % of collectively evaluated loans | 1.24 | % | 1.22 | % | 1.19 | % | 1.15 | % | General reserve as a % of collectively evaluated loans | 1.17 | % | 1.15 | % | 1.15 | % | 1.20 | % | 1.24 | % |
General reserve as a % of collectively evaluated loans (excluding PPP loans) (1) | General reserve as a % of collectively evaluated loans (excluding PPP loans) (1) | 1.27 | % | 1.28 | % | 1.24 | % | 1.24 | % | General reserve as a % of collectively evaluated loans (excluding PPP loans) (1) | 1.17 | % | 1.15 | % | 1.21 | % | 1.21 | % | 1.27 | % |
(1) ExcludesExcluded $5.7 million of PPP loans and $6,000 in related allowance at September 30, 2022; $13.4 million of PPP loans and $14,000 in related allowance at June 30, 2022; $37.4 million of PPP loans and $39,000 in related allowance at March 31, 2022; $74.4 million of PPP loans and $77,000 in related allowance at December 31, 2021; and $131.5 million of PPP loans and $136,000 in related allowance at September 30, 2021; $331.6 million of PPP loans and $337,000 in related allowance at January 1, 2021; $331.6 million of PPP loans and $337,000 in related allowance at December 31, 2020; and $542.8 million of PPP loans and $543,000 related allowance at September 30, 2020.2021.
The allowance for credit losses of $88.1$84.0 million at September 30, 20212022 represented a $3.6$2.5 million, or 4.0%3.1%, decreaseincrease compared to $91.8$81.4 million at January 1, 2021 as calculated under the CECL methodology.June 30, 2022. The decline since January 1, 2021increase was largely due to a $1.6$2.6 million decreaseincrease in general reserves, taking into consideration improveddeterioration in economic forecasts, inflationary pressures, rising interest rates, and geopolitical conflict (including the conflict between Russia and Ukraine), while balancing thea decrease in risks associated with the COVID-19 pandemic, and the Delta variant, particularly in high risk loan portfolios such as hotels and accommodations, restaurants and food service and strip shopping centers. Additionally, there
The allowance for credit losses of $81.4 million at June 30, 2022 represented a $2.6 million, or 3.3%, increase compared to $78.9 million at March 31, 2022. The increase was largely due to a $2.0$2.2 million increase in general reserves, taking into consideration deterioration in economic forecasts, inflationary pressures, rising interest rates, and geopolitical conflict (including the conflict between Russia and Ukraine), while balancing a decrease in risks associated with the COVID-19 pandemic, particularly in high risk loan portfolios such as hotels and accommodations, restaurants and food service and strip shopping centers.
The allowance for credit losses of $78.9 million at March 31, 2022 represented a $4.3 million, or 5.2%, decrease compared to $83.2 million at December 31, 2021. The decline was largely due to a $4.2 million decrease in specificgeneral reserves, on individually evaluated loans from $5.4 million at January 1, 2021 to $3.5 million at September 30, 2021. Seetaking into consideration improvement in economic forecasts and a decrease in risks associated with the section entitled "Allowance for Credit Losses" for further details.COVID-19 pandemic, particularly in high risk loan portfolios such as hotels and accommodations, restaurants and food service and strip shopping centers while balancing risks associated with inflationary pressures and geopolitical conflict (including the conflict between Russia and Ukraine).
Generally, management obtains updated valuations for all nonperforming loans at least annually. As new valuation information is received, management performs an evaluation and applies a discount for anticipated disposition costs to determine the net realizable value of the collateral, which is compared against the outstanding principal balance to determine if additional write-downs are necessary.
Nonperforming Assets: Nonperforming assets include: (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; (4) OREO which results from taking possession of property that served as collateral for a defaulted loan; and (5) other nonperforming assets. At September 30, 2021, December 31, 20202021 and September 30, 2020,2021, other nonperforming assets consisted of aircraft acquired as part of a loan workout. There were no other nonperforming assets at September 30, 2022.
The following table compares Park’s nonperforming assets at September 30, 2022, December 31, 2021 and September 30, 2021.
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | September 30, 2022 | | December 31, 2021 | | September 30, 2021 |
Nonaccrual loans | | $ | 44,612 | | | $ | 72,722 | | | $ | 87,791 | |
Accruing TDRs | | 19,831 | | | 28,323 | | | 18,797 | |
Loans past due 90 days or more | | 790 | | | 1,607 | | | 284 | |
Total nonperforming loans | | $ | 65,233 | | | $ | 102,652 | | | $ | 106,872 | |
| | | | | | |
OREO | | 1,354 | | | 775 | | | 813 | |
Other nonperforming assets | | — | | | 2,750 | | | 3,164 | |
Total nonperforming assets | | $ | 66,587 | | | $ | 106,177 | | | $ | 110,849 | |
| | | | | | |
Percentage of nonaccrual loans to total loans | | 0.63 | % | | 1.06 | % | | 1.27 | % |
Percentage of nonperforming loans to total loans | | 0.92 | % | | 1.49 | % | | 1.55 | % |
Percentage of nonperforming assets to total loans | | 0.94 | % | | 1.55 | % | | 1.60 | % |
Percentage of nonperforming assets to total assets | | 0.68 | % | | 1.11 | % | | 1.10 | % |
Included in the OREO totals above were $1.4 million of SEPH OREO at September 30, 2022, and $594,000 of SEPH OREO at both December 31, 2021 and September 30, 2021.
The following table compares Park’s nonperforming assets at September 30, 2021, December 31, 2020 and September 30, 2020.
Park National Corporation - Nonperforming Assets
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | September 30, 2021 | | December 31, 2020 | | September 30, 2020 |
Nonaccrual loans | | $ | 87,791 | | | $ | 117,368 | | | $ | 123,050 | |
Accruing TDRs | | 18,797 | | | 20,788 | | | 23,774 | |
Loans past due 90 days or more | | 284 | | | 1,458 | | | 1,618 | |
Total nonperforming loans | | $ | 106,872 | | | $ | 139,614 | | | $ | 148,442 | |
| | | | | | |
OREO | | 813 | | | 1,431 | | | 836 | |
Other nonperforming assets | | 3,164 | | | 3,164 | | | 3,392 | |
Total nonperforming assets | | $ | 110,849 | | | $ | 144,209 | | | $ | 152,670 | |
| | | | | | |
Percentage of nonaccrual loans to total loans | | 1.27 | % | | 1.64 | % | | 1.69 | % |
Percentage of nonperforming loans to total loans | | 1.55 | % | | 1.95 | % | | 2.04 | % |
Percentage of nonperforming assets to total loans | | 1.60 | % | | 2.01 | % | | 2.10 | % |
Percentage of nonperforming assets to total assets | | 1.10 | % | | 1.55 | % | | 1.65 | % |
Included in the OREO totals above were $594,000 of SEPH OREO at each of September 30, 2021, December 31, 2020 and September 30, 2020.
Park classifies loans as nonaccrual when a loan (1) 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 September 30, 2021,2022, December 31, 20202021 and September, 30, 2020.2021. Loans are classified as current if they are less than 30 days past due.
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2020 | | September 30, 2022 | | December 31, 2021 | | September 30, 2021 |
(In thousands) | (In thousands) | | Balance | | Percent of Total Loans | | Balance | | Percent of Total Loans | | Balance | | Percent of Total Loans | (In thousands) | | Balance | | Percent of Total Loans | | Balance | | Percent of Total Loans | | Balance | | Percent of Total Loans |
Nonaccrual loans - current | Nonaccrual loans - current | | $ | 67,722 | | | 0.98 | % | | $ | 92,600 | | | 1.29 | % | | $ | 101,551 | | | 1.39 | % | Nonaccrual loans - current | | $ | 28,472 | | | 0.40 | % | | $ | 53,259 | | | 0.78 | % | | $ | 67,722 | | | 0.98 | % |
Nonaccrual loans - past due | Nonaccrual loans - past due | | 20,069 | | | 0.29 | % | | 24,768 | | | 0.35 | % | | 21,499 | | | 0.30 | % | Nonaccrual loans - past due | | 16,140 | | | 0.23 | % | | 19,463 | | | 0.28 | % | | 20,069 | | | 0.29 | % |
Total nonaccrual loans | Total nonaccrual loans | | $ | 87,791 | | | 1.27 | % | | $ | 117,368 | | | 1.64 | % | | $ | 123,050 | | | 1.69 | % | Total nonaccrual loans | | $ | 44,612 | | | 0.63 | % | | $ | 72,722 | | | 1.06 | % | | $ | 87,791 | | | 1.27 | % |
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 a specific 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.
| Commercial loans * (In thousands) | Commercial loans * (In thousands) | | September 30, 2021 | | December 31, 2020 | | September 30, 2020 | Commercial loans * (In thousands) | | September 30, 2022 | | December 31, 2021 | | September 30, 2021 |
Pass-rated | Pass-rated | | $ | 3,676,310 | | | $ | 3,893,205 | | | $ | 3,959,026 | | Pass-rated | | $ | 3,694,468 | | | $ | 3,712,784 | | | $ | 3,676,310 | |
Special mention | Special mention | | 92,659 | | | 102,812 | | | 103,570 | | Special mention | | 77,156 | | | 75,397 | | | 92,659 | |
Substandard | Substandard | | 39 | | | 109 | | | 1,147 | | Substandard | | 2,224 | | | — | | | 39 | |
Impaired | | 79,264 | | | 108,407 | | | 116,138 | | |
Accruing PCI | | 8,187 | | | 10,296 | | | 11,018 | | |
Individually evaluated for impairment | | Individually evaluated for impairment | | 43,670 | | | 74,502 | | | 79,264 | |
Accruing PCD | | Accruing PCD | | 4,648 | | | 6,630 | | | 8,187 | |
Total | Total | | $ | 3,856,459 | | | $ | 4,114,829 | | | $ | 4,190,899 | | Total | | $ | 3,822,166 | | | $ | 3,869,313 | | | $ | 3,856,459 | |
* Commercial loans include (1) Commercial, financial and agricultural loans, (2) Commercial real estate loans, (3) Commercial related loans in the construction real estate portfolio, (4) Commercial related loans in the residential real estate portfolio and (5) Leases.
Park had $92.7$77.2 million of collectively evaluated commercial loans included on the watch list at September 30, 2021,2022, compared to $102.9$75.4 million at December 31, 2020,2021, and $104.7$92.7 million at September 30, 2020.2021. 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 $92.7$77.2 million of collectively evaluated commercial watch list loans as of September 30, 2021 is2022 was elevated compared to pre-pandemic levels, an increase of $65.9$50.4 million compared to $26.8 million at March 31, 2020. This $65.9$50.4 million increase was largely due to $68.3$34.0 million of hotels and accommodations loans that were downgraded to special mention or substandard as a result of the impact of COVID-19. In additionCOVID-19 and a $22.7 million downgrade to the $68.3 million in hotels and accommodations loans that were downgraded toa special mention $15.6 million in hotels and accommodations loans were downgradedcredit related to impaired status.a loan to a non-bank consumer finance company, partially offset by problem loan resolutions. Park iscontinues to closely monitoringmonitor the impact of COVID-19 and related economic recovery on its borrowers' ability to repay their loans in accordance with contractual terms. As additional information becomes available, management will continue to evaluate loans to ensure appropriate risk classification.
Delinquencies have remained low over the past 33 months since January 1, 2019. Delinquent and accruing loans were $14.3 million, or 0.21% of total loans at September 30, 2021, compared to $20.1 million, or 0.28% of total loans at December 31, 2020, and $23.8 million, or 0.37% of total loans at December 31, 2019.
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 or classified as TDRs will be individually evaluated and are labeled as impaired.evaluated. Individual analysis will establish a specific reserve for loans in scope. Specific reserves on impairedindividually 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 specific reserve as the ultimate liquidation of the collateral may be for an amount different from management’s estimate.
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Impaired
Individually evaluated commercial loans were $43.7 million at September 30, 2022, a decrease of $30.8 million, compared to $74.5 million at December 31, 2021 and a decrease of $35.6 million, compared to $79.3 million at September 30, 2021, a decrease of $29.1 million, compared to $108.4 million at December 31, 2020 and a decrease of $36.9 million, compared to $116.1 million at September 30, 2020.2021. The $79.3$43.7 million of impairedindividually evaluated commercial loans at September 30, 20212022 included $8.2$10.9 million of loans modified in a TDR which were thenare currently on accrual status and performing in accordance with the restructured terms, down from $8.8$17.5 million at December 31, 2020.2021.
At September 30, 2021,2022, Park had taken partial charge-offs of $688,000$795,000 related to the $79.3$43.7 million of individually evaluated commercial loans, considered to be impaired, compared to partial charge-offs of $655,000$624,000 related to the $108.4$74.5 million of impairedindividually evaluated commercial loans at December 31, 2020.2021.
Loans Acquired with Deteriorated Credit Quality: In conjunction with the NewDominion acquisition, Park acquired loans with a book value of $277.9 million as of the July 1, 2018 acquisition date. These loans were recorded at the initial fair value of $272.8 million. Loans acquired with deteriorated credit quality (ASC 310-30) with a book value of $5.1 million were recorded at the initial fair value of $4.9 million. In conjunction with the Carolina Alliance acquisition, Park acquired loans and leases with a book value of $589.7 million as of the April 1, 2019 acquisition date. These loans and leases were recorded at the initial fair value of $578.6 million. Loans and leases acquired with deteriorated credit quality (ASC 310-30) with a book value of $19.9 million were recorded at the initial fair value of $18.4 million
Upon adoption of CECL on January 1, 2021, $52,000 of the credit discount on PCD loans waswere reclassified to the allowance for credit losses. PCD loans are individually evaluated on a quarterly basis to determine if a specific reserve is necessary. At both September 30, 2022 and December 31, 2021, there was no allowance for credit losses on PCD loans. The carrying amount of loans
acquired with deteriorated credit quality at September 30, 20212022 and December 31, 20202021 was $8.7$4.9 million and $11.2$7.1 million, respectively.
Allowance for Credit Losses: The allowance for credit losses is calculated on a quarterly basis. The methodology for calculating the ACL and assumptions made as of September 30, 20212022 are detailed below.
Quantitative Considerations
The ACL is primarily calculated utilizing a DCF model. Key inputs and assumption 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 plans to update the LDA annually; however, due to the impact of COVID-19, the LDA analysis was last updated in the fourth quarter of 2019.
•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 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, a forecast model is utilized to estimate PDs.
•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 JacobsJacobs.
•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 2020.2021.
•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 January 1, 2021, the date of CECL adoption, Park weighted a "most likely" scenario 80%, a "slower near-term growth" scenario 10%, and a "moderate recession" scenario 10%. As of January 1, 2021, the "most likely" scenario forecasted Ohio unemployment to range between 5.31% and 5.79% during the next four quarters.
◦As of MarchDecember 31, 2021, the "most likely" scenario forecasted Ohio unemployment between 3.32% and 3.97% during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2021, management considered the range of forecasted unemployment as well as a number of economic indicators. While some economic indications continued to decrease significantly,be optimistic, the Omicron variant, rising inflation, volatility in consumer confidence, employment, supply chain and workforce challenges continued to a rangecause uncertainty in the overall economic environment. Considering these factors, management determined it was
appropriate to weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2021.
◦As of March 31, 2022, the "most likely" scenario forecasted Ohio unemployment between 3.70%3.36% and 4.93%3.75% during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2021,2022, management considered this improvedthe range of forecasted unemployment as well as a number of economic forecast while balancingindicators. While some economic indications were optimistic, the risks associated withsurging inflation, volatility in consumer confidence, workforce challenges, and geopolitical conflict (including the COVID-19 pandemic, includingconflict between Russia and Ukraine) continued to cause uncertainty in the risk of pandemic-related losses lagging behind the projected improvement in unemployment. Managementoverall economic environment. Considering these factors, management determined it was appropriate to weightmaintain the previous quarter's weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50%. at March 31, 2022. Improved forecasts, largely in the "moderate recession" scenario, resulted in a 4 basis point decline in the weighted quantitative allowance.
◦As of June 30, 2021,2022, the "most likely" scenario forecasted Ohio unemployment to decrease significantly, to a range between 2.85%3.36% and 3.92%3.57% during the next four quarters. In determining the appropriate weighting of scenarios at June 30, 2021,2022, management considered this improvedthe range of forecasted unemployment as well as a number of economic forecastindicators. While some economic indications were optimistic, the surging inflation, declining consumer confidence, rising interest rates, geopolitical conflict (including the conflict between Russia and other positiveUkraine), and workforce and supply chain challenges continued to cause uncertainty to the overall economic indicators while balancing the risks associated with the COVID-19 pandemic, including the continued risk of pandemic-related losses lagging behind the projected improvement in unemployment. Managementenvironment. Considering these factors, management determined it was appropriate to weightmaintain the previous quarter's weighting, and weigh the "most likely" scenario 55%50% and the "moderate recession" scenario 45%50% at June 30, 2021. Management believed that2022. Deteriorating forecasts, largely in the resulting"moderate recession" scenario, resulted in a 4 basis point increase in the weighted quantitative reserve appropriately balanced economic improvement with the ongoing risks.allowance.
◦AsAs of September 30, 2021,2022, the "most likely" scenario forecasted Ohio unemployment to decrease, to a range between 3.03%3.86% and 4.02%, 4.05% during the next four quarters. In determining the appropriate weighting of scenarios at September 30, 2021,2022, management considered the range of forecasted unemployment as well as a number of less optimistic economic indicators, including: a slight uptick in Ohio unemployment, which was contraryindicators. The continued high inflation, low consumer confidence, rising interest rates, geopolitical conflict (including the conflict between Russia and Ukraine), and workforce and supply chain challenges continued to cause uncertainty to the forecast; increased COVID cases; decreased consumer confidence; and decreased occupancy, among others. overall economic environment. Considering these factors, management determined it was appropriate to return tomaintain the March 31, 2021previous quarter's weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at September 30, 2021.2022. Deteriorating forecasts, largely in the "moderate recession" scenario, resulted in a 4 basis point increase in the weighted quantitative allowance.
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, write-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 collectibility of financial assets.
•Where the U.S. economy is within a given credit cycle.
•The extent that there is government assistance (stimulus).
During 2020, Park added an additional reserve for three industries at particularly high risk due to the COVID-19 pandemic: hotels and accommodations; restaurants and food service; and strip shopping centers. These industries have experienced high levels of deferrals and have been particularly impacted by shut downs of non-essential businesses, increased health department regulations, and changes in consumer behavior. Management expects that a relatively higher percentage of the 4-rated credits in these portfolios will eventually migrate to special mention, substandard, or impaired status.doubtful. In adopting CECL, management
determined it was appropriate to retain this qualitative adjustment as this adjustment takes into account the additional risk in these portfolios, which is not captured in the quantitative calculation. Even though COVID-19 case numbers have declined since December 31, 2021, these industries are still recovering from the pandemic effects. As of September 30, 2021,2022, additional reserves totaling $4.6$1.4 million were added for these portfolios on top of the quantitative reserve already calculated. This is an increasewas a decrease from $3.4 million as of June 30, 2021 and $4.5 million as of March 31, 2021 and reflects the previously discussed uncertainty regarding sustained economic improvement due to COVID-19. The $4.6 million in additional COVID-19-related reserves as of September 30, 2021 is also an increase compared to $3.8$5.2 million as of December 31, 2020, which had been calculated under the previous incurred loss methodology.2021 and reflected improvement in COVID-19 cases, eased COVID-19 health department precautions and improving affected industry performance. Management believes there is still residual risk in these portfolios related to pandemic effects and uncertainty in future COVID-19 strains and related impacts.
A breakout of the 4-rated balances within these portfolios and the additional reserve related to these portfolios is detailed in the following table.
| | | | | | | | | | | |
| September 30, 2021 |
(in thousands) | 4-Rated Balance | | Additional Reserve |
Hotels and accommodations | $ | 123,249 | | | $ | 1,854 | |
Restaurants and food service | 33,373 | | | 754 | |
Strip shopping centers | 177,635 | | | 1,961 | |
Total | $ | 334,257 | | | $ | 4,569 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
(in thousands) | 4-Rated Balance | | Additional Reserve | | Pass Rated Balance | | Additional Reserve |
Hotels and accommodations | $ | 182,806 | | | $ | 687 | | | $ | 148,018 | | | $ | 2,226 | |
Restaurants and food service | 49,500 | | | 279 | | | 40,648 | | | 917 | |
Strip shopping centers | 168,144 | | | 464 | | | 184,171 | | | 2,033 | |
Total | $ | 400,450 | | | $ | 1,430 | | | $ | 372,837 | | | $ | 5,176 | |
Additionally, at September 30, 2022, management applied a 1.00%0.50% reserve to all hotels and accommodations loans in the general reservecollectively evaluated population to account for increased valuation risk. This is an increase0.50% reserve was reduced from 0.50%0.75% at June 30, 20212022 and considers some decline in various conditions due to the Delta variant and a decline in hotel occupancy rates.1.00% at December 31, 2021. At September 30, 2021,2022, Park's originatedcollectively evaluated hotels and accommodation loans had a balance of $193.8$218.0 million with an additional reserve related to valuation risks of $1.9$1.1 million. At December 31, 2021, Park's collectively evaluated hotels and accommodation loans had a balance of $203.9 million with an additional reserve related to valuation risks of $2.0 million.
There is still a significant amount of uncertainty related to the economic impact of COVID-19, including the duration of the pandemic, the risk related to new variants, future government programs that may be established in response to the pandemic, and the resiliency of the U.S. economy. Management will continue to evaluate its estimate of expected credit losses as new information becomes available.
As of September 30, 2021,2022, Park had $131.5$5.7 million of PPP loans which were included in the commercial, financial and agricultural portfolio segment. These loans are guaranteed by the SBA and thus have not been reserved for using the same methodology as the rest of Park’s loan portfolio. A 10 basis point reserve was calculated for these loans to reflect minimal credit risk.
Other Income
Other income decreasedincreased by $4.1$14.3 million to $32.4$46.7 million for the quarter ended September 30, 2021,2022, compared to $36.6$32.4 million for the third quarter of 20202021 and increased by $7.7$11.8 million to $109.5 million for the first nine months of 2022, compared to $97.7 million for the first nine months of 2021, compared to $90.0 million for the first nine months of 2020.2021.
The decreaseincrease for the three months ended September 30, 20212022 compared to the three months ended September 30, 20202021 was primarily due: (a)due to decreasesincreases in other service income; gainscharges on deposit accounts, gain on sale of OREO, net;net, income from an OREO valuation markup, and gains on equity securities, net; (b)other components of net periodic pension benefit income, partially offset by increasesdecreases in income from fiduciary activities;activities, other service chargesincome, and gain on deposit accounts; debit card fee income; bank owned life insurance income; and miscellaneous income.equity securities, net.
The increase for the nine months ended September 30, 20212022 compared to the nine months ended September 30, 20202021 was primarily due to: (a)to increases in service charges on deposit accounts, bank owned life insurance income, from fiduciary activities; gain (loss) on equity securities, net; debit card fee income; ATM fees; and miscellaneous income; (b) partially offset by declines in other service income; gain (loss) on sale of OREO, net;net, income from an OREO valuation markup, and other components of net (loss) gain on sale of debt securities.periodic pension benefit income, partially offset by a decrease in other service income and miscellaneous income.
The following table is a summary of the changes in the components of other income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(In thousands) | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Income from fiduciary activities | | $ | 8,820 | | | $ | 7,335 | | | $ | 1,485 | | | $ | 25,562 | | | $ | 21,241 | | | $ | 4,321 | |
Service charges on deposit accounts | | 2,389 | | | 2,118 | | | 271 | | | 6,475 | | | 6,322 | | | 153 | |
Other service income | | 6,668 | | | 13,047 | | | (6,379) | | | 23,444 | | | 25,571 | | | (2,127) | |
Debit card fee income | | 6,453 | | | 5,853 | | | 600 | | | 19,297 | | | 16,373 | | | 2,924 | |
Bank owned life insurance income | | 1,462 | | | 1,192 | | | 270 | | | 3,776 | | | 3,619 | | | 157 | |
ATM fees | | 622 | | | 491 | | | 131 | | | 1,807 | | | 1,341 | | | 466 | |
Gain (loss) on sale of OREO, net | | 3 | | | 569 | | | (566) | | | (26) | | | 1,214 | | | (1,240) | |
Net (loss) gain on sale of debt securities | | — | | | (27) | | | 27 | | | — | | | 3,286 | | | (3,286) | |
Gain (loss) on equity securities, net | | 609 | | | 1,201 | | | (592) | | | 2,886 | | | (749) | | | 3,635 | |
Other components of net periodic pension benefit income | | 2,038 | | | 1,988 | | | 50 | | | 6,114 | | | 5,964 | | | 150 | |
Miscellaneous | | 3,347 | | | 2,791 | | | 556 | | | 8,403 | | | 5,826 | | | 2,577 | |
Total other income | | $ | 32,411 | | | $ | 36,558 | | | $ | (4,147) | | | $ | 97,738 | | | $ | 90,008 | | | $ | 7,730 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(In thousands) | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Income from fiduciary activities | | $ | 8,216 | | | $ | 8,820 | | | $ | (604) | | | $ | 25,872 | | | $ | 25,562 | | | $ | 310 | |
Service charges on deposit accounts | | 2,859 | | | 2,389 | | | 470 | | | 7,496 | | | 6,475 | | | 1,021 | |
Other service income | | 2,956 | | | 6,668 | | | (3,712) | | | 12,715 | | | 23,444 | | | (10,729) | |
Debit card fee income | | 6,514 | | | 6,453 | | | 61 | | | 19,371 | | | 19,297 | | | 74 | |
Bank owned life insurance income | | 1,185 | | | 1,462 | | | (277) | | | 4,734 | | | 3,776 | | | 958 | |
ATM fees | | 610 | | | 622 | | | (12) | | | 1,725 | | | 1,807 | | | (82) | |
Gain (loss) on sale of OREO, net | | 5,607 | | | 3 | | | 5,604 | | | 5,611 | | | (26) | | | 5,637 | |
OREO valuation markup | | 12,009 | | | — | | | 12,009 | | | 12,039 | | | 13 | | | 12,026 | |
Gain on equity securities, net | | 58 | | | 609 | | | (551) | | | 3,120 | | | 2,886 | | | 234 | |
Other components of net periodic pension benefit income | | 3,027 | | | 2,038 | | | 989 | | | 9,081 | | | 6,114 | | | 2,967 | |
Miscellaneous | | 3,653 | | | 3,347 | | | 306 | | | 7,779 | | | 8,390 | | | (611) | |
Total other income | | $ | 46,694 | | | $ | 32,411 | | | $ | 14,283 | | | $ | 109,543 | | | $ | 97,738 | | | $ | 11,805 | |
Income from fiduciary activities increaseddecreased by $1.5 million,$604,000, or 20.2%6.8%, to $8.8$8.2 million for the three months ended September 30, 2021,2022, compared to $7.3$8.8 million for the same period of 20202021 and increased $4.3 million,$310,000, or 20.3%1.2%, to $25.6$25.9 million for the nine months ended September 30, 2021,2022 compared to $21.2$25.6 million for the same period in 2020. Fiduciary2021. The majority of fiduciary fees charged are generallycalculated on a lag, based on the market value of customer accounts.the assets under management. The average market value of assets under management for the three months ended September 30, 20212022 was $7,548$7,062 million compared to $6,301$7,557 million for the same period in 2020.2021. The average market value of assets under management for the first nine months of 20212022 was $7,355$7,216 million compared to $6,023$7,358 million for the same period in 2020.2021.
Service charges on deposit accounts increased by $271,000,$470,000, or 12.8%19.7%, to $2.4$2.9 million for the three months ended September 30, 2021,2022, compared to $2.1$2.4 million for the same period of 20202021 and increased $153,000,$1.0 million, or 2.4%15.8%, to $6.5$7.5 million for the nine months ended September 30, 2021,2022, compared to $6.3$6.5 million for the same period of 2020.2021. The changesincreases for both the threethree-month and nine monththe nine-month periods ended September 30, 20212022 compared to September 30, 20202021 were primarily due mostly to increasesan increase in NSF income. Park implementedincome and monthly maintenance fees on business accounts.
Other service income decreased by $3.7 million, or 55.7%, to $3.0 million for the three months ended September 30, 2022, compared to $6.7 million for the same period of 2021. The primary reason for the decrease for the three months ended September 30, 2022 compared to the same period of 2021 was a decrease in fee income related to mortgage loan originations to be sold in the secondary market of $3.4 million and a decrease in mortgage servicing rights income of $526,000, which were partially offset by an NSF fee increase in December 2020.investor rate locks and mortgage loans held for sale income of $187,000. Mortgage origination volume decreased by $69.4 million, or 31.0%, to $154.1 million for the three months ended September 30, 2022 from $223.5 million for the three months ended September 30, 2021.
Other service income decreased by $10.7 million, or 45.8%, to $12.7 million for the nine months ended September 30, 2022, compared to $23.4 million for the same period of 2021. The primary reasons for the decrease for the nine months ended September 30, 2022 compared to the same period of 2021 were a decrease in fee income related to mortgage loan originations to be sold in the secondary market of $11.1 million and a decrease in mortgage servicing rights income of $1.5 million, which were partially offset by an increase in investor rate locks and mortgage loans held for sale income of $1.3 million and a $247,000 increase in commercial loan fee income. Mortgage origination volume decreased by $318.0 million, or 40.6%, to $466.0 million for the nine months ended September 30, 2022 from $784.0 million for the nine months ended September 30, 2021.
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Other service
Bank owned life insurance income decreased by $6.4 million,$277,000, or 48.9%18.9%, to $6.7$1.2 million for the three months ended September 30, 2021,2022, compared to $13.0$1.5 million for the same period of 2020,2021 and decreased $2.1 million,increased $958,000, or 8.3%25.4%, to $23.4$4.7 million for the nine months ended September 30, 2021,2022, compared to $25.6$3.8 million for the same period in 2020.of 2021. The primary reasons for the decrease for the three months ended September 30, 2021 compared to the same period of 2020 was a decrease in fee income from mortgage loan originations of $5.0 million, and a decrease in mortgage servicing rights income of $1.3 million. The primary reason for the decrease for the nine months ended September 30, 2021 compared to the same period of 2020 was a $5.1 million decrease in income related to investor rate locks and loans held for sale, offset by a $1.4 million increase in mortgage servicing rights income and a $324,000 increase in fee income from mortgage loan originations.
Debit card fee income increased $600,000, or 10.3%, to $6.5 million for the three months ended September 30, 2021, compared to $5.9 million for the same period of 2020 and increased $2.9 million, or 17.9%, to $19.3 million for the nine months ended September 30, 2021, compared to $16.4 million for the same period in 2020. The increases in 2021 for the three-month and nine-month periods were attributable to a continued increase in the sales volume and dollar value of debit card transactions. The volume of debit card transactions for the nine months ended September 30, 2021 increased by 10.3%2022 compared to the same period in 2020 and the dollar value2021 was due to a decrease in death benefit income of transactions increased 17.7% compared to the same period in 2020.
ATM fees increased $131,000, or 26.7%, to $622,000$335,000. The increase for the three monthsnine-month period ended September 30, 2021,2022 compared to $491,000 for the same period of 2020, and increased $466,000, or 34.8%, to $1.8 million for the nine months ended September 30, 2021 comparedwas due to $1.3 million for the first nine months of 2020. Thean increase in ATM feedeath benefit income was primarily due to Park implementing additional charges for ATM balance inquiries and transfers during the second quarter of 2021.$850,000.
Gain (loss) on sale of OREO, net decreasedincreased by $566,000,$5.6 million to a net gain on sale of OREO of $5.6 million for the three months ended September 30, 2022 compared to a net gain on sale of OREO of $3,000 for the three months ended September 30, 2021 comparedand increased $5.6 million to a net gain on sale of $569,000 for the same periodOREO of 2020, and decreased by $1.2$5.6 million to a net loss of $26,000 for the nine months ended September 30, 2021,2022 compared to a net loss on the sale of OREO of $26,000 for the same period in 2021. A $5.6 million gain on the sale of OREO, net, was recognized during the three months and the nine months ended September 30, 2022 related to former Vision Bank relationships. There was no gain on the sale of OREO, net, related to former Vision Bank relationships during the three months and the nine months ended September 30, 2021.
OREO valuation markup income increased by $12.0 million to $12.0 million for both the three months and the nine months ended September 30, 2022 compared to $13,000 for the nine months ended September 30, 2021. There was no OREO valuation market income recognized in the three months ended September 30, 2021. The $12.0 million OREO valuation markup during the three months and the nine months ended September 30, 2022 related to the foreclosure and subsequent sale of a property collateralizing a former Vision Bank relationship. There was no OREO valuation markup related to former Vision Bank relationships during the three months and the nine months ended September 30, 2021.
Gain on equity securities, net, decreased $551,000, to a net gain of $1.2 million for the same period of 2020. The decrease$58,000 for the three months ended September 30, 2021 was primarily due to a $379,000 gain on the sale of one OREO property at SEPH during the three months ended September 30, 2020 that did not occur in the three months ended September 30, 2021, and the decrease during first nine months of 2021 was due to minimal OREO sale activity during the first nine months of 20212022, compared to a $1.2 million gain on the sale of two OREO properties during the first nine months of 2020, one of which was participated to PNB from SEPH.
There were no sales of debt securities during the three and nine months ended September 30, 2021. During the three months ended September 30, 2020, investment securities with a book value of $253.4 million were sold at a net loss of $27,000. During the nine months ended September 30, 2020, investment securities with a book value of $308.9 million were sold at a net gain of $3.3 million.
Gain (loss) on equity securities, net decreased $592,000, to a net gain of $609,000 for the three months ended September 30,same period in 2021 comparedand increased $234,000 to a net gain of $1.2$3.1 million for the same period in 2020 and increased $3.6 millionnine months ended September 30, 2022 compared to a net gain of $2.9 million for the nine months ended September 30, 2021 compared to a net loss of $749,000 during the same time period in 2020.2021. The $592,000$551,000 decrease for the three months ended September 30, 20212022 was related to a $778,000$136,000 decrease in the gain (loss) on other equity securities held at NAV, which went from a $1.3 million$97,000 gain for the three months ended September 30, 20202021 to a $39,000 loss for the three months ended September 30, 2022 and a $415,000 decrease in the gain on equity securities held at NAV, declining from a $512,000 gain for the three months ended September 30, 2021 offset by a $186,000 increase in unrealized gain (loss) on equity securities, which went from an $89,000 unrealized loss for the three months ended September 30, 2020 to a $97,000 unrealized gain for the three months ended September 30, 2021.2022. The $3.6 million$234,000 increase for the nine months ended September 30, 20212022 was related to a $2.4 million$4,000 decrease in gain (loss) on other equity securities which went from a $492,000 gain for the nine months ended September 30, 2021 to a $488,000 gain for the nine months ended September 30, 2022, and a $238,000 increase in the gain (loss) on equity securities held at NAV, which went from a $40,000 loss for the nine months ended September 30, 2020 to a $2.4 million gain for the nine months ended September 30, 2021 and a $1.0 million increase in unrealized gain (loss) on equity securities, which went from a $708,000 unrealized loss for the nine months ended September 30, 2020 to a $316,000 unrealized$2.6 million gain for the nine months ended September 30, 2021. During the nine months ended September 30, 2021, equity securities with a book value of $757,000 were sold at a gain of $177,000. There were no equity securities sold during the three months ended September 30, 2021 and 2020 and during the nine months ended September 30, 2020.2022.
MiscellaneousOther components of net periodic pension benefit income increased $556,000, or 19.9%,$1.0 million to $3.3$3.0 million for the three months ended September 30, 2021,2022 compared to $2.8$2.0 million for the same period of 2020in 2021, and increased $2.6$3.0 million, or 44.2%, to $8.4$9.1 million for the nine months ended September 30, 20212022 compared to $5.9$6.1 million for the nine months ended September 30, 2021. The increases for both the three-month and the nine-month periods were largely due to an increase in the expected return on plan assets as a result of the increased value of plan assets as well as a decrease in the amortization of unrecognized net actuarial losses.
Miscellaneous income increased $306,000, or 9.1%, to $3.7 million for the three months ended September 30, 2022, compared to $3.3 million for the same period of 20202021 and decreased $611,000, or 7.3%, to $7.8 million for the nine months ended September 30, 2022 compared to $8.4 million for the same period of 2021. The increase for the three monthsthree-month period ended September 30, 2022 compared to the same period of 2021 was primarily a result of an increase in annual Visa incentive earned, an increase in fees earned on off-balance sheet deposit accounts, and a gain on sale of loans, partially offset by decreases in brokerage income, printed check sales income, an increase inoperating lease rent and wire transfer fees, an increase in VISA incentive income, and afees. The decrease in the loss on sales of assets. The increase for the nine months period ended September 30, 2022 compared to the same period of 2021 was primarily the result of an increasedecreases in brokerage income, printed check sales income, an insurance refund received on a consumer loan insurance product, an increase in VISA incentive income,operating lease rent, wire transfer fees, and an increase in wire transfer fees.OREO devaluations, partially offset by gains on sale of loans and assets, an increase in annual Visa incentive earned, and an increase in fees earned on off-balance sheet deposit accounts.
Other Expense
Other expense increased by $14.4 million to $82.9 million for the three months ended September 30, 2022 compared to $68.5 million for the same period of 2021 and increased $12.5 million to $220.3 million for the nine months ended September 30, 2022, compared to $207.8 million for the nine months ended September 30, 2021.
Other Expense
Other expense decreased by $1.4 million to $68.5 million for the three months ended September 30, 2021, compared to $69.9 million for the same period of 2020 and increased $6.8 million to $207.8 million for the nine months ended September 30, 2021, compared to $200.9 million for the first nine months of 2020.
The following table is a summary of the changes in the components of other expense:
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| | Three months ended September 30, | | Nine months ended September 30, | |
(In thousands) | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change | |
Salaries | | $ | 29,433 | | | $ | 31,632 | | | $ | (2,199) | | | $ | 89,632 | | | $ | 90,760 | | | $ | (1,128) | | |
Employee benefits | | 10,640 | | | 10,676 | | | (36) | | | 30,897 | | | 29,799 | | | 1,098 | | |
Occupancy expense | | 3,211 | | | 3,835 | | | (624) | | | 9,878 | | | 10,571 | | | (693) | | |
Furniture and equipment expense | | 2,797 | | | 4,687 | | | (1,890) | | | 8,163 | | | 13,856 | | | (5,693) | | |
Data processing fees | | 7,817 | | | 3,275 | | | 4,542 | | | 22,679 | | | 8,344 | | | 14,335 | | |
Professional fees and services | | 6,973 | | | 7,977 | | | (1,004) | | | 19,610 | | | 21,944 | | | (2,334) | | |
Marketing | | 1,574 | | | 1,454 | | | 120 | | | 4,355 | | | 4,076 | | | 279 | | |
Insurance | | 1,403 | | | 1,541 | | | (138) | | | 4,370 | | | 4,568 | | | (198) | | |
Communication | | 796 | | | 958 | | | (162) | | | 2,688 | | | 2,987 | | | (299) | | |
State tax expense | | 1,113 | | | 1,125 | | | (12) | | | 3,324 | | | 3,386 | | | (62) | | |
Amortization of intangible assets | | 420 | | | 525 | | | (105) | | | 1,378 | | | 1,738 | | | (360) | | |
Foundation contribution | | — | | | — | | | — | | | 4,000 | | | — | | | 4,000 | | |
Miscellaneous | | 2,312 | | | 2,174 | | | 138 | | | 6,780 | | | 8,905 | | | (2,125) | | |
Total other expense | | $ | 68,489 | | | $ | 69,859 | | | $ | (1,370) | | | $ | 207,754 | | | $ | 200,934 | | | $ | 6,820 | | |
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| | Three months ended September 30, | | Nine months ended September 30, |
(In thousands) | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Salaries | | $ | 37,889 | | | $ | 29,433 | | | $ | 8,456 | | | $ | 99,462 | | | $ | 89,632 | | | $ | 9,830 | |
Employee benefits | | 9,897 | | | 10,640 | | | (743) | | | 30,595 | | | 30,897 | | | (302) | |
Occupancy expense | | 3,455 | | | 3,211 | | | 244 | | | 9,709 | | | 9,878 | | | (169) | |
Furniture and equipment expense | | 2,912 | | | 2,797 | | | 115 | | | 8,783 | | | 8,163 | | | 620 | |
Data processing fees | | 8,170 | | | 7,817 | | | 353 | | | 24,090 | | | 22,679 | | | 1,411 | |
Professional fees and services | | 8,359 | | | 6,973 | | | 1,386 | | | 20,992 | | | 19,610 | | | 1,382 | |
Marketing | | 1,595 | | | 1,574 | | | 21 | | | 3,931 | | | 4,355 | | | (424) | |
Insurance | | 1,237 | | | 1,403 | | | (166) | | | 3,887 | | | 4,370 | | | (483) | |
Communication | | 1,098 | | | 796 | | | 302 | | | 2,923 | | | 2,688 | | | 235 | |
State tax expense | | 1,186 | | | 1,113 | | | 73 | | | 3,545 | | | 3,324 | | | 221 | |
Amortization of intangible assets | | 341 | | | 420 | | | (79) | | | 1,146 | | | 1,378 | | | (232) | |
Foundation contribution | | 4,000 | | | — | | | 4,000 | | | 4,000 | | | 4,000 | | | — | |
Miscellaneous | | 2,764 | | | 2,312 | | | 452 | | | 7,261 | | | 6,780 | | | 481 | |
Total other expense | | $ | 82,903 | | | $ | 68,489 | | | $ | 14,414 | | | $ | 220,324 | | | $ | 207,754 | | | $ | 12,570 | |
Salaries decreasedincreased by $2.2$8.5 million, or 7.0%28.7%, to $29.4$37.9 million for the three months ended September 30, 2021,2022, compared to $31.6$29.4 million for the same period in 2020.2021. The decreaseincrease for the three months ended September 30, 2022 compared to the same period of 2021 was due to a $1.1an increase of $2.2 million decreasein base salary expense, an increase in additional compensation expense of $3.6 million, which primarily related to payment of $1.8 million in one-time bonuses and an accrual of $1.5 million for future one-time bonuses for additional associates, and an increase in officer incentive compensation and a $934,000 decrease in additional compensation expense, primarily relatedof $2.5 million, compared to calamity pay and special one-time bonuses to certain associates as a result of the COVID-19 public health crisis.three months ended September 30, 2021.
Salaries decreasedincreased by $1.1$9.9 million, or 1.2%11.0%, to $89.6$99.5 million for the nine months ended September 30, 2021,2022, compared to $90.8$89.6 million for the same period in 2020.2021. The decreaseincrease for the nine months ended September 30, 2022, was due to a $1.7an increase of $4.9 million decrease in base salary expense, and a $906,000 decreasean increase in additional compensation expense partially offset by a $1.0of $2.6 million, which primarily related to payment of $1.8 million in one-time bonuses and an accrual of $1.5 million for future one-time bonuses for additional associates, and an increase in officer incentive compensation expense and a $746,000 increase in share-based compensation expense.of $1.5 million, compared to the nine months ended September 30, 2021.
Employee benefits decreased $36,000,$743,000, or 0.3%7.0%, to $10.6$9.9 million for the three months ended September 30, 2021,2022, compared to $10.7$10.6 million for the same period in 2020,2021, and increased $1.1 million,decreased $302,000, or 3.7%1.0%, to $30.9$30.6 million for the nine months ended September 30, 2021,2022 compared to $29.8$30.9 million for the same period in 2020.nine months ended September 30, 2021. The $36,000$743,000 decrease for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to a $365,000 decreasereduction in group insurance costs and a $87,000 decrease in employer payroll taxesof $1.6 million partially offset by anincreased payroll tax expense of $529,000 and a $257,000 increase of $399,000 in pension service cost expense.Park's KSOP match. The $1.1 million increase$302,000 decrease for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to a $1.2 million increase in pension service cost expense and a $112,000 increasereduction in group insurance cost,costs of $1.7 million, partially offset by increased payroll tax expense of $808,000 and a $201,000 decrease$414,000 increase in miscellaneous employee benefits expense.Park's KSOP match.
Furniture and equipment expense decreased by $1.9 million,increased $115,000, or 40.3%4.1%, to $2.8$2.9 million for the three months ended September 30, 2021,2022 compared to $4.7$2.8 million for the same period in 2020,2021, and decreased $5.7increased $620,000, or 7.6%, to $8.8 million or 41.1%,for the nine months ended September 30, 2022 compared to $8.2 million for the nine months ended September 30, 2021,2021. The increase for the three months ended September 30, 2022 compared to $13.9 million for the same period in 2020. The decrease for both periodsthree months ended September 30, 2021 was primarily related to a changean increase in maintenance expense and equipment purchases. The increase for the classification under which software andnine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily related maintenance costs are expensed, which are now classified under data processing fees, partially offset by increasesto an increase in depreciation of furnitureexpense, maintenance expense and equipment.equipment purchases.
Data processing feesexpense increased by $4.5 million,$353,000, or 4.5%, to $7.8$8.2 million for the three months ended September 30, 2021,2022 compared to $3.3$7.8 million for the same period of 2020,in 2021, and increased by $14.3$1.4 million, or 6.2%, to $24.1 million for the nine months ended September 30, 2022 compared to $22.7 million for the nine months ended September 30, 2021,2021. The increase for the three-month period ended September 30, 2022 compared to $8.3 million for the same period of 2020. The increase for both periods wasin 2021 related to increased other data processingan increase in software expenses and software costs, partially due to the previously mentioned change in classification from furniture and equipment expense and a change in expensing software costs from other fees within professional fees and services to data processing fees. The change in data processing fees was also impacted by changesan increase in debit card processing costs. DuringThe increase for the three monthsnine-month period ended September 30, 2021, debit card processing costs declined $68,0002022 compared to the same period of 2020 and increasedin 2021 related to an increase in software expenses, partially offset by $770,000 for the nine months ended September 30, 2021 compared to the same period of 2020.reduced debit card processing costs.
Professional fees and services decreased $1.0expense increased $1.4 million, or 12.6%19.9%, to $7.0$8.4 million for the three months ended September 30, 2021,2022 compared to $8.0$7.0 million for the same period of 2020in 2021, and decreased $2.3increased $1.4 million, or 10.6%7.0%, to $21.0 million for the nine months ended September 30, 2022 compared to $19.6 million for the nine months ended September 30, 20212021. The increases for both the three-month and nine-months periods ended September 30, 2022 compared to $21.9the periods ended September 30, 2021 related to an increase in management consulting fees, mostly related to direct expenses related to the collection of payments on former Vision Bank loan relationships, as well as increases in director fees and recruiting fees.
Insurance expense decreased $166,000, or 11.8%, to $1.2 million for the same period of 2020. The $1.0 million decrease for the three months ended September 30, 2022 compared to $1.4 million for the same period in 2021, and decreased $483,000, or 11.1%, to $3.9 million for the nine months ended September 30, 2022 compared to $4.4 million for the nine months ended September 30, 2021. The decreases for both the three-month and the nine-month periods ended September 30, 2022 compared to the periods ended September 30, 2021 related to a decrease in FDIC assessments.
The Foundation contribution increase for the three months ended September 30, 2022, compared to the same period of 2021, was primarily due to decreases in other fees (duea $4.0 million contribution being made to Park's charitable foundation during the change in expensing software costs under data processing fees), credit costs and recruiting expense, partially offset by increases in legal expense, appraisal fees, consulting fees, and filing fees.three months ended September 30, 2022. The $2.3 million decreaseFoundation contribution for the nine months ended September 30, 2021 was primarily due to decreasesmade in other fees (due to the change in expensing software costs under data processing fees), decreased title and credit costs and ICS promontory fees, partially offset by increases in consulting fees, recruiting expense, legal expense and membership dues.
The Foundation contribution increase for the nine months ended September 30, 2021, compared to the same period of 2020, was due to a $4.0 million contribution to Park's charitable foundation during the nine months ended September 30, 2021 and no similar contribution during the nine months ended September 30, 2020. The 2020 contribution was made during the fourthsecond quarter of 2020. Park does not expect to make any additional contributions to Park's charitable foundation in 2021.
The subcategory "miscellaneous" other expense includes expenses for supplies, travel and other miscellaneous expense. The subcategory miscellaneous other expense decreased $2.1 million,increased $452,000, or 23.9%19.6%, to $6.8$2.8 million for the nine monthsthree-month period ended September 30, 2021,2022, compared to $8.9 million for the same period of 2020. The $2.1in 2021, and increased $481,000, or 7.1%, to $7.3 million decrease was primarily due to a $1.8 million prepayment penalty on FHLB borrowings paid duringfor the nine months ended September 30, 2020 and no similar prepayment during2022, compared to the first nine months ended September 30, 2021. The $452,000 increase in expense for the three months ended September 30, 2022 compared to the same period ended September 30, 2021 was primarily related to an increase in travel expense of 2021$249,000, an increase of $245,000 in non-loan related losses, $126,000 in expenses related to the commercial loan sale, and an increase of $80,000 in the provision for the allowance for unfunded credit losses, partially offset by ana decrease of $105,000 in supplies expense and a $147,000 decrease in operating lease depreciation. The $481,000 increase in expense for the nine months ended September 30, 2022 compared to the same period ended September 30, 2021 was primarily related to a $222,000 expense related to a derivative liability, $126,000 in expenses related to the commercial loan sale, increased travel expense of $545,000, an increase of $166,000 in supplies expense, and an increase of $142,000 in non-loan related losses, partially offset by a decrease of $491,000 in the provision for the allowance for unfunded credit losses and an increasea decrease of $285,000 in non-loan related losses.
operating lease depreciation.
Items Impacting Comparability
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 result fromrelate 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 impact the comparability of current and prior period amounts.
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| THREE MONTHS ENDED | NINE MONTHS ENDED | | |
(in thousands, except share and per share data) | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | | Affected Line Item |
Net interest income | $ | 81,602 | | $ | 83,840 | | $ | 246,187 | | $ | 241,309 | | | |
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions | 799 | | 1,029 | | 2,704 | | 3,556 | | | Interest and fees on loans |
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions | 8 | | 42 | | 40 | | 194 | | | Interest on deposits |
less interest income on former Vision Bank relationships | 414 | | 8 | | 3,357 | | 351 | | | Interest and fees on loans |
Net interest income - adjusted | $ | 80,381 | | $ | 82,761 | | $ | 240,086 | | $ | 237,208 | | | |
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Provision for (recovery of) credit losses | $ | 1,972 | | $ | 13,836 | | $ | (6,923) | | $ | 31,213 | | | |
less recoveries on former Vision Bank relationships | (2,231) | | (37) | | (2,640) | | (1,486) | | | Provision for (recovery of) credit losses |
Provision for (recovery of) credit losses - adjusted | $ | 4,203 | | $ | 13,873 | | $ | (4,283) | | $ | 32,699 | | | |
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Total other income | $ | 32,411 | | $ | 36,558 | | $ | 97,738 | | $ | 90,008 | | | |
less net (loss) gain on the sale of debt securities in the ordinary course of business | — | | (27) | | — | | 3,286 | | | Net (loss) gain on sale of debt securities |
less rebranding initiative related expenses | — | | — | | — | | (274) | | | Miscellaneous income |
less net gain on sale of former Vision Bank OREO properties | — | | 371 | | — | | 1,208 | | | Gain (loss) on sale of OREO, net |
less other service income related to former Vision Bank relationships | 143 | | 36 | | 204 | | 88 | | | Other service income |
Total other income - adjusted | $ | 32,268 | | $ | 36,178 | | $ | 97,534 | | $ | 85,700 | | | |
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Total other expense | $ | 68,489 | | $ | 69,859 | | $ | 207,754 | | $ | 200,934 | | | |
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions | — | | 7 | | 8 | | 117 | | | Salaries |
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions | — | | 152 | | — | | 491 | | | Professional fees and services |
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions | 4 | | 4 | | 12 | | 12 | | | Insurance |
less COVID-19 related expenses | — | | 744 | | 1,535 | | 2,884 | | | Salaries |
less severance and restructuring charges | 140 | | 67 | | 294 | | 403 | | | Salaries |
less management and consulting expenses related to collection of payments on former Vision Bank loan relationships | 254 | | 232 | | 661 | | 232 | | | Professional fees and services |
less rebranding initiative related expenses | — | | — | | — | | 72 | | | Employee benefits |
less rebranding initiative related expenses | 79 | | 47 | | 231 | | 47 | | | Occupancy expense |
less rebranding initiative related expenses | 263 | | — | | 786 | | 75 | | | Furniture and equipment expense |
less rebranding initiative related expenses | — | | — | | 591 | | — | | | Data processing fees |
less rebranding initiative related expenses | 95 | | 372 | | 126 | | 531 | | | Professional fees and services |
less rebranding initiative related expenses | — | | — | | — | | 25 | | | Marketing |
less rebranding initiative related expenses | — | | — | | — | | 2 | | | Communication |
less rebranding initiative related expenses | — | | 10 | | — | | 85 | | | Miscellaneous |
less core deposit intangible amortization related to NewDominion and Carolina Alliance acquisitions | 420 | | 525 | | 1,378 | | 1,738 | | | Amortization of intangible assets |
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| THREE MONTHS ENDED | | NINE MONTHS ENDED | |
(in thousands) | September 30, 2022 | September 30, 2021 | | September 30, 2022 | September 30, 2021 | | Affected Line Item |
Net interest income | $ | 90,828 | | $ | 81,602 | | | $ | 252,453 | | $ | 246,187 | | | |
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions | 494 | | 799 | | | 1,516 | | 2,704 | | | Interest and fees on loans |
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions | 1 | | 8 | | | 6 | | 40 | | | Interest on deposits |
less interest income on former Vision Bank relationships | 649 | | 414 | | | 2,996 | | 3,357 | | | Interest and fees on loans |
Net interest income - adjusted | $ | 89,684 | | $ | 80,381 | | | $ | 247,935 | | $ | 240,086 | | | |
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Provision for (recovery of) credit losses | $ | 3,190 | | $ | 1,972 | | | $ | 1,576 | | $ | (6,923) | | | |
less recoveries on former Vision Bank relationships | (20) | | (2,231) | | | (527) | | (2,640) | | | Provision for (recovery of) credit losses |
Provision for (recovery of) credit losses - adjusted | $ | 3,210 | | $ | 4,203 | | | $ | 2,103 | | $ | (4,283) | | | |
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Total other income | $ | 46,694 | | $ | 32,411 | | | $ | 109,543 | | $ | 97,738 | | | |
less other service income related to former Vision Bank relationships | 3 | | 143 | | | 503 | | 204 | | | Other service income |
less gain on the sale of OREO, net | 5,607 | | — | | | 5,607 | | — | | | Gain (loss) on sale of OREO, net |
less Vision related OREO valuation markup | 12,009 | | — | | | 12,009 | | — | | | OREO valuation markup |
Total other income - adjusted | $ | 29,075 | | $ | 32,268 | | | $ | 91,424 | | $ | 97,534 | | | |
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Total other expense | $ | 82,903 | | $ | 68,489 | | | $ | 220,324 | | $ | 207,754 | | | |
less direct expenses related to collection of payments on former Vision Bank loan relationships | 1,295 | | 254 | | | 1,661 | | 661 | | | Professional fees and services |
less core deposit intangible amortization related to NewDominion and Carolina Alliance acquisitions | 341 | | 420 | | | 1,146 | | 1,378 | | | Amortization of intangible assets |
less Foundation contribution | 4,000 | | — | | | 4,000 | | 4,000 | | | Foundation contribution |
Total other expense - adjusted | $ | 77,267 | | $ | 67,815 | | | $ | 213,517 | | $ | 201,715 | | | |
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Tax effect of adjustments to net income identified above (7) | $ | (2,761) | | $ | (613) | | | $ | (3,435) | | $ | (610) | | | |
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Net income - reported | $ | 42,068 | | $ | 35,434 | | | $ | 115,267 | | $ | 117,397 | | | |
Net income - adjusted (6) | $ | 31,682 | | $ | 33,126 | | | $ | 102,345 | | $ | 115,101 | | | |
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Table of Contents
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| THREE MONTHS ENDED | NINE MONTHS ENDED | | |
(in thousands, except share and per share data) | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | | Affected Line Item |
less Foundation contribution | | — | | 4,000 | | — | | | Foundation contribution |
less FHLB prepayment penalty | — | | — | | — | | 1,793 | | | Miscellaneous |
Total other expense - adjusted | $ | 67,234 | | $ | 67,699 | | $ | 198,132 | | $ | 192,427 | | | |
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Tax effect of adjustments to net income identified above (7) | $ | (491) | | $ | 139 | | $ | 142 | | $ | (291) | | | |
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Net income - reported | $ | 35,434 | | $ | 30,846 | | $ | 117,397 | | $ | 82,723 | | | |
Net income - adjusted | $ | 33,585 | | $ | 31,371 | | $ | 117,932 | | $ | 81,626 | | | |
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Diluted EPS | $ | 2.16 | | $ | 1.88 | | $ | 7.14 | | $ | 5.04 | | | |
Diluted EPS, adjusted (6) | $ | 2.04 | | $ | 1.91 | | $ | 7.17 | | $ | 4.98 | | | |
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Annualized return on average assets (1)(2) | 1.40 | % | 1.28 | % | 1.59 | % | 1.20 | % | | |
Annualized return on average assets, adjusted (1)(2)(6) | 1.32 | % | 1.31 | % | 1.60 | % | 1.18 | % | | |
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Annualized return on average tangible assets (1)(2)(4) | 1.42 | % | 1.31 | % | 1.62 | % | 1.22 | % | | |
Annualized return on average tangible assets, adjusted (1)(2)(4)(6) | 1.35 | % | 1.33 | % | 1.63 | % | 1.21 | % | | |
| | | | | | |
Annualized return on average shareholders' equity (1)(2) | 13.04 | % | 12.03 | % | 14.79 | % | 11.05 | % | | |
Annualized return on average shareholders' equity, adjusted (1)(2)(6) | 12.36 | % | 12.23 | % | 14.86 | % | 10.90 | % | | |
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Annualized return on average tangible equity (1)(2)(3) | 15.44 | % | 14.43 | % | 17.58 | % | 13.31 | % | | |
Annualized return on average tangible equity, adjusted (1)(2)(3)(6) | 14.63 | % | 14.67 | % | 17.66 | % | 13.14 | % | | |
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Efficiency ratio (5) | 59.70 | % | 57.69 | % | 60.03 | % | 60.26 | % | | |
Efficiency ratio, adjusted (5)(6) | 59.31 | % | 56.58 | % | 58.31 | % | 59.20 | % | | |
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Annualized net interest margin (5) | 3.53 | % | 3.85 | % | 3.67 | % | 3.88 | % | | |
Annualized net interest margin, adjusted (5)(6) | 3.48 | % | 3.80 | % | 3.58 | % | 3.81 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| THREE MONTHS ENDED | | NINE MONTHS ENDED | |
(in thousands, except share and per share data) | September 30, 2022 | September 30, 2021 | | September 30, 2022 | September 30, 2021 | | |
Diluted EPS | $ | 2.57 | | $ | 2.16 | | | $ | 7.05 | | $ | 7.14 | | | |
Diluted EPS, adjusted (6) | $ | 1.93 | | $ | 2.02 | | | $ | 6.26 | | $ | 7.00 | | | |
| | | | | | | |
Annualized return on average assets (1)(2) | 1.61 | % | 1.40 | % | | 1.55 | % | 1.59 | % | | |
Annualized return on average assets, adjusted (1)(2)(6) | 1.21 | % | 1.31 | % | | 1.37 | % | 1.60 | % | | |
| | | | | | | |
Annualized return on average tangible assets (1)(2)(4) | 1.63 | % | 1.42 | % | | 1.57 | % | 1.62 | % | | |
Annualized return on average tangible assets, adjusted (1)(2)(4)(6) | 1.23 | % | 1.33 | % | | 1.40 | % | 1.59 | % | | |
| | | | | | | |
Annualized return on average shareholders' equity (1)(2) | 15.50 | % | 13.04 | % | | 14.22 | % | 14.79 | % | | |
Annualized return on average shareholders' equity, adjusted (1)(2)(6) | 11.68 | % | 12.19 | % | | 12.62 | % | 14.50 | % | | |
| | | | | | | |
Annualized return on average tangible equity (1)(2)(3) | 18.33 | % | 15.44 | % | | 16.80 | % | 17.58 | % | | |
Annualized return on average tangible equity, adjusted (1)(2)(3)(6) | 13.81 | % | 14.43 | % | | 14.91 | % | 17.24 | % | | |
| | | | | | | |
Efficiency ratio (5) | 59.88 | % | 59.70 | % | | 60.43 | % | 60.03 | % | | |
Efficiency ratio, adjusted (5)(6) | 64.56 | % | 59.82 | % | | 62.44 | % | 59.37 | % | | |
| | | | | | | |
Annualized net interest margin (5) | 3.81 | % | 3.53 | % | | 3.74 | % | 3.67 | % | | |
Annualized net interest margin, adjusted (5)(6) | 3.76 | % | 3.48 | % | | 3.67 | % | 3.58 | % | | |
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| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| THREE MONTHS ENDED | NINE MONTHS ENDED | | |
(in thousands, except share and per share data) | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | | Affected Line Item |
| | | | | | |
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| | | | | | | | | | | | | | |
Financial Reconciliations | | | | |
| | | | |
(1) Reported measure uses net income | | |
(2) Averages are for the three months and nine months ended September 30, 2021 and September 30, 2020 | | |
(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: |
| THREE MONTHS ENDED | NINE MONTHS ENDED |
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 |
AVERAGE SHAREHOLDERS' EQUITY | $ | 1,078,465 | | $ | 1,020,239 | | $ | 1,061,066 | | $ | 1,000,241 | |
Less: Average goodwill and other intangible assets | 167,754 | | 169,726 | | 168,215 | | 170,311 | |
AVERAGE TANGIBLE EQUITY | $ | 910,711 | | $ | 850,513 | | $ | 892,851 | | $ | 829,930 | |
| | | | |
(4) Net income for each period divided by average tangible assets during the period. Average tangible assets equals average assets less average goodwill and other intangible assets, in each case during the applicable period. |
| | | | |
RECONCILIATION OF AVERAGE ASSETS TO AVERAGE TANGIBLE ASSETS |
| THREE MONTHS ENDED | NINE MONTHS ENDED |
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 |
AVERAGE ASSETS | $ | 10,070,716 | | $ | 9,557,682 | | $ | 9,583,457 | | $ | 9,216,495 | |
Less: Average goodwill and other intangible assets | 167,754 | | 169,726 | | 168,215 | | 170,311 | |
AVERAGE TANGIBLE ASSETS | $ | 9,902,962 | | $ | 9,387,956 | | $ | 9,415,242 | | $ | 9,046,184 | |
| | | | |
(5) Efficiency ratio is calculated by dividing total other expense by the sum of fully taxable equivalent net interest income and other income. Fully taxable equivalent net interest income reconciliation is shown assuming a 21% federal corporate income tax rate. Additionally, net interest margin is calculated on a fully taxable equivalent basis by dividing fully taxable equivalent net interest income by average interest earning assets. |
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RECONCILIATION OF FULLY TAXABLE EQUIVALENT NET INTEREST INCOME TO NET INTEREST INCOME |
| THREE MONTHS ENDED | NINE MONTHS ENDED |
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 |
Interest income | $ | 85,420 | | $ | 89,566 | | $ | 258,587 | | $ | 265,920 | |
Fully taxable equivalent adjustment | 717 | | 706 | | 2,149 | | 2,154 | |
Fully taxable equivalent interest income | $ | 86,137 | | $ | 90,272 | | $ | 260,736 | | $ | 268,074 | |
Interest expense | 3,818 | | 5,726 | | 12,400 | | 24,611 | |
Fully taxable equivalent net interest income | $ | 82,319 | | $ | 84,546 | | $ | 248,336 | | $ | 243,463 | |
| | | | |
(6) Adjustments to net income for each period presented are detailed in the non-GAAP reconciliations of net interest income, provision for (recovery of) credit losses, total other income and total other expense. |
(7) The tax effect of adjustments to net income was calculated assuming a 21% federal corporate income tax rate. | | |
| | | | | | | | | | | | | | | | | |
Financial Reconciliations | | | | | |
| | | | | |
(1) Reported measure uses net income | | | |
(2) Averages are for the three months and nine months ended September 30, 2022 and September 30, 2021. | | | |
(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. |
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RECONCILIATION OF AVERAGE SHAREHOLDERS' EQUITY TO AVERAGE TANGIBLE EQUITY: | | | |
| THREE MONTHS ENDED | | NINE MONTHS ENDED |
| September 30, 2022 | September 30, 2021 | | September 30, 2022 | September 30, 2021 |
AVERAGE SHAREHOLDERS' EQUITY | $ | 1,076,526 | | $ | 1,078,465 | | | $ | 1,084,080 | | $ | 1,061,066 | |
Less: Average goodwill and other intangible assets | 166,136 | | 167,754 | | | 166,521 | | 168,215 | |
AVERAGE TANGIBLE EQUITY | $ | 910,390 | | $ | 910,711 | | | $ | 917,559 | | $ | 892,851 | |
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(4) Net income for each period divided by average tangible assets during the period. Average tangible assets equals average assets less average goodwill and other intangible assets, in each case during the applicable period. |
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RECONCILIATION OF AVERAGE ASSETS TO AVERAGE TANGIBLE ASSETS | | | |
| THREE MONTHS ENDED | | NINE MONTHS ENDED |
| September 30, 2022 | September 30, 2021 | | September 30, 2022 | September 30, 2021 |
AVERAGE ASSETS | $ | 10,384,049 | | $ | 10,070,716 | | | $ | 9,964,863 | | $ | 9,583,457 | |
Less: Average goodwill and other intangible assets | 166,136 | | 167,754 | | | 166,521 | | 168,215 | |
AVERAGE TANGIBLE ASSETS | $ | 10,217,913 | | $ | 9,902,962 | | | $ | 9,798,342 | | $ | 9,415,242 | |
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(5) Efficiency ratio is calculated by dividing total other expense by the sum of fully taxable equivalent net interest income and other income. Fully taxable equivalent net interest income reconciliation is shown assuming a 21% federal corporate income tax rate. Additionally, net interest margin is calculated on a fully taxable equivalent basis by dividing fully taxable equivalent net interest income by average interest earning assets, in each case during the applicable period. |
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RECONCILIATION OF FULLY TAXABLE EQUIVALENT NET INTEREST INCOME TO NET INTEREST INCOME |
| THREE MONTHS ENDED | | NINE MONTHS ENDED |
| September 30, 2022 | September 30, 2021 | | September 30, 2022 | September 30, 2021 |
Interest income | $ | 99,944 | | $ | 85,420 | | | $ | 269,437 | | $ | 258,587 | |
FTE adjustment | 932 | | 717 | | | 2,623 | | 2,149 | |
FTE interest income | $ | 100,876 | | $ | 86,137 | | | $ | 272,060 | | $ | 260,736 | |
Interest expense | 9,116 | | 3,818 | | | 16,984 | | 12,400 | |
FTE net interest income | $ | 91,760 | | $ | 82,319 | | | $ | 255,076 | | $ | 248,336 | |
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(6) Adjustments to net income for each period presented are detailed in the non-GAAP reconciliations of net interest income, provision for (recovery of) credit losses, total other income and total other expense. |
(7) The tax effect of adjustments to net income was calculated assuming a 21% federal corporate income tax rate. |
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(8) Pre-tax, pre-provision ("PTPP") net income is calculated as net income, plus income taxes, plus the provision for (recovery of) 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 (recovery of) credit losses. |
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RECONCILIATION OF PRE-TAX, PRE-PROVISION NET INCOME | |
| THREE MONTHS ENDED | NINE MONTHS ENDED |
| September 30, 2022 | September 30, 2021 | | September 30, 2022 | September 30, 2021 |
Net income | $ | 42,068 | | $ | 35,434 | | | $ | 115,267 | | $ | 117,397 | |
Plus: Income Taxes | 9,361 | | 8,118 | | | 24,829 | | 25,697 | |
Plus: Provision for (recovery of) credit losses | 3,190 | | 1,972 | | | 1,576 | | (6,923) | |
Pre-tax, pre-provision net income | $ | 54,619 | | $ | 45,524 | | | $ | 141,672 | | $ | 136,171 | |
Income Tax
Income tax expense was $9.4 million for the third quarter of 2022 and consisted of federal income tax expense of $9.0 million and state income tax expense of $341,000. This compares to income tax expense of $8.1 million for the third quarter of 2021 andwhich consisted of federal income tax expense of $7.9 million and state income tax expense of $264,000. This compares to income tax expense of $5.9 million for the third quarter of 2020 which consisted of federal income tax expense of $5.6 million and state income tax expense of $271,000. The effective income tax rate for the third quarter of 20212022 was 18.6%18.2%, compared to 16.0%18.6% for the same period in 2020.
2021. Income tax expense was $24.8 million for the nine months ended September 30, 2022 and consisted of federal income tax expense of $23.8 million and state income tax expense of $987,000. This compares to income tax expense of $25.7 million for the first nine months ofended September 30, 2021 andwhich consisted of federal income tax expense of $24.9 million and state income tax expense of $793,000. This compares to income tax expense of $16.4 million for the first nine months of 2020 which consisted of federal income tax expense of $15.6 million and state income tax expense of $814,000. The effective income tax rate for the first nine months of 2021ended September 30, 2022 was 18.0%17.7%, compared to 16.6%18.0% for the same period in 2020.2021.
The difference between the statutory federal corporate income tax rate of 21% and Park's effective income tax rate reflects 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 the common shares held within Park's salary deferral plan offset by the impact of state income taxes. Park expects permanent federal income tax differences for the 20212022 year will be approximately $6.3$7.0 million.
Comparison of Financial Condition
At September 30, 20212022 and December 31, 20202021
Changes in Financial Condition
Total assets increased by $755.0$294.8 million, or 8.1%3.1%, during the first nine months of 20212022 to $10,034$9,855 million at September 30, 2021,2022, compared to $9,279$9,560 million at December 31, 2020.2021. This increase was primarily due to the following:
•Cash and cash equivalentsTotal investment securities increased by $506.9$12.7 million, or 136.8%0.7%, to $877.4$1,828 million at September 30, 2021,2022, compared to $370.5$1,815 million at December 31, 2020. Money market instruments were $749.72021.
•Loans increased by $232.1 million, or 3.4%, to $7,103 million at September 30, 2021,2022, compared to $214.9$6,871 million at December 31, 2020 and cash and due from banks2021. PPP loans were $127.7$5.7 million at September 30, 2021,2022, compared to $155.6$74.4 million at December 31, 2020.2021.
•Investment securitiesPrepaid assets increased $484.5by $14.2 million, or 43.1%9.8%, to $1,609$158.3 million at September 30, 2021,2022, compared to $1,125$144.1 million at December 31, 2020.2021.
•Other assets increased by $21.4$36.3 million, or 456.2%357.8%, to $26.1$46.5 million at September 30, 2021,2022, compared to $4.7$10.2 million at December 31, 2020.2021. This was primarily related to a re-classification ofan increase in deferred items and tax payables between assets and liabilities.
•Prepaid assets increased by $12.7 million, or 12.3%, to $116.2 million at September 30, 2021, compared to $103.5 million at December 31, 2020.
•Loans decreased by $269.4 million, or 3.8%, to $6,908 million at September 30, 2021, compared to $7,178 million at December 31, 2020. PPP loans were $131.5 million at September 30, 2021 compared to $331.6 million at December 31, 2020.assets.
Total liabilities increased by $727.3$369.4 million, or 8.8%4.4%, during the first nine months of 20212022 to $8,966$8,819 million at September 30, 2021,2022, compared to $8,239$8,449 million at December 31, 2020.2021. This increase was primarily due to the following:
•Total deposits increased by $792.0$405.4 million, or 10.5%5.1%, to $8,364$8,310 million at September 30, 2021,2022, compared to $7,572$7,905 million at December 31, 2020.2021. During 2020, Park made the decision to participate in aan OWS program in order to manage the balance sheet. At September 30, 20212022 and December 31, 2020,2021, Park had $818.3$766.2 million and $710.1$983.1 million, respectively, in OWS insured cash sweep deposits which were off-balance sheet.
•Unsettled investment commitments were $52.5 million at September 30, 2021. There were no unsettled investment commitments at December 31, 2020. This liability relates to a purchase commitment of debt securities AFS.
•Other liabilities increased $17.0 million, or 31.1%, to $71.6 million at September 30, 2021, compared to $54.6 million at December 31, 2020. This was primarily related to a re-classification of deferred items and tax payables between assets and liabilities.
•The allowance for credit loss on off-balance sheet commitments increased by $4.5 million to $4.6 million at September 30, 2021, compared to $116,000 at December 31, 2020. This increase was due to the adoption of ASU 2016-13 effective January 1, 2021.deposits.
•Short-term borrowings decreased by $106.3$49.3 million, or 31.0%20.6%, to $236.0$189.5 million at September 30, 2021,2022, compared to $342.2$238.8 million at December 31, 2020.2021.
•Long-term borrowings decreasedOther liabilities increased by $32.5$12.5 million, or 100%. There were no long-term borrowings18.5%, to $80.3 million at September 30, 2021,2022, compared to $32.5$67.8 million at December 31, 2020.2021. This was primarily related to an increase in liabilities related to Partnership Investments.
Total shareholders’ equity increaseddecreased by $27.7$74.6 million, or 2.7%6.7%, to $1,067.9$1,036 million at September 30, 2021,2022, from $1,040.3$1,111 million at December 31, 2020.2021. This increasedecrease was primarily due to the following:
•Accumulated other comprehensive (loss) income, net of taxes changed by $140.5 million, from a positive $15.2 million at December 31, 2021, to a negative $125.3 million at September 30, 2022, largely as a result of unrealized net holding losses on debt securities AFS, net of taxes, of $140.7 million.
•Retained earnings increased by $54.9$62.9 million during the period primarily as a result of net income of $117.4$115.3 million, partially offset by cash dividends on common share dividendsshares of $54.4 million and the impact of the adoption of ASU 2016-13 of $8.0$51.4 million.
•Treasury shares decreased by $13.1$3.5 million during the period as a result of the repurchase of treasury shares partially offset by the issuance of treasury shares under share-based compensation awards (net of common shares withheld to pay employee income taxes).
•Accumulated other comprehensive (loss) income, net
Table of taxes declined by $13.4 million, from a positive $5.6 million at December 31, 2020, to a negative $7.8 million at September 30, 2021, as a result of unrealized net holding losses on debt securities AFS, net of taxes, of $13.7 million, partially offset by an unrealized gain on cash flow hedging derivatives, net of taxes, of $355,000.Contents
Increases or decreases in the investment securities portfolio, short-term borrowings and long-term debt are greatly dependent upon the growth in loans and deposits. The primary objective of management is to grow loan and deposit totals. To the extent that management is unable to grow loan totals at a desired growth rate, additional investment securities may be acquired. Likewise, both short-term borrowings and long-term debt are utilized to fund the growth in earning assets if the growth in deposits and cash flow from operations are not sufficient to do so.
Liquidity
Cash provided by operating activities was $112.6$89.6 million and $52.4$112.6 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. Net income was the primary source of cash from operating activities for each of the nine-month periods ended September 30, 20212022 and 2020.2021.
Cash used in investing activities was $186.2$403.2 million and $531.8$186.2 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. Proceeds from the sale, repayment, or maturity of investment securities provide cash and purchases of investment securities use cash. Net investment securities transactions used cash of $175.2 million for the nine months ended September 30, 2022 and used cash of $447.9 million for the nine months ended September 30, 2021 and provided cash of $213.9 million for the nine months ended September 30, 2020.2021. Another major use or source of cash in investing activities is the net increase or decrease in the loan portfolio. Cash used by the net increase in the loan portfolio was $234.2 million for the nine months ended September 30, 2022 and cash provided by the net decrease in the loan portfolio was $269.4 million for the nine months ended September 30, 2021 and cash used by the net increase in the loan portfolio was $727.4 million for the nine months ended September 30, 2020.2021.
Cash provided by financing activities was $580.5$301.8 million and $566.1$580.5 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. A major source of cash for financing activities is the net change in deposits. Deposits (net of off-balance sheet deposits) increased and provided $792.1$405.4 million (net of OWS) and $423.4$792.1 million of cash for the nine months ended September 30, 20212022 and 2020,2021, respectively. Another major source/use of cash from financing activities is borrowings in the form of short-term borrowings, long-term debt and subordinated notes. For the nine months ended September 30, 2022, net short-term borrowings decreased and used $49.3 million in cash. For the nine months ended September 30, 2021, net short-term borrowings decreased and used $106.3 million in cash and net long-term borrowings decreased and used $32.5 million in cash. For the nine months ended September 30, 2020, net short-term borrowings increased and provided $89.8 million in cash and net long-term borrowings decreased and used $57.5 million in cash. In addition, the proceeds from the issuance of subordinated notes provided $172.6 million in cash. Finally, cash declined by $54.4$51.6 million and $53.7$54.4 million for the nine months ended September 30, 20212022 and 2020,2021, respectively, from the payment of 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. The Corporation’s loan to asset ratio was 71.23% at September 30, 2022, compared to 71.87% at December 31, 2021 and 68.85% at September 30, 2021, compared to 77.35% at December 31, 2020 and 78.77% at September 30, 2020.2021. Cash and cash equivalents were $207.4 million at September 30, 2022, compared to $219.2 million at December 31, 2021 and $877.4 million at September 30, 2021, compared to $370.5 million at December 31, 2020 and $246.7 million at September 30, 2020.2021. Management believes that the present funding sources provide more than adequate liquidity for the Corporation to meet its cash flow needs.
Capital Resources
Shareholders’ equity at September 30, 2022 was $1,036.2 million, or 10.5% of total assets, compared to $1,110.8 million, or 11.6% of total assets, at December 31, 2021 wasand $1,067.9 million, or 10.6% of total assets, compared to $1,040.3 million, or 11.2% of total assets, at December 31, 2020 and $1,017.0 million, or 11.0% of total assets, at September 30, 2020.2021.
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. During the first quarter of 2015, Park has adopted the Basel III regulatory capital framework as approved by the federal banking agencies. The adoption of this framework modifiedUnder the calculation of the variousBasel III regulatory capital ratios, added an additional ratio, common equity tier 1, and revised the adequately and well-capitalized thresholds under the prompt corrective action regulations applicable to PNB. Additionally, under this 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 capital conservation buffer was fully phased in at 2.50% on January 1, 2019. The amounts shown below as the adequately capitalized ratio plus capital conservation buffer includesinclude 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 September 30, 2021.2022. The following table indicates the capital ratios for PNB and Park at September 30, 20212022 and December 31, 2020.2021.
| | | At September 30, 2021 | | At September 30, 2022 |
| | Leverage | | Tier 1 Risk-Based | | Common Equity Tier 1 | | Total Risk-Based | | Leverage | | Tier 1 Risk-Based | | Common Equity Tier 1 | | Total Risk-Based |
The Park National Bank | The Park National Bank | 8.28 | % | | 11.04 | % | | 11.04 | % | | 12.63 | % | The Park National Bank | 8.23 | % | | 10.68 | % | | 10.68 | % | | 12.12 | % |
Park National Corporation | Park National Corporation | 9.32 | % | | 12.40 | % | | 12.19 | % | | 15.97 | % | Park National Corporation | 9.76 | % | | 12.70 | % | | 12.51 | % | | 16.00 | % |
Adequately capitalized ratio | Adequately capitalized ratio | 4.00 | % | | 6.00 | % | | 4.50 | % | | 8.00 | % | Adequately capitalized ratio | 4.00 | % | | 6.00 | % | | 4.50 | % | | 8.00 | % |
Adequately capitalized ratio plus capital conservation buffer | Adequately capitalized ratio plus capital conservation buffer | 4.00 | % | | 8.50 | % | | 7.00 | % | | 10.50 | % | Adequately capitalized ratio plus capital conservation buffer | 4.00 | % | | 8.50 | % | | 7.00 | % | | 10.50 | % |
Well capitalized ratio (PNB) | Well capitalized ratio (PNB) | 5.00 | % | | 8.00 | % | | 6.50 | % | | 10.00 | % | Well capitalized ratio (PNB) | 5.00 | % | | 8.00 | % | | 6.50 | % | | 10.00 | % |
Well capitalized ratio (Park) | Well capitalized ratio (Park) | N/A | | 6.00 | % | | N/A | | 10.00 | % | Well capitalized ratio (Park) | N/A | | 6.00 | % | | N/A | | 10.00 | % |
| | | At December 31, 2020 | | At December 31, 2021 |
| | Leverage | | Tier 1 Risk-Based | | Common Equity Tier 1 | | Total Risk-Based | | Leverage | | Tier 1 Risk-Based | | Common Equity Tier 1 | | Total Risk-Based |
The Park National Bank | The Park National Bank | 8.59 | % | | 10.66 | % | | 10.66 | % | | 12.16 | % | The Park National Bank | 8.58 | % | | 11.05 | % | | 11.05 | % | | 12.56 | % |
Park National Corporation | Park National Corporation | 9.63 | % | | 11.92 | % | | 11.72 | % | | 15.43 | % | Park National Corporation | 9.77 | % | | 12.57 | % | | 12.37 | % | | 16.05 | % |
Adequately capitalized ratio | Adequately capitalized ratio | 4.00 | % | | 6.00 | % | | 4.50 | % | | 8.00 | % | Adequately capitalized ratio | 4.00 | % | | 6.00 | % | | 4.50 | % | | 8.00 | % |
Adequately capitalized ratio plus capital conservation buffer | Adequately capitalized ratio plus capital conservation buffer | 4.00 | % | | 8.50 | % | | 7.00 | % | | 10.50 | % | Adequately capitalized ratio plus capital conservation buffer | 4.00 | % | | 8.50 | % | | 7.00 | % | | 10.50 | % |
Well capitalized ratio (PNB) | Well capitalized ratio (PNB) | 5.00 | % | | 8.00 | % | | 6.50 | % | | 10.00 | % | Well capitalized ratio (PNB) | 5.00 | % | | 8.00 | % | | 6.50 | % | | 10.00 | % |
Well capitalized ratio (Park) | Well capitalized ratio (Park) | N/A | | 6.00 | % | | N/A | | 10.00 | % | Well capitalized ratio (Park) | N/A | | 6.00 | % | | N/A | | 10.00 | % |
Contractual Obligations and Commitments
In the ordinary course of operations, Park enters into certain contractual obligations. Such obligations include the funding of operations through debt issuances as well as leases for premises. See page 8379 of Park’s 20202021 Form 10-K (Table 42)39) for disclosure concerning contractual obligations and commitments at December 31, 2020.2021. There were no other significant changes in contractual obligations and commitments during the first nine months of 2021.2022.
Financial Instruments with Off-Balance Sheet Risk
PNB is a 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 instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements.
The exposure to credit loss (for PNB) 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 instruments. PNB 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:
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(In thousands) | | September 30, 2021 | | December 31, 2020 |
Loan commitments | | $ | 1,379,838 | | | $ | 1,372,182 | |
Standby letters of credit | | $ | 19,641 | | | $ | 17,015 | |
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(In thousands) | | September 30, 2022 | | December 31, 2021 |
Loan commitments | | $ | 1,444,741 | | | $ | 1,364,224 | |
Standby letters of credit | | $ | 26,518 | | | $ | 18,216 | |
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management reviews interest rate sensitivity on a monthlyquarterly basis by modeling the consolidated financial statements under various interest rate scenarios. The primary reason for these efforts is to guard Park from adverse impacts of unforeseen changes in interest rates. With the rise in interest rates experienced throughout 2022, Park is now more exposed to an adverse impact to earnings in a down rate environment. Management continuesactively monitors changes in the sensitivity position and has ample tools to believe thatadjust exposure as needed. As a result, management expects further changes in interest rates willto have a smallmodest impact on net income, consistent with the disclosure on page 83 of Park’s 2020 Form 10-K.income.
On page 8178 (Table 41)38) of Park’s 20202021 Form 10-K, management reported that Park’s twelve-month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $1,294.6$1,895.3 million or 15.29%21.70% of total interest earning assets at December 31, 2020.2021. At September 30, 2021,2022, Park’s twelve-month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $1,871.8$1,245.3 million or 20.3%13.62% of total interest earning assets.
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. 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.
On page 8379 of Park’s 20202021 Form 10-K, management reported that at December 31, 2020,2021, the earnings simulation model projected that net income would decreaseincrease by 2.9%7.5% using a rising interest rate scenario and decrease by 8.8%15.1% using a declining interest rate scenario over the next year. At September 30, 2021,2022, the earnings simulation model projected that net income would increase by 6.6%5.8% using a rising interest rate scenario and would decrease by 13.5%8.8% in a declining interest rate scenario. At September 30, 2021,2022, management continues to believe that it has the tools necessary to mitigate gradual changes in interest rates (50 basis points per quarter for a total of 200 basis points per year) such that the overall impact to net income will have a small impact on net income.be modest.
ITEM 4 – 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of theSeptember 30, 2022 (the end of the quarterly period covered by this Quarterly Report on Form 10-Q.10-Q). 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 Quarterly Report on Form 10-Q and the other reports that Park files or submits under the Exchange Act would be accumulated and communicated to Park’s management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure;
•information required to be disclosed by Park in this Quarterly Report on Form 10-Q 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 theSeptember 30, 2022 (the end of the quarterly period covered by this Quarterly Report on Form 10-Q.10-Q).
Changes in Internal Control Over Financial Reporting
Effective January 1, 2021, Park adopted the CECL accounting guidance under ASU 2016-13 and ASC 326. The Company designed new controls and modified existing controls as part of this adoption to ensure compliance with the revised accounting and disclosure requirements. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data.
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 fiscal quarter ended September 30, 2021,2022, that have materially affected, or are reasonably likely to materially affect, Park's internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending legal proceedings to which Park or any of its subsidiaries is a party or to which any of their property is subject, except for routine legal proceedings which Park's subsidiaries are parties to incidental to their respective businesses. Park considers none of those proceedings to be material.
Item 1A. Risk Factors
There are certain risks and uncertainties in our business that could cause Park's actual results to differ materially from those anticipated. In “ITEM 1A. RISK FACTORS” of Part I of Park’s 20202021 Form 10-K, we included a detailed discussion of our risk factors. All of these risk factors should be read carefully in connection with evaluating Park's business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described in Park's 20202021 Form 10-K could materially adversely affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)Not applicable
(b)Not applicable
(c)The following table provides information concerning purchases of Park’s common shares ("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 September 30, 2021,2022, as well as the maximum number of common sharesCommon 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) |
July 1 through July 31, 2021 | | — | | | $ | — | | | — | | | 1,332,747 | |
August 1 through August 31, 2021 | | 75,000 | | | 118.21 | | | 75,000 | | | 1,257,747 | |
September 1 through September 30, 2021 | | 62,659 | | | 114.60 | | | 62,659 | | | 1,195,088 | |
Total | | 137,659 | | | $ | 116.57 | | | 137,659 | | | 1,195,088 | |
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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) |
July 1 through July 31, 2022 | | — | | | $ | — | | | — | | | 1,195,088 | |
August 1 through August 31, 2022 | | — | | | — | | | — | | | 1,195,088 | |
September 1 through September 30, 2022 | | — | | | — | | | — | | | 1,195,088 | |
Total | | — | | | $ | — | | | — | | | 1,195,088 | |
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(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 publicly announced 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 and as to which approval from the Federal Reserve was obtained in the form of correspondence from the Federal Reserve Bank of Cleveland dated April 19, 2019.
At the 2017 Annual Meeting of Shareholders held on April 24, 2017, Park's shareholders approved the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP. The Common Shares to be issued and delivered under the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP may consist of either Common Shares currently held or Common Shares subsequently acquired by Park as treasury shares. No newly-issued Common Shares will be delivered under the 2017 Employees LTIP or the 2017 Non-Employee Directors LTIP. On April 24, 2017, Park's Board of Directors authorized the purchase, from time to time, of up to 750,000 Park Common Shares and 150,000 Park Common Shares, respectively, to be held
as treasury shares for subsequent issuance and delivery under the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP.
On January 23, 2017, Park announced that on that same day, the Park Board of Directors authorized Park to purchase, from time to time, up to an aggregate of 500,000 Park Common Shares. On January 28, 2019, Park announced that on that same day, the Park Board of Directors authorized Park to repurchase, from time to time following receipt of any required approval from the Federal Reserve, up to 500,000 Park Common Shares in addition to the 500,000 Park Common Shares which had been authorized for repurchase by the Park Board of Directors on January 23, 2017 and remained available for repurchase as of January 28, 2019. The required approval was received by Park in the form of correspondence from the Federal Reserve Bank of Cleveland dated April 19, 2019.
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 other 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 3. Defaults Upon Senior Securities
(a), (b) Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a), (b) Not applicable.
Item 6. Exhibits
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| 2.1 | |
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| 2.2 | |
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| 3.1(a) | Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on March 24, 1992 (Incorporated herein by reference to Exhibit 3(a) to Park National Corporation’s Form 8-B, filed on May 20, 1992 (File No. 0-18772) (“Park’s Form 8-B”)) P |
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| 3.1(b) | Certificate of Amendment to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on May 6, 1993 (Incorporated herein by reference to Exhibit 3(b) to Park National Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772)) P |
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| 3.1(c) | |
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| 3.1(e) | |
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| 3.1(f) | |
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| 3.1(g) | |
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| 3.1(h) | |
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| 3.1(i) | |
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| 3.2(a) | Regulations of Park National Corporation (Incorporated herein by reference to Exhibit 3(b) to Park’s Form 8-B) P |
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| 3.2(b) | |
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| 3.2(c) | |
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| 3.2(d) | |
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| 3.2(e) | |
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| 32.1 | |
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| 32.2 | |
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| 101 | The following information from Park’sPark National Corporation's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 20212022 formatted in Inline XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Condensed Balance Sheets as of September 30, 20212022 and December 31, 20202021 (unaudited); (ii) the Consolidated Condensed Statements of Income for the three months and the nine months ended September 30, 20212022 and 20202021 (unaudited); (iii) the Consolidated Condensed Statements of Comprehensive (Loss) Income for the three months and the nine months ended September 30, 20212022 and 20202021 (unaudited); (iv) the Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three months and the nine months ended September 30, 20212022 and 20202021 (unaudited); (v) the Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, ,2022 and 2021 and 2020 (unaudited); and (vi) the Notes to Unaudited Consolidated Condensed Financial Statements (electronically submitted herewith). *** |
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| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document with applicable taxonomy extension information contained in Exhibit 101) |
*Annexes, schedules and exhibits have been omitted pursuant to Item 601(b)(2) of SEC Regulation S-K, as in effect at the time of filing of the Agreement and Plan of Merger and Reorganization, and Item 601(a)(5) of SEC Regulation S-K, as currently in effect. A copy of any omitted attachment will be furnished supplementally to the SEC upon its request.
** The instance document does not appear in the interactive data file because its XBRL tags are imbedded within the Inline XBRL document.
P Park National Corporation filed this exhibit with the SEC in paper form originally and this exhibit has not been filed with the SEC in electronic format.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | PARK NATIONAL CORPORATION |
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DATE: November 3, 20218, 2022 | | /s/ David L. Trautman |
| | David L. Trautman |
| | Chairman of the Board and Chief Executive Officer |
| | (Principal Executive Officer and Duly Authorized Officer) |
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DATE: November 3, 20218, 2022 | | /s/ Brady T. Burt |
| | Brady T. Burt |
| | Chief Financial Officer, Secretary and Treasurer |
| | (Principal Financial Officer and Duly Authorized Officer) |