Park National Corporation filed SEC Form 8-K: Results of Operations and Financial Condition, Regulation FD Disclosure, Other Events, Financial Statements and Exhibits
$PRK
Major Banks
Finance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
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Item 2.02 - Results of Operations and Financial Condition
On October 28, 2024, Park National Corporation (“Park”) issued a news release (the “Financial Results News Release”) announcing financial results for the three and nine months ended September 30, 2024. A copy of the Financial Results News Release is included as Exhibit 99.1 to this Current Report on Form 8-K and incorporated by reference herein.
Non-U.S. GAAP Financial Measures
Item 7.01 of this Current Report on Form 8-K as well as the Financial Results News Release contain non-U.S. GAAP (generally accepted accounting principles in the United States or "U.S. GAAP") financial measures where management believes them to be helpful in understanding Park’s results of operations or financial position. Where non-U.S. GAAP financial measures are used, the comparable U.S. GAAP financial measures, as well as the reconciliation from the comparable U.S. GAAP financial measures, can be found in the Financial Results News Release.
Items Impacting Comparability of Period Results
From time to time, revenue, expenses and/or taxes are impacted by items judged by management of Park to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their 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 credit losses (aside from those related to former Vision Bank loan relationships), gains (losses) on equity securities, net, and asset valuation adjustments, reflect ordinary banking activities and are, therefore, typically excluded from consideration as items impacting comparability of period results.
Management believes the disclosure of items impacting comparability of period results provides a better understanding of Park's performance and trends and allows management to ascertain which of such items, if any, to include or exclude from an analysis of Park's performance; i.e., within the context of determining how that performance differed from expectations, as well as how, if at all, to adjust estimates of future performance taking such items into account.
Items impacting comparability of the results of particular periods are not intended to be a complete list of items that may materially impact current or future period performance.
Non-U.S. GAAP Financial Measures
Park's management uses certain non-U.S. GAAP financial measures to evaluate Park's performance. Specifically, management reviews the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio, tangible book value per common share and pre-tax, pre-provision net income.
Management has included in the Financial Results News Release information relating to the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio, tangible book value per common share and pre-tax, pre-provision net income for the three months ended and at September 30, 2024, June 30, 2024, and September 30, 2023 and for the nine months ended September 30, 2024 and September 30, 2023. For the purpose of calculating the annualized return on average tangible equity, a non-U.S. 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-U.S. 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-U.S. 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 common share, a non-U.S. 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-U.S. GAAP financial measure, income taxes and the provision for credit losses are added back to net income, in each case during the applicable period.
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Management believes that the disclosure of the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio, tangible book value per common 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 Financial Results News Release, Park has provided a reconciliation of average tangible equity from average shareholders' equity, average tangible assets from average assets, tangible equity from total shareholders' equity, tangible assets from total assets, and pre-tax, pre-provision net income from net income solely for the purpose of complying with SEC Regulation G and not as an indication that the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio, tangible book value per common 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, book value per common share and net income, respectively, as determined in accordance with U.S. GAAP.
FTE (fully taxable equivalent) Financial Measures
Interest income, yields, and ratios on a FTE basis are considered non-U.S. GAAP financial measures. Management believes net interest income on a FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a corporate federal statutory tax rate of 21 percent. In the Financial Results News Release, Park has provided a reconciliation of FTE interest income solely for the purpose of complying with SEC Regulation G and not as an indication that FTE interest income, yields and ratios are substitutes for interest income, yields and ratios, as determined in accordance with U.S. GAAP.
Item 7.01 - Regulation FD Disclosure
Financial Results
Highlights from the three-month and nine-month periods ended September 30, 2024 and 2023 included:
•Net income for the three months ended September 30, 2024 of $38.2 million represented a $1.3 million, or 3.5%, increase compared to $36.9 million for the three months ended September 30, 2023. Pre-tax, pre-provision net income for the three months ended September 30, 2024 of $52.0 million represented a $7.8 million, or 17.6%, increase compared to $44.2 million for the three months ended September 30, 2023.
•Net income for the nine months ended September 30, 2024 of $112.8 million represented a $10.6 million, or 10.3%, increase compared to $102.2 million for the nine months ended September 30, 2023. Pre-tax, pre-provision net income for the nine months ended September 30, 2024 of $148.0 million represented a $23.0 million, or 18.4%, increase compared to $125.0 million for the nine months ended September 30, 2023.
•During the three months and nine months ended September 30, 2024, Park recorded a $1.7 million provision for credit losses related to estimated impact of Hurricane Helene.
•During the three months and nine months ended September 30, 2024, Park recognized a $5.8 million pension settlement gain due to a combination of lump sum payouts as well as the purchase of a nonparticipating annuity contract which will provide ongoing benefits to vested and retired participants. There was no pension settlement gain recognized during the three months or the nine months ended September 30, 2023.
•During the three months and nine months ended September 30, 2024, Park accrued $1.7 million for future one-time bonuses for associates. There were no similar one-time bonuses paid or accrued during the three months or the nine months ended September 30, 2023.
•During the three months and nine months ended September 30, 2024, Park contributed $2.0 million to its charitable foundation. There were no contribution made by Park to its charitable foundation during the three months or the nine months ended September 30, 2023.
Net income for each of the three months ended September 30, 2024, June 30, 2024 and September 30, 2023 and for the nine months ended September 30, 2024 and September 30, 2023, included several items of income and expense that impacted comparability of period results. These items are detailed in the "Financial Reconciliations" section within the Financial Results News Release.
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The following discussion provides additional information regarding Park.
Park National Corporation (Park)
The following table reflects the net income for the first, second and third quarters of 2024, for the first nine months of 2024 and 2023 (the nine months ended September 30) and for the year ended December 31, 2023.
| (In thousands) | Q3 2024 | Q2 2024 | Q1 2024 | Nine months YTD 2024 | Nine months YTD 2023 | 2023 | ||||||||||||||
| Net interest income | $ | 101,114 | $ | 97,837 | $ | 95,623 | $ | 294,574 | $ | 278,039 | $ | 373,113 | ||||||||
| Provision for credit losses | 5,315 | 3,113 | 2,180 | 10,608 | 1,095 | 2,904 | ||||||||||||||
| Other income | 36,530 | 28,794 | 26,200 | 91,524 | 77,115 | 92,634 | ||||||||||||||
| Other expense | 85,681 | 75,189 | 77,228 | 238,098 | 230,196 | 309,239 | ||||||||||||||
| Income before income taxes | $ | 46,648 | $ | 48,329 | $ | 42,415 | $ | 137,392 | $ | 123,863 | $ | 153,604 | ||||||||
| Income tax expense | 8,431 | 8,960 | 7,211 | 24,602 | 21,629 | 26,870 | ||||||||||||||
| Net income | $ | 38,217 | $ | 39,369 | $ | 35,204 | $ | 112,790 | $ | 102,234 | $ | 126,734 | ||||||||
Net interest income of $294.6 million for the nine months ended September 30, 2024 represented a $16.5 million, or 5.9%, increase compared to $278.0 million for the nine months ended September 30, 2023. The increase was a result of a $42.9 million increase in interest income, partially offset by a $26.4 million increase in interest expense.
The $42.9 million increase in interest income was due to a $55.4 million increase in interest income on loans, partially offset by a $12.5 million decrease in investment income. The $55.4 million increase in interest income on loans was primarily the result of a $417.0 million (or 5.82%) increase in average loans, from $7.17 billion for the nine months ended September 30, 2023 to $7.58 billion for the nine months ended September 30, 2024, as well as an increase in the yield on loans, which increased 68 basis points to 6.12% for the nine months ended September 30, 2024, compared to 5.44% for the nine months ended September 30, 2023. The $12.5 million decrease in investment income was primarily the result of a $550.6 million (or 27.23%) decrease in average investments, including money market investments, from $2.02 billion for the nine months ended September 30, 2023 to $1.47 billion for the nine months ended September 30, 2024. The decrease in average investments was partially offset by an increase in the yield on investments, including money market investments, which increased 17 basis points to 3.97% for the nine months ended September 30, 2024, compared to 3.80% for the nine months ended September 30, 2023.
The $26.4 million increase in interest expense was due to a $26.2 million increase in interest expense on deposits, as well as a $0.2 million increase in interest expense on borrowings. The increase in interest expense on deposits was the result of a $138.2 million (or 2.49%) increase in average on-balance sheet interest bearing deposits from $5.54 billion for the nine months ended September 30, 2023, to $5.68 billion for the nine months ended September 30, 2024, as well as an increase in the cost of deposits of 58 basis points, from 1.42% for the nine months ended September 30, 2023 to 2.00% for the nine months ended September 30, 2024. The increase in on-balance sheet interest bearing deposits was due to an increase in brokered deposits, bid CD deposits and time deposits, which was partially offset by decreases in savings accounts and transaction accounts.
The provision for credit losses of $10.6 million for the nine months ended September 30, 2024 represented an increase of $9.5 million, compared to $1.1 million for the nine months ended September 30, 2023. Refer to the “Credit Metrics and Provision for Credit Losses” section for additional details regarding the level of the provision for credit losses recognized in each period presented.
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The table below reflects Park's total other income for the nine months ended September 30, 2024 and 2023.
| (Dollars in thousands) | 2024 | 2023 | $ change | % change | ||||||||||
| Other income: | ||||||||||||||
| Income from fiduciary activities | $ | 31,367 | $ | 26,531 | $ | 4,836 | 18.2 | % | ||||||
| Service charges on deposit accounts | 6,682 | 6,391 | 291 | 4.6 | % | |||||||||
| Other service income | 8,466 | 7,951 | 515 | 6.5 | % | |||||||||
| Debit card fee income | 19,362 | 19,939 | (577) | (2.9) | % | |||||||||
| Bank owned life insurance income | 6,251 | 3,965 | 2,286 | 57.7 | % | |||||||||
| ATM fees | 1,425 | 1,661 | (236) | (14.2) | % | |||||||||
| Pension settlement gain | 5,783 | — | 5,783 | N.M. | ||||||||||
| Loss on sale of debt securities, net | (398) | — | (398) | N.M. | ||||||||||
| Gain on equity securities, net | 1,228 | 618 | 610 | 98.7 | % | |||||||||
| Other components of net periodic benefit income | 6,612 | 5,679 | 933 | 16.4 | % | |||||||||
| Miscellaneous | 4,746 | 4,380 | 366 | 8.4 | % | |||||||||
| Total other income | $ | 91,524 | $ | 77,115 | $ | 14,409 | 18.7 | % | ||||||
Other income of $91.5 million for the nine months ended September 30, 2024 represented an increase of $14.4 million, or 18.7%, compared to $77.1 million for the nine months ended September 30, 2023. The $4.8 million increase in income from fiduciary activities was largely due to an increase in the market value of assets under management as well as updates to the fee structure. The $515,000 increase in other service income was mainly due to an increase in mortgage related other service income. The $577,000 decrease in debit card fee income was partially due to a decrease in the average blended interchange rate per transaction, which is influenced by various factors, including the average spend per transaction. The $2.3 million increase in bank owned life insurance income was primarily related to an increase in death benefits received during the nine months ended September 30, 2024. The change in pension settlement gain was due to a $5.8 million pension settlement gain, which was related to a combination of lump sum payouts as well as the purchase of a nonparticipating annuity contract which will provide ongoing benefits to vested and retired participants. The change in loss on sale of debt securities, net was due to net losses on the sale of debt securities of $398,000 recorded during the nine months ended September 30, 2024. No loss on sale of debt securities, net was recorded during the nine months ended September 30, 2023. The $610,000 increase in the gain on equity securities, net, was due to a $1.2 million increase in the gain on equity securities carried at fair value, partially offset by a $608,000 decrease in the gain on equity securities carried at net asset value. The $933,000 increase in other components of net periodic benefit income was largely due to an increase in the expected return on plan assets, and was partially offset by an increase in interest cost. The increase in miscellaneous income was largely due to an increase in net gain on sale of assets.
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The table below reflects Park's total other expense for the nine months ended September 30, 2024 and 2023.
| (Dollars in thousands) | 2024 | 2023 | $ change | % change | ||||||||||
| Other expense: | ||||||||||||||
| Salaries | $ | 110,057 | $ | 103,045 | $ | 7,012 | 6.8 | % | ||||||
| Employee benefits | 31,595 | 32,176 | (581) | (1.8) | % | |||||||||
| Occupancy expense | 9,887 | 9,770 | 117 | 1.2 | % | |||||||||
| Furniture and equipment expense | 7,608 | 9,409 | (1,801) | (19.1) | % | |||||||||
| Data processing fees | 30,114 | 28,032 | 2,082 | 7.4 | % | |||||||||
| Professional fees and services | 20,681 | 22,158 | (1,477) | (6.7) | % | |||||||||
| Marketing | 4,369 | 3,755 | 614 | 16.4 | % | |||||||||
| Insurance | 5,135 | 5,932 | (797) | (13.4) | % | |||||||||
| Communication | 2,993 | 3,217 | (224) | (7.0) | % | |||||||||
| State tax expense | 3,355 | 3,499 | (144) | (4.1) | % | |||||||||
| Amortization of intangible assets | 927 | 989 | (62) | (6.3) | % | |||||||||
| Foundation contributions | 2,000 | — | 2,000 | N.M. | ||||||||||
| Miscellaneous | 9,377 | 8,214 | 1,163 | 14.2 | % | |||||||||
| Total other expense | $ | 238,098 | $ | 230,196 | $ | 7,902 | 3.4 | % | ||||||
Total other expense of $238.1 million for the nine months ended September 30, 2024 represented an increase of $7.9 million compared to $230.2 million for the nine months ended September 30, 2023. The increase in salaries expense was primarily related to increases in base salary expense and additional incentive compensation expense, that included a $1.7 million accrual for a one-time incentive payment, partially offset by a decrease in share-based compensation expense. The decrease in employee benefit expense was primarily due to a decrease in group insurance expense, partially offset by an increase in retirement expense. The decrease in furniture and equipment expense was primarily due to decreases in depreciation expense and maintenance and repairs expense. The increase in data processing fees was mainly related to an increase in software related expenses, partially offset by a decrease in ATM and debit card processing expense. The decrease in professional fees and services expense was primarily due to decreases in legal expenses, consulting expenses and other fees expense, partially offset by increases in credit services expense, audit fee expense and IntraFi deposit fee expense. The increase in marketing expense was primarily due to increases in advertising expense. The decrease in insurance expense was primarily due to decreases in FDIC insurance expense. The increase in foundation contributions was the result of a $2.0 million contribution made during the nine months ended September 30, 2024, with no contribution being made during the nine months ended September 30, 2023. The increase in miscellaneous expense is primarily due to an increase in expense for the allowance for unfunded credit losses.
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The table below provides certain balance sheet information and financial ratios for Park as of or for the nine months ended September 30, 2024 and 2023 and the year ended December 31, 2023.
| (Dollars in thousands) | September 30, 2024 | December 31, 2023 | September 30, 2023 | % change from 12/31/23 | % change from 9/30/23 | |||||||||||||||
| Loans | 7,730,984 | 7,476,221 | 7,349,745 | 3.41 | % | 5.19 | % | |||||||||||||
| Allowance for credit losses | 87,237 | 83,745 | 84,602 | 4.17 | % | 3.11 | % | |||||||||||||
| Net loans | 7,643,747 | 7,392,476 | 7,265,143 | 3.40 | % | 5.21 | % | |||||||||||||
| Investment securities | 1,233,297 | 1,429,144 | 1,708,827 | (13.70) | % | (27.83) | % | |||||||||||||
| Total assets | 9,903,049 | 9,836,453 | 10,000,914 | 0.68 | % | (0.98) | % | |||||||||||||
| Total deposits | 8,214,671 | 8,042,566 | 8,244,724 | 2.14 | % | (0.36) | % | |||||||||||||
Average assets (1) | 9,865,315 | 9,957,554 | 9,980,256 | (0.93) | % | (1.15) | % | |||||||||||||
Efficiency ratio (2) | 61.38 | % | 65.87 | % | 64.29 | % | (6.82) | % | (4.53) | % | ||||||||||
Return on average assets (3) | 1.53 | % | 1.27 | % | 1.37 | % | 20.47 | % | 11.68 | % | ||||||||||
(1) Average assets for the nine months ended September 30, 2024 and 2023 and for the year ended December 31, 2023.
(2) 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 includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustments were $1.8 million and $2.9 million for the nine months ended September 30, 2024 and 2023 and $3.7 million for the year ended December 31, 2023.
(3) Annualized for the nine months ended September 30, 2024 and 2023.
Loans
Loans outstanding at September 30, 2024 were $7.73 billion, compared to (i) $7.48 billion at December 31, 2023, an increase of $254.8 million, and (ii) $7.35 billion at September 30, 2023, an increase of $381.2 million. The table below breaks out the change in loans outstanding, by loan type.
| (Dollars in thousands) | September 30, 2024 | December 31, 2023 | September 30, 2023 | $ change from 12/31/23 | % change from 12/31/23 | $ change from 9/30/23 | % change from 9/30/23 | ||||||||||||||||||||||
| Home equity | $ | 197,470 | $ | 174,621 | $ | 173,570 | $ | 22,849 | 13.1 | % | $ | 23,900 | 13.8 | % | |||||||||||||||
| Installment | 1,961,680 | 1,950,304 | 1,977,750 | 11,376 | 0.6 | % | (16,070) | (0.8) | % | ||||||||||||||||||||
| Real estate | 1,423,120 | 1,340,169 | 1,295,769 | 82,951 | 6.2 | % | 127,351 | 9.8 | % | ||||||||||||||||||||
| Commercial | 4,146,473 | 4,007,941 | 3,897,821 | 138,532 | 3.5 | % | 248,652 | 6.4 | % | ||||||||||||||||||||
| Other | 2,241 | 3,186 | 4,835 | (945) | (29.7) | % | (2,594) | (53.7) | % | ||||||||||||||||||||
Total loans | $ | 7,730,984 | $ | 7,476,221 | $ | 7,349,745 | $ | 254,763 | 3.4 | % | $ | 381,239 | 5.2 | % | |||||||||||||||
Park's allowance for credit losses was $87.2 million at September 30, 2024, compared to $83.7 million at December 31, 2023, an increase of $3.5 million, or 4.2%. Refer to the “Credit Metrics and Provision for Credit Losses” section for additional information regarding Park's loan portfolio and the level of provision for credit losses recognized in each period presented.
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Deposits
Total deposits at September 30, 2024 were $8.21 billion, compared to (i) $8.04 billion at December 31, 2023, an increase of $172.1 million and (ii) $8.24 billion at September 30, 2023, a decrease of $30.1 million.
| (Dollars in thousands) | September 30, 2024 | December 31, 2023 | September 30, 2023 | $ change from 12/31/23 | % change from 12/31/23 | $ change from 9/30/23 | % change from 9/30/23 | ||||||||||||||||||||||
| Non-interest bearing deposits | $ | 2,516,722 | $ | 2,628,234 | $ | 2,732,504 | $ | (111,512) | (4.2) | % | $ | (215,782) | (7.9) | % | |||||||||||||||
| Transaction accounts | 2,141,208 | 2,064,512 | 2,193,054 | 76,696 | 3.7 | % | (51,846) | (2.4) | % | ||||||||||||||||||||
| Savings | 2,743,507 | 2,543,220 | 2,716,001 | 200,287 | 7.9 | % | 27,506 | 1.0 | % | ||||||||||||||||||||
| Certificates of deposit | 722,236 | 641,615 | 603,165 | 80,621 | 12.6 | % | 119,071 | 19.7 | % | ||||||||||||||||||||
| Brokered and bid CD deposits | 90,998 | 164,985 | — | (73,987) | (44.8) | % | 90,998 | N.M. | |||||||||||||||||||||
| Total deposits | $ | 8,214,671 | $ | 8,042,566 | $ | 8,244,724 | $ | 172,105 | 2.1 | % | $ | (30,053) | (0.4) | % | |||||||||||||||
Park's deposits grew during the COVID pandemic and declined toward pre-pandemic levels throughout 2022 and 2023. In order to manage the impact of this growth on its balance sheet, Park utilized a program where certain deposit balances were transferred off balance sheet while maintaining the customer relationship. Park is able to increase or decrease the amount of deposit balances transferred off balance sheet based on its balance sheet management strategies and liquidity needs. The balance of deposits transferred off balance sheet has declined as overall deposit balances declined toward pre-pandemic levels.
The table below breaks out the change in deposit balances, by deposit type, for Park.
| (Dollars in thousands) | September 30, 2024 | December 31, 2023 | December 31, 2022 | December 31, 2021 | December 31, 2020 | December 31, 2019 | ||||||||||||||
| Retail deposits | $ | 3,943,537 | $ | 4,080,372 | $ | 4,388,394 | $ | 4,416,228 | $ | 4,025,852 | $ | 3,748,039 | ||||||||
| Commercial deposits | 4,180,136 | 3,797,209 | 3,846,321 | 3,488,300 | 3,535,578 | 3,233,269 | ||||||||||||||
| Brokered and bid CD deposits | 90,998 | 164,985 | — | — | 10,928 | 71,304 | ||||||||||||||
| Total deposits | $ | 8,214,671 | $ | 8,042,566 | $ | 8,234,715 | $ | 7,904,528 | $ | 7,572,358 | $ | 7,052,612 | ||||||||
| Off balance sheet deposits | — | 1,185 | 195,937 | 983,053 | 710,101 | — | ||||||||||||||
| Total deposits including off balance sheet deposits | $ | 8,214,671 | $ | 8,043,751 | $ | 8,430,652 | $ | 8,887,581 | $ | 8,282,459 | $ | 7,052,612 | ||||||||
| $ change from prior period end | $ | 170,920 | $ | (386,901) | $ | (456,929) | $ | 605,122 | $ | 1,229,847 | ||||||||||
| % change from prior period end | 2.1 | % | (4.6) | % | (5.1) | % | 7.3 | % | 17.4 | % | ||||||||||
| Noninterest bearing deposits to total deposits | 30.6 | % | 32.7 | % | 37.3 | % | 38.8 | % | 36.0 | % | 27.8 | % | ||||||||
During the nine months ended September 30, 2024, total deposits including off balance sheet deposits increased by $170.9 million, or 2.1%. This increase consisted of a $382.9 million increase in total commercial deposits, partially offset by a $136.8 million decrease in total retail deposits, a $74.0 million decrease in brokered and bid CD deposits and a $1.2 million decrease in off balance sheet deposits. The majority of off balance sheet deposits were commercial and thus impact the increase in commercial deposits as the deposits are moved back onto the balance sheet.
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The table below breaks out the change in deposit balance, by deposit type, for September 30, 2024 compared to September 30, 2023.
| (Dollars in thousands) | September 30, 2024 | September 30, 2023 | $ change from 9/30/23 | % change from 9/30/23 | ||||||||||
| Retail deposits | $ | 3,943,537 | $ | 4,110,821 | $ | (167,284) | (4.1) | % | ||||||
| Commercial deposits | 4,180,136 | 4,133,903 | 46,233 | 1.1 | % | |||||||||
| Brokered and bid CD deposits | 90,998 | — | 90,998 | N.M. | ||||||||||
| Total deposits | $ | 8,214,671 | $ | 8,244,724 | $ | (30,053) | (0.4) | % | ||||||
| Off balance sheet deposits | — | 763 | (763) | (100.0) | % | |||||||||
| Total deposits including off balance sheet deposits | $ | 8,214,671 | $ | 8,245,487 | $ | (30,816) | (0.4) | % | ||||||
| Noninterest bearing deposits to total deposits | 30.6 | % | 33.1 | % | N.M. | N.M. | ||||||||
At September 30, 2024, total deposits including off balance sheet deposits decreased by $30.8 million, or 0.4%, to $8.21 billion compared to $8.25 billion at September 30, 2023. This decrease consisted of a $167.3 million decrease in total retail deposits, partially offset by a $46.2 million increase in total commercial deposits and $91.0 million increase in brokered and bid CD deposits.
Included in the total commercial deposits and off balance sheet deposits shown in the previous tables are public fund deposits. These balances fluctuate based on seasonality and the cycle of collection and remittance of tax funds. Public funds are also included in Bid Ohio CDs. The following table details the change in public funds held on Park's balance sheet.
| (Dollars in thousands) | September 30, 2024 | December 31, 2023 | September 30, 2023 | December 31, 2022 | December 31, 2021 | December 31, 2020 | December 31, 2019 | ||||||||||||||||
| Public funds included in commercial deposits | $ | 1,467,432 | $ | 1,198,418 | $ | 1,400,807 | $ | 1,335,400 | $ | 1,548,217 | $ | 1,406,101 | $ | 1,293,090 | |||||||||
| Bid Ohio CDs | 90,998 | 15,000 | — | — | — | — | — | ||||||||||||||||
| Total public fund deposits | $ | 1,558,430 | $ | 1,213,418 | $ | 1,400,807 | $ | 1,335,400 | $ | 1,548,217 | $ | 1,406,101 | $ | 1,293,090 | |||||||||
| $ change from prior period end | $ | 345,012 | $ | (187,389) | $ | 65,407 | $ | (212,817) | $ | 142,116 | $ | 113,011 | |||||||||||
| % change from prior period end | 28.4 | % | (13.4) | % | 4.9 | % | (13.7) | % | 10.1 | % | 8.7 | % | |||||||||||
| Cost of public fund deposits | 2.44 | % | 2.24 | % | 2.20 | % | 0.60 | % | 0.11 | % | 0.52 | % | 1.77 | % | |||||||||
Cost of total interest bearing deposits (1) | 2.00 | % | 1.52 | % | 1.42 | % | 0.39 | % | 0.12 | % | 0.41 | % | 1.01 | % | |||||||||
(1) Annualized for the nine months ended September 30, 2024
As of September 30, 2024, Park had approximately $1.4 billion of uninsured deposits, which was 16.9% of total deposits. Uninsured deposits of $1.4 billion included $412.9 million of deposits that were over $250,000, but were fully collateralized by Park's investment securities portfolio.
Credit Metrics and Provision for Credit Losses
Park reported a provision for credit losses for the nine months ended September 30, 2024 of $10.6 million, compared to $1.1 million for the nine months ended September 30, 2023. Net charge-offs were $7.1 million, or 0.13% annualized, of total average loans, for the nine months ended September 30, 2024, compared to $2.3 million, or 0.04% annualized, of total average loans, for the nine months ended September 30, 2023. Included in net charge-offs for the three months and nine months ended September 30, 2024 was a $2.9 million charge-off related to one relationship that previously carried a specific reserve.
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The table below provides additional information related to Park's allowance for credit losses as of September 30, 2024, December 31, 2023 and September 30, 2023.
| (Dollars in thousands) | 9/30/2024 | 12/31/2023 | 9/30/2023 | ||||||||
| Total allowance for credit losses | $ | 87,237 | $ | 83,745 | $ | 84,602 | |||||
| Allowance on accruing purchased credit deteriorated ("PCD") loans | — | — | — | ||||||||
| Specific reserves on individually evaluated loans | 2,489 | 4,983 | 3,422 | ||||||||
| General reserves on collectively evaluated loans | $ | 84,748 | $ | 78,762 | $ | 81,180 | |||||
| Total loans | $ | 7,730,984 | $ | 7,476,221 | $ | 7,349,745 | |||||
| Accruing PCD loans | 2,191 | 2,835 | 3,807 | ||||||||
| Individually evaluated loans | 53,573 | 45,215 | 40,839 | ||||||||
| Collectively evaluated loans | $ | 7,675,220 | $ | 7,428,171 | $ | 7,305,099 | |||||
| Total allowance for credit losses as a % of total loans | 1.13 | % | 1.12 | % | 1.15 | % | |||||
| General reserve as a % of collectively evaluated loans | 1.10 | % | 1.06 | % | 1.11 | % | |||||
The total allowance for credit losses of $87.2 million at September 30, 2024 represented a $3.5 million, or 4.2%, increase compared to $83.7 million at December 31, 2023. The increase was due to a $6.0 million increase in general reserves partially offset by a $2.5 million decrease in specific reserves. The $6.0 million increase in general reserves included a $1.7 million additional reserve related to Hurricane Helene which impacted borrowers in Park's Carolina region. This reserve considers the overall population of loans to borrowers in this area as well as industries in which commercial borrowers operate. Management will continue to evaluate potential losses as a result of Hurricane Helene as additional information becomes available.
As part of its quarterly allowance process, Park evaluates certain industries which are more likely to be under economic stress in the current environment. The office sector continues to face challenges as it adjusts to the new normal of work from home brought on by the pandemic. Nationally, office properties in downtown and urban business districts are seeing the most stress. As of September 30, 2024, Park had $229.4 million of loans which were fully or partially secured by non-owner-occupied office space, $227.8 million of which were accruing. This portfolio is not currently exhibiting signs of stress, but Park continues to monitor this portfolio, and others, for signs of deterioration.
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Park cautions that any forward-looking statements contained in this Current Report on Form 8-K or made by management of Park are provided to assist in the understanding of anticipated future financial performance. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements.
Risks and uncertainties that could cause actual results to differ materially include, without limitation:
◦Park's ability to execute our business plan successfully and within the expected timeframe as well as our ability to manage strategic initiatives;
◦current and future economic and financial market conditions, either nationally or in the states in which Park and our subsidiaries do business, that may reflect deterioration in business and economic conditions, including the effects of higher unemployment rates or labor shortages, the impact of persistent inflation, the impact of continued elevated interest rates, changes in the economy or global supply chain, supply-demand imbalances affecting local real estate prices, U.S. fiscal debt, budget and tax matters, geopolitical matters (including the impact of the Russia-Ukraine conflict and associated sanctions and export controls as well as the Israel-Hamas conflict), and any slowdown in global economic growth, any 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;
◦the effect of monetary and other fiscal policies (including the impact of money supply, ongoing increasing market interest rate policies and policies impacting inflation, of the Federal Reserve Board, the U.S. Treasury and other governmental agencies) as well as disruption in the liquidity and functioning of U.S. financial markets, 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 net 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 changes in federal, state and local governmental policy, including the regulatory landscape, capital markets, elevated government debt, potential changes in tax legislation that may increase tax rates, government shutdown, 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 behaviors, changes in business and economic conditions, legislative and regulatory initiatives, or other factors may be different than anticipated;
◦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 inflationary pressures and continued elevated interest rates;
◦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 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 Park'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;
◦Park's ability to meet heightened supervisory requirements and expectations;
◦the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board, 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 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;
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◦Park's ability to anticipate and respond to technological changes and Park's reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Park's primary core banking system provider, which can impact 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;
◦Park's 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 the 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, the costs and effects of unfavorable resolution of regulatory and other governmental examinations or other inquiries, and liabilities and business restrictions resulting from litigation and regulatory investigations;
◦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, 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 and the Israel-Hamas conflict) on the economy and financial markets generally and on us or our counterparties specifically;
◦the potential further deterioration of the U.S. economy due to financial, political, or other shocks;
◦the effect of healthcare laws in the U.S. and potential changes for such laws which may increase our healthcare and other costs and negatively impact our operations and financial results;
◦the impact of larger or similar-sized financial institutions encountering problems which may adversely affect the banking industry and/or Park's business generation and retention, funding and liquidity, including potential increased regulatory requirements and increased reputational risk and potential impacts to macroeconomic conditions;
◦Park's continued ability to grow deposits or maintain adequate deposit levels due to changing customer behaviors;
◦unexpected outflows of deposits which may require Park to sell assets at a loss; and
◦other risk factors included in the current and periodic reports filed by Park with the SEC from time to time.
Park does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions that may be made to update any forward-looking statement to reflect the events or circumstances after the date on which the forward-looking statement was made, or reflect the occurrence of unanticipated events, except to the extent required by law.
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Item 8.01 - Other Events
Declaration of Cash Dividend
As reported in the Financial Results News Release, on October 28, 2024, the Park Board declared a $1.06 per common share quarterly cash dividend in respect of Park's common shares and a special cash dividend of $0.50 per common share in respect of Park's common shares. The cash dividend and the special cash dividend are payable on December 10, 2024 to common shareholders of record as of the close of business on November 15, 2024. A copy of the Financial Results News Release is included as Exhibit 99.1 and the portion thereof addressing the declaration of the quarterly cash dividend by the Park Board is incorporated by reference herein.
Item 9.01 - Financial Statements and Exhibits.
(a)Not applicable
(b)Not applicable
(c)Not applicable
(d)Exhibits. The following exhibits are included with this Current Report on Form 8-K:
Exhibit No. Description
99.1 News Release issued by Park National Corporation on October 28, 2024 addressing financial results for the three months and nine months ended September 30, 2024 and declaration of quarterly cash dividend
104 Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| PARK NATIONAL CORPORATION | ||||||||
| Dated: October 28, 2024 | By: | /s/ Brady T. Burt | ||||||
| Brady T. Burt | ||||||||
| Chief Financial Officer, Secretary and Treasurer | ||||||||
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