Park National Corporation — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY 2022. Park is an Ohio-based financial holding company operating principally through Park National Bank, with community banking and trust operations in Ohio, Kentucky, North Carolina and South Carolina. The company reports one operating segment.
Financial performance and position
| Metric | FY 2023 / year-end | Comparison |
|---|---|---|
| Net interest income | $373.1 million | Up 7.5% from $347.1 million |
| Net interest margin, fully taxable equivalent | 4.11% | 3.80% in 2022 |
| Net income | $126.7 million | Down 14.6% from $148.4 million |
| Diluted earnings per share | $7.80 | $9.06 in 2022 |
| Pre-tax, pre-provision net income | $156.5 million | Down 15.4% from $185.0 million; non-GAAP |
| Total assets | $9.84 billion | $9.85 billion at year-end 2022 |
| Total loans | $7.48 billion | Up 4.7% from $7.14 billion |
| Total deposits on balance sheet | $8.04 billion | Down 2.3% from $8.23 billion |
| Cash and cash equivalents | $218.3 million | $189.7 million at year-end 2022 |
| Total borrowings | $517.3 million | $416.0 million at year-end 2022; includes $328.2 million short-term borrowings and $189.1 million subordinated notes |
| Shareholders’ equity / tangible equity ratio | $1.15 billion / 10.14% | Equity ratio 11.64%; tangible ratio is non-GAAP |
Interest expense rose to $98.6 million from $31.2 million as deposit and borrowing costs increased. Average interest-bearing deposit cost was 1.52%, versus 0.39% in 2022. The efficiency ratio worsened to 65.87% from 61.24%; reported return on average assets was 1.27% and return on average equity was 11.55%.
Operating cash flow was $150.5 million; investing activities provided $64.2 million and financing activities used $186.1 million. Cash and cash equivalents increased $28.5 million during the year. Management described available funding sources as more than adequate for liquidity needs.
Credit, capital and material changes
- The allowance for credit losses was $83.7 million, or 1.12% of loans, versus $85.4 million, or 1.20%, a year earlier. Net charge-offs were 0.07% of average loans, up from 0.03%.
- Nonperforming assets declined to $62.1 million from $102.5 million; nonperforming loans were 0.82% of total loans. The 2023 comparison is affected by adoption of ASU 2022-02, which eliminated the troubled-debt-restructuring category and reduced reported nonperforming loans at adoption by $20.1 million.
- Park sold $291.0 million of available-for-sale securities in November 2023, recording a $7.9 million pre-tax loss. Management said proceeds were used to reduce borrowing needs and improve net interest margin. Remaining AFS securities had $87.2 million of gross unrealized losses at year-end; management reported no intent or expected requirement to sell before recovery.
- Total deposits including off-balance-sheet deposits fell 4.6% to $8.04 billion. Estimated uninsured deposits were $1.3 billion, or 16.2% of deposits; $288.2 million of deposits above the FDIC limit were fully collateralized.
- Park National Bank and Park exceeded applicable well-capitalized thresholds. At year-end, the bank’s common equity Tier 1 ratio was 10.95% and total risk-based capital ratio was 12.35%; Park’s respective ratios were 12.79% and 16.19%.
Outlook, risks and unusual items
- The filing provides no formal earnings or revenue guidance. Park said it intends to continue quarterly dividends at levels comparable to 2023, subject to regulatory and other restrictions. The 2023 dividend was $4.20 per share; management’s stated target payout ratio is 50%, while the actual 2023 ratio was 54%.
- Management’s interest-rate simulation projected net income over the next year to increase 1.52% in its rising-rate scenario and decrease 1.92% in its declining-rate scenario. These are model scenarios, not guidance, and depend on assumptions about deposit behavior, repricing and market conditions.
- Key exposures identified include inflation and elevated interest rates, deposit competition and outflows, regional economic and real-estate conditions, commercial real estate and construction lending, consumer credit, and cybersecurity and third-party operational risks. Commercial real estate loans were $1.88 billion at year-end.
- A DOJ consent order resolving allegations concerning mortgage lending in the Columbus, Ohio area requires at least $9.0 million of investment over five years, including a loan subsidy fund, community programs, outreach, a new mortgage loan production office and a new branch. Park expects to expense activities as incurred and cautions that compliance may entail management attention and unanticipated costs.
- Park had $1.5 billion of loan commitments and $31.3 million of standby letters of credit. The filing states these do not necessarily represent future cash requirements and reports no unrecorded significant contingent liabilities at year-end. Routine legal matters were not expected by management to be material.
Important facts for investors to verify
- Whether deposit trends, deposit pricing and borrowing needs improve, particularly given the decline in deposits and increase in short-term borrowings.
- Whether higher funding costs continue to offset loan-yield gains and pressure net interest income, margin and efficiency.
- Credit performance in consumer, commercial real estate and construction portfolios, including charge-offs, delinquencies, nonaccrual loans and adequacy of the allowance.
- Progress and costs under the DOJ consent order, and any effect on lending operations or financial results.
- Capital and liquidity headroom relative to the $10.0 billion asset threshold: year-end assets were $9.84 billion, and crossing the threshold could trigger additional regulatory requirements.
- The sustainability of the dividend and capital returns given earnings, regulatory limits and the 2023 payout ratio above management’s stated target.
Audit: Crowe LLP issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting. The allowance for credit losses was identified as a critical audit matter because of judgment involved in weighting economic scenarios.