PARK NATIONAL CORPORATION 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 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 thereof - - on economies (local, national and international) and markets, and on our customers, 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; •general 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, in addition to the continuing impact of the COVID-19 pandemic on our customers' operations and financial condition, either 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 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 and interest rate policies of theFederal Reserve Board ) as well as disruption in the liquidity and functioning ofU.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, including on the regulatory landscape, capital markets, tax policy, infrastructure spending and social programs; •changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, 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 may be different than anticipated due to the continuing impact of and the various responses to the COVID-19 pandemic; •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; 70 -------------------------------------------------------------------------------- Table of Contents •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 our 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 theConsumer Financial Protection Bureau , theOffice of the Comptroller of the Currency , theFederal Deposit Insurance Corporation , and theFederal 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 theFinancial Accounting Standards Board (the "FASB"), theSEC , thePublic 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 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 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, aU.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations and changes in the relationship of theU.S. and its global trading partners); •the impact on financial markets and the economy of any changes in the credit ratings of theU.S. Treasury obligations and otherU.S. government-backed debt, as well as issues surrounding the levels ofU.S. , European and Asian government debt and concerns regarding the growth rates and financial stability of certain sovereign governments, supranationals and financial institutions inEurope andAsia and the risk they may face difficulties servicing their sovereign debt; •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 on the economy and financial markets generally and on us or our counterparties specifically; •any of the foregoing factors, 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; •the effect of healthcare laws in theU.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; 71 -------------------------------------------------------------------------------- Table of Contents •risk and uncertainties associated with Park's entry into new geographic markets with our recent acquisitions, including expected revenue synergies and cost savings from recent acquisitions not being fully realized or realized within the expected time frame; •the discontinuation of the London Inter-Bank Offered Rate (LIBOR) and other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies; •and other risk factors relating to the banking industry as detailed from time to time in Park's reports filed with theSEC including those described in "Item 1A. Risk Factors" of Part I of Park's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . 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. 72 -------------------------------------------------------------------------------- Table of Contents 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 comparableU.S. GAAP financial measure, as well as the reconciliation to the comparableU.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 credit losses (aside from those related to former Vision Bank loan relationships), gain (loss) on equity securities, and asset valuation writedowns, 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 Ratios 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. 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, for the three months and nine months ended and atSeptember 30, 2021 andSeptember 30, 2020 . For purposes 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. 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. 73
-------------------------------------------------------------------------------- Table of Contents 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 presents additional information to the reader of the consolidated financial statements, which, when read in conjunction with the consolidated financial statements prepared in accordance withU.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 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 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, respectively, as determined in accordance withU.S. GAAP. FTE (fully taxable equivalent) Ratios 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 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 detail of FTE interest income solely for the purpose of complying with SEC Regulation G and not as an indication that FTE interest income, yields and ratios are substitutes for interest income, yields and ratios, as determined in accordance withU.S. GAAP. Paycheck Protection Program ("PPP") Loans ThroughSeptember 30, 2021 , Park had originated$768.5 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 relatedU.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 2020 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 withU.S. GAAP and general practices within the financial services industry. The preparation of financial statements in conformity withU.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. The effects of COVID-19 pandemic 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 impaired 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. Refer to the "Credit Metrics and Provision for (Recovery of) Credit Losses" section within this MD&A for additional discussion. 74 -------------------------------------------------------------------------------- Table of Contents 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 ofSeptember 30, 2021 , 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 ofMarch 31 . Based on the qualitative analysis performed as ofApril 1, 2021 , 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 estimated 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 and Nine Months Ended September 30, 2021 and 2020Summary Discussion of Results
Net income for the three months endedSeptember 30, 2021 was$35.4 million , compared to$30.8 million for the third quarter of 2020. Diluted earnings per common share were$2.16 for the third quarter of 2021, compared to$1.88 for the third quarter of 2020. Weighted average diluted common shares outstanding were 16,423,912 for the third quarter of 2021, compared to 16,393,792 weighted average diluted common shares outstanding for the third quarter of 2020. Net income for the nine months endedSeptember 30, 2021 was$117.4 million , compared to$82.7 million for the first nine months of 2020. Diluted earnings per common share were$7.14 for the first nine months of 2021, compared to$5.04 for the 75 -------------------------------------------------------------------------------- Table of Contents first nine months of 2020. Weighted average diluted common shares outstanding were 16,445,568 for the first nine months of 2021, compared to 16,398,350 weighted average diluted common shares outstanding for the first nine months of 2020. COVID-19 Considerations Banking has been identified by federal 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 ofSeptember 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$744,000 for the three-month period endedSeptember 30, 2020 , and$1.5 million and$2.9 million for the nine-month periods endedSeptember 30, 2021 and 2020, respectively, and is included within salaries expense. There was no calamity pay or special bonus paid during the three-month period endedSeptember 30, 2021 . Paycheck Protection Program: During 2020, Park approved and funded 4,439 loans totaling$543.1 million under 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 . For its assistance in making and retaining the 4,439 loans, Park has received an aggregate of$20.2 million in fees from the SBA, of which$6.4 million and$13.7 million were recognized within loan interest income during the nine months endedSeptember 30, 2021 and the twelve months endedDecember 31, 2020 , respectively. Park funded the PPP loans with excess on-balance sheet liquidity. AtSeptember 30, 2021 , the remaining balance of the first round PPP loans funded in 2020 was$14.1 million . During 2021, Park offered additional PPP loans as authorized under the Consolidated Appropriations Act, 2021, signed into law onDecember 27, 2020 . ThroughSeptember 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 endedSeptember 30, 2021 . Park funded the second round PPP loans with excess on-balance sheet liquidity. AtSeptember 30, 2021 , the remaining balance of second round PPP loans funded in 2021 was$122.3 million .
As of
Loan Modifications: During the twenty-one months endedSeptember 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 TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. Modified loans are considered current and continue to accrue interest during the deferral period. Of the$592.8 million of COVID-19 modifications during the twenty-one months endedSeptember 30, 2021 ,$30.8 million , or 0.45% of total loans, remained in deferral as ofSeptember 30, 2021 and$6.8 million were at least 30 days past due in accordance with the modified terms atSeptember 30, 2021 . 76 -------------------------------------------------------------------------------- Table of Contents Financial Results by Segment The table below reflects the net income (loss) by segment for the first, second and third quarters of 2021, for the first nine months of each of 2021 and 2020 and for the years endedDecember 31, 2020 and 2019. Park's segments include PNB and "All Other" which primarily consists of Park as the "Parent Company", GFSC, and SEPH. SEPH is a non-bank subsidiary of Park, holding former Vision Bank OREO property and non-performing loans. Nine months Nine months (In thousands) Q3 2021 Q2 2021 Q1 2021 YTD 2021 YTD 2020 2020 2019 PNB$ 36,451 $ 40,896 $ 45,122 $ 122,469 $ 89,546 $ 123,730 $ 113,600 All Other (1,017) (1,764) (2,291) (5,072) (6,823) 4,193 (10,900)Total Park $ 35,434 $ 39,132 $ 42,831 $ 117,397 $ 82,723 $ 127,923 $ 102,700 Net income for the nine months endedSeptember 30, 2021 of$117.4 million represented a$34.7 million , or 41.9%, increase compared to$82.7 million for the nine months endedSeptember 30, 2020 . Net income for each of the three and nine months endedSeptember 30, 2021 and 2020 included several items of income and expense that impact comparability of period results. These items are detailed in the "Items Impacting Comparability" section within this MD&A. During the first quarter of 2021, Park adopted FASB Accounting Standards Update 2016-13, 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 onJanuary 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 segment that is made up of PNB, followed by additional information regarding All Other, which consists of the Parent Company, GFSC and SEPH.
The table below reflects PNB's net income for the first, second and third
quarters of 2021, for the first nine months of each of 2021 and 2020 and for the
years ended
Nine months Nine months
(In thousands) Q3 2021 Q2 2021 Q1 2021 YTD 2021 YTD 2020 2020 2019
Net interest income $ 82,835 $ 82,675 $ 82,086 $ 247,596 $ 238,900 $ 326,375 $ 293,130
Provision for (recovery of) credit
losses (1) 4,276 (3,752) (4,194) (3,670) 32,256 30,813 8,356
Other income 31,332 31,126 32,800 95,258 89,920 124,231 92,392
Other expense 64,663 67,122 63,576 195,361 187,661 268,938 237,433
Income before income taxes $ 45,228 $ 50,431 $ 55,504 $ 151,163 $ 108,903 $ 150,855 $ 139,733
Income tax expense 8,777 9,535 10,382 28,694 19,357 27,125 26,133
Net income $ 36,451 $ 40,896 $ 45,122 $ 122,469 $ 89,546 $ 123,730 $ 113,600
(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.
Net interest income of $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 . The increase was a result of a
$16.9 million decrease in interest expense, partially offset by a $8.2 million
decrease in interest income.
The $8.2 million decrease in interest income was primarily due to a $1.9 million
decrease in investment income and a $6.3 million decrease in interest income on
loans. The decrease in investment income was primarily the result of a decrease
in the
77
--------------------------------------------------------------------------------
Table of Contents
yield on investments, which decreased 31 basis points to 2.31% for the nine
months ended September 30, 2021 , compared to 2.62% for the nine months ended
September 30, 2020 . The decrease in interest income on loans was primarily the
result of a decrease in the yield on loans, which decreased 22 basis points 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 .
The $16.9 million decrease in interest expense was primarily due to a $13.8
million decrease in interest expense on deposits as well as a $3.1 million
decrease in interest expense on borrowings. The decrease 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 million decrease 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 . The decrease in
on-balance sheet interest bearing deposits consisted of declines in both
higher-cost time deposits and transaction accounts and was partially offset by
an increase in savings deposits. During the nine months ended September 30, 2021
and the year ended December 31, 2020 , Park made the decision to participate in a
one-way sell (OWS) program in order to manage the balance sheet. This decision
also contributed to a decline in interest bearing deposits.
The decrease in interest expense on borrowings was partially the result of a
$78.3 million decrease in average borrowings from $400.1 million for the nine
months ended September 30, 2020 , 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 .
The 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 . 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 $95.3 million for the nine months ended September 30, 2021
represented an increase of $5.3 million , or 5.9%, compared to $89.9 million for
the nine months ended September 30, 2020 . The $5.3 million increase 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 million
decrease in other service income, which was primarily due to a decline 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.
78
--------------------------------------------------------------------------------
Table of Contents
A summary of mortgage originations for the nine months ended September 30, 2021
and 2020, as well as the quarters within each nine-month period, as follows.
Nine months ended Nine months ended
(In thousands) Q1 2021 Q2 2021 Q3 2021 September 30, 2021 Q1 2020 Q2 2020 Q3 2020 September 30, 2020
Mortgage Origination Volume
Sold $ 191,116 $ 142,398 $ 123,757 $ 457,271 $ 85,030 $ 248,339 $ 355,755 $ 689,124
Portfolio 82,613 74,670 66,718 224,001 56,018 64,351 61,227 181,596
Construction 28,987 37,266 28,486 94,739 33,109 33,754 40,560 107,423
Service released 1,266 2,204 4,537 8,007 3,794 2,362 2,275 8,431
Total mortgage
originations $ 303,982 $ 256,538 $ 223,498 $ 784,018 $ 177,951 $ 348,806 $ 459,817 $ 986,574
Refinances as a % of
Total Originations 71.1 % 50.0 % 44.8 % 56.7 % 48.1 % 67.8 % 68.5 % 64.6 %
Total mortgage loan originations decreased $202.6 million , or 20.5%, 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 .
The table below reflects PNB's other expense for the nine months ended September
30, 2021 and 2020.
(Dollars in thousands) 2021 2020 change % change
Other expense:
Salaries $ 86,194 $ 86,736 $ (542) (0.6) %
Employee benefits 30,451 29,113 1,338 4.6 %
Occupancy expense 9,440 10,395 (955) (9.2) %
Furniture and equipment expense 8,157 13,834 (5,677) (41.0) %
Data processing fees 22,426 8,338 14,088 169.0 %
Professional fees and services 14,332 16,961 (2,629) (15.5) %
Marketing 4,354 4,073 281 6.9 %
Insurance 4,080 4,090 (10) (0.2) %
Communication 2,650 2,894 (244) (8.4) %
State tax expense 2,986 2,792 194 6.9 %
Amortization of intangible assets 1,378 1,738 (360) (20.7) %
FHLB prepayment penalty - 1,793 (1,793) N.M.
Foundation contributions 4,000 - 4,000 N.M.
Miscellaneous 4,913 4,904 9 0.2 %
Total other expense $ 195,361 $ 187,661 $ 7,700 4.1 %
Other expense of $195.4 million for the nine months ended September 30, 2021
represented an 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 decrease in base salary expense and additional
compensation expense, partially offset by increases in 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. The
increase in data processing fees was related to increased debit card processing
costs
79
--------------------------------------------------------------------------------
Table of Contents
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, 2021 and 2020 and as of
or for the year ended December 31, 2020 .
% change from % change from
(Dollars in thousands) September 30, 2021 December 31, 2020 September 30, 2020 12/31/20 9/30/20
Loans less PPP $ 6,773,762 $ 6,834,269 $ 6,720,619 (0.89) % 0.79 %
Loans 6,905,245 7,165,840 7,263,380 (3.64) % (4.93) %
Allowance for credit losses (1) 87,992 84,321 85,249 4.35 % 3.22 %
Net loans 6,817,253 7,081,519 7,178,131 (3.73) % (5.03) %
Investment securities 1,601,376 1,114,742 1,088,149 43.65 % 47.17 %
Total assets 10,012,868 9,236,915 9,195,911 8.40 % 8.88 %
Total deposits 8,603,171 7,820,983 7,725,562 10.00 % 11.36 %
Average assets (2) 9,819,220 9,198,141 9,171,998 6.75 % 7.06 %
Efficiency ratio (3) 56.63 % 59.31 % 56.70 % (4.52) % (0.12) %
Return on average assets (4) 1.67 % 1.35 % 1.30 % 23.70 % 28.46 %
(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 nine months ended September 30, 2021 were calculated
utilizing this new guidance.
(2) Average assets for the nine months ended September 30, 2021 and 2020 and for
the year ended December 31, 2020 .
(3) Calculated utilizing fully taxable equivalent net interest income which
includes the effects of taxable equivalent adjustments using a 21% federal
corporate income tax rate. The taxable equivalent adjustments were $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 .
(4) Annualized for the nine months ended September 30, 2021 and 2020.
Loans outstanding at September 30, 2021 were $6.91 billion , compared to $7.17
billion at December 31, 2020 , a decrease of $260.6 million , or 3.6%. Loans
outstanding at September 30, 2021 were $6.91 billion , compared to $7.26 billion
at September 30, 2020 , a decrease of $358.1 million , or 4.9%. Excluding $131.5
million , $331.6 million and $542.8 million of PPP loans at September 30, 2021 ,
December 31, 2020 and September 30, 2020 , respectively, loans outstanding were
$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
80
--------------------------------------------------------------------------------
Table of Contents
$53.1 million , or 0.8%, compared to $6.72 billion at September 30, 2020 . The
table below breaks out the change in loans outstanding, by loan type.
September 30, December 31, September 30, change from % change from change from % change from
(Dollars in thousands) 2021 2020 2020 12/31/20 12/31/20 9/30/20 9/30/20 Home equity$ 166,557 $ 182,131 $ 194,445 $ (15,574) (8.55) %$ (27,888) (14.34) % Installment 1,711,781 1,650,620 1,633,730 61,161 3.71 % 78,051 4.78 % Real estate 1,165,045 1,213,820 1,232,196 (48,775) (4.02) % (67,151) (5.45) %
Commercial (excluding PPP) 3,725,362 3,784,153 3,654,342
(58,791) (1.55) % 71,020 1.94 %
PPP loans 131,483 331,571 542,761 (200,088) (60.35) % (411,278) (75.78) %
Other 5,017 3,545 5,906 1,472 41.52 % (889) (15.05) %
Total loans $ 6,905,245 $ 7,165,840 $ 7,263,380 $ (260,595) (3.64) % $ (358,135) (4.93) %
Total loans (excluding PPP)
$ (60,507) (0.89) %$ 53,143 0.79 % PNB's allowance for credit losses increased by$3.7 million , or 4.4%, to$88.0 million atSeptember 30, 2021 , compared to$84.3 million atDecember 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. Net recoveries were$638,000 , or 0.01% of total average loans, for the nine months endedSeptember 30, 2021 and net charge-offs were$1.2 million , or 0.02% of total average loans, for the year endedDecember 31, 2020 . 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 atSeptember 30, 2021 were$8.60 billion , compared to$7.82 billion atDecember 31, 2020 , an increase of$782.2 million , or 10.0%. During the nine months endedSeptember 30, 2021 and the year endedDecember 31, 2020 , Park made the decision to participate in a one-way sell (OWS) program in order to manage growth of the balance sheet, as deposits increased significantly throughout the COVID-19 pandemic. AtSeptember 30, 2021 ,December 31, 2020 andSeptember 30, 2020 , Park had$818.3 million ,$710.1 million and$773.3 million , respectively, in OWS insured cash sweep deposits which were off-balance sheet. Total deposits would have increased$890.4 million , or 10.4%, compared toDecember 31, 2020 had the$818.3 million and$710.1 million remained on the balance sheet at the respective dates. Total deposits would have increased$922.7 million , or 10.9%, compared toSeptember 30, 2020 had the$818.3 million and$773.3 million remained on the balance sheet at the respective dates. The table below breaks out the change in deposit balances, by deposit type. September 30, December 31, September 30,
change from % change from change from % change from (Dollars in thousands) 2021
2020 2020 12/31/20 12/31/20 9/30/20 9/30/20
Non-interest bearing
deposits $ 3,221,859 $ 2,978,005 $ 2,831,767 $ 243,854 8.2 % $ 390,092 13.8 %
Transaction accounts 1,620,375 1,381,479 1,365,783 238,896 17.3 % 254,592 18.6 %
Savings 3,035,734 2,596,926 2,596,811 438,808 16.9 % 438,923 16.9 %
Certificates of
deposits 725,203 864,573 931,201 (139,370) (16.1) % (205,998) (22.1) %
Total deposits $ 8,603,171 $ 7,820,983 $ 7,725,562 $ 782,188 10.0 % $ 877,609 11.4 %
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 %
81-------------------------------------------------------------------------------- Table of Contents All Other The table below reflects All Other net (loss) income for the first, second and third quarters of 2021, for the first nine months of each of 2021 and 2020 and for the years endedDecember 31, 2020 and 2019.
Nine months Nine months
(In thousands) Q3 2021 Q2 2021 Q1 2021 YTD 2021 YTD 2020 2020 2019 Net interest (expense) income
$ (1,233) $ 1,176 $ (1,352)
(2,304) (288) (661) (3,253) (1,043) (18,759) (2,185)
Other income 1,079 112 1,289 2,480 88 1,433 4,801
Other expense 3,826 4,278 4,289 12,393 13,273 17,657 26,555 Net (loss) income before income tax benefit
$ (1,676) $ (2,702) $ (3,691)
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) (1) Park adopted ASU 2016-13 effectiveJanuary 1, 2021 . The allowance for credit losses as ofSeptember 30, 2021 and the related provision for (recovery of) credit losses for the three months endedMarch 31, 2021 ,June 30, 2021 , andSeptember 30, 2021 and the nine months endedSeptember 30, 2021 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 consolidatedPark 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 endedSeptember 30, 2021 and 2020 and the year endedDecember 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 inAugust 2020 (the "Park Subordinated Notes"). Net interest (expense) income reflected net interest expense of$1.4 million for the nine months endedSeptember 30, 2021 , compared to net interest income of$2.4 million for the nine months endedSeptember 30, 2020 . The change was largely the result of an increase in interest expense on borrowings of$4.6 million , 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. SEPH had net recoveries of$2.6 million for the nine months endedSeptember 30, 2021 , compared to net recoveries of$1.4 million for the nine months endedSeptember 30, 2020 , and GFSC had net recoveries of$11,000 for the nine months endedSeptember 30, 2021 , compared to net charge-offs of$536,000 for the nine months endedSeptember 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$2.5 million for the nine months endedSeptember 30, 2021 , compared to$88,000 for the nine months endedSeptember 30, 2020 . The change was largely due to a$1.0 million increase in income related to Partnership Investments, which went from a$203,000 loss for the nine months endedSeptember 30, 2020 to a$767,000 gain for the nine months endedSeptember 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 endedSeptember 30, 2020 to a$185,000 gain for the nine months endedSeptember 30, 2021 .
All Other had other expense of
82
--------------------------------------------------------------------------------
Table of Contents
The table below provides certain balance sheet information for All Other as of
or for the nine months ended September 30, 2021 and 2020 and as of or for the
year ended December 31, 2020 .
September 30 , December 31 ,
(Dollars in thousands) 2021 2020 2020 12/31/20 9/30/20
Loans $ 3,172 $ 11,945 $ 15,166 (73.44) % (79.08) %
Allowance for credit losses (1) 137 1,354 1,789 (89.88) % (92.34) %
Net loans 3,035 10,591 13,377 (71.34) % (77.31) %
Total assets 21,150 42,106 44,095 (49.77) % (52.04) %
Average assets (2) 34,237 43,492 44,497 (21.28) % (23.06) %
(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, 2021 and 2020 and for
the year ended December 31, 2020 .
The table below reflects Park's consolidated net income for the first, second and third quarters of 2021, for the first nine months of each of 2021 and 2020 and for the years endedDecember 31, 2020 and 2019.
Nine months Nine months
(In thousands) Q3 2021 Q2 2021 Q1 2021 YTD 2021 YTD 2020 2020 2019
Net interest income $ 81,602 $ 83,851 $ 80,734 $ 246,187 $ 241,309 $ 327,630 $ 297,737
Provision for (recovery of) credit
losses (1) 1,972 (4,040) (4,855) (6,923) 31,213 12,054 6,171
Other income 32,411 31,238 34,089 97,738 90,008 125,664 97,193
Other expense 68,489 71,400 67,865 207,754 200,934 286,595 263,988 Income before income taxes
$ 43,552 $ 47,729 $ 51,813 $ 143,094 $ 99,170 $ 154,645 $ 124,771 Income tax expense 8,118 8,597 8,982 25,697 16,447 26,722 22,071 Net income$ 35,434 $ 39,132 $ 42,831 $ 117,397 $ 82,723 $ 127,923 $ 102,700 (1) Park adopted ASU 2016-13 effectiveJanuary 1, 2021 . The allowance for credit losses as ofSeptember 30, 2021 and the related provision for (recovery of) credit losses for the three months endedMarch 31, 2021 ,June 30, 2021 , andSeptember 30, 2021 and the nine months endedSeptember 30, 2021 were calculated utilizing this new guidance. 83 -------------------------------------------------------------------------------- Table of Contents 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 2021 and 2020
Net interest income decreased by$2.2 million , or 2.7%, to$81.6 million for the third quarter of 2021, compared to$83.8 million for the third quarter of 2020. See the discussion under the table below. Three months ended Three months ended September 30, 2021 September 30, 2020 Tax Tax Average equivalent Average equivalent (Dollars in thousands) balance Interest yield/cost balance Interest yield/cost Loans (1)$ 6,956,064 $ 78,304 4.47 %$ 7,247,021 $ 82,780 4.54 % Taxable investments 1,121,281 4,904 1.74 % 976,389 4,841 1.97 % Tax-exempt investments (2) 277,810 2,569 3.67 % 280,085 2,588 3.68 % Money market instruments 895,784 360 0.16 % 223,563 63 0.11 % Interest earning assets$ 9,250,939 $ 86,137 3.69 %$ 8,727,058 $ 90,272 4.12 % Interest bearing deposits$ 5,459,400 1,446 0.11 %$ 5,309,718 3,465 0.26 % Short-term borrowings 273,538 187 0.27 % 320,871 217 0.27 % Long-term debt 197,610 2,185 4.39 % 231,581 2,044 3.51 % Interest bearing liabilities$ 5,930,548 $ 3,818 0.26 %$ 5,862,170 $ 5,726 0.39 % Excess interest earning assets$ 3,320,391 $ 2,864,888 Tax equivalent net interest income$ 82,319 $ 84,546 Net interest spread 3.43 % 3.73 % Net interest margin 3.53 % 3.85 % (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 for the three months endedSeptember 30, 2021 and$163,000 for the same period of 2020. (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 for the three months endedSeptember 30, 2021 and$543,000 for the same period of 2020. Average interest earning assets for the third quarter of 2021 increased by$523.9 million , or 6.0%, to$9,251 million , compared to$8,727 million for the third quarter of 2020. The average yield on interest earning assets decreased by 43 basis points to 3.69% for the third quarter of 2021, compared to 4.12% for the third quarter of 2020. Interest income for the three months endedSeptember 30, 2021 and 2020 included purchase accounting accretion of$799,000 and$1.0 million , respectively, related to the acquisitions ofNewDominion and Carolina Alliance, as well as$414,000 and$8,000 , respectively, of interest income related to payments received on certain SEPH impaired loan relationships, some of which are participated with PNB. Interest income for the three months endedSeptember 30, 2021 and 2020 also included$4.6 million and$5.1 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% and 4.54% for the three months endedSeptember 30, 2021 and 2020, respectively, and the yield on earning assets was 3.52% and 4.08% for the three months endedSeptember 30, 2021 and 2020, respectively. Average interest bearing liabilities for the third quarter of 2021 increased by$68.4 million , or 1.2%, to$5,931 million , compared to$5,862 million for the third quarter of 2020. The average cost of interest bearing liabilities decreased by 13 basis points to 0.26% for the third quarter of 2021, compared to 0.39% for the third quarter of 2020. During the three months endedSeptember 30, 2020 , Park made the decision to participate in a OWS program in order to manage growth of the balance sheet. AtSeptember 30, 2021 and 2020, Park had$818.3 million and$773.3 million , respectively, in OWS insured cash sweep deposits which were off-balance sheet. Excluding the impact of these off-balance sheet OWS deposits, the average cost of interest bearing liabilities would have been 0.22% and 0.34% for the third quarter of 2021 and 2020, respectively. 84 -------------------------------------------------------------------------------- Table of Contents Interest expense for the three months endedSeptember 30, 2021 and 2020 included a benefit from purchase accounting accretion of$8,000 and$42,000 , respectively, related to the acquisitions ofNewDominion 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 endedSeptember 30, 2021 and 0.39% for the three months endedSeptember 30, 2020 . Removing the impacts of the accretion of purchase accounting adjustments related to the acquisitions ofNewDominion and Carolina Alliance, the interest income related to payments on certain SEPH impaired loan relationships and the interest income related to PPP loans, the net interest margin was 3.35% and 3.80% for the three months endedSeptember 30, 2021 and 2020, respectively. Yield on Loans: Average loan balances decreased$291.0 million , or 4.0%, to$6,956 million for the third quarter of 2021, compared to$7,247 million for the third quarter of 2020. The average yield on the loan portfolio decreased by 7 basis points to 4.47% for the third quarter of 2021, compared to 4.54% for the third quarter of 2020. Average loans for the third quarters of 2021 and 2020 included$194.8 million and$542.8 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
Three months ended Three months ended
September 30, 2021 September 30, 2020
Tax Tax
Average equivalent Average equivalent
(Dollars in thousands) balance yield balance yield
Home equity loans $ 166,796 3.67 % $ 199,299 3.78 %
Installment loans 1,711,240 4.76 % 1,599,373 5.13 %
Real estate loans 1,173,116 3.69 % 1,284,116 4.02 %
Commercial loans (1) 3,901,243 4.60 % 4,160,079 4.51 %
Other 3,669 9.15 % 4,154 9.28 %
Total loans and leases before allowance $ 6,956,064 4.47 % $ 7,247,021 4.54 %
(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 for the three months ended September 30, 2021
and $163,000 for the same period of 2020.
Loan interest income 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, interest income related to
payments on certain SEPH impaired 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 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 .
Cost of Deposits: Average interest bearing deposit balances increased $149.7
million , or 2.8%, to $5,459 million for the third quarter of 2021, compared to
$5,310 for the third quarter of 2020. The average cost of funds on deposit
balances decreased by 15 basis points to 0.11% for the third quarter of 2021,
compared to 0.26% for the third quarter of 2020.
The table below shows for the three months ended
Three months ended Three months ended
September 30, 2021 September 30, 2020
Average Average
(Dollars in thousands) balance Cost of funds balance Cost of funds
Transaction accounts $ 1,643,234 0.02 % $ 1,732,893 0.07 %
Savings deposits and clubs 3,071,014 0.04 % 2,609,808 0.08 %
Time deposits 745,152 0.54 % 967,017 1.10 %
Total interest bearing deposits $ 5,459,400 0.11 % $ 5,309,718 0.26 %
85-------------------------------------------------------------------------------- Table of Contents Deposit interest expense for the three months endedSeptember 30, 2021 and 2020 included the accretion of purchase accounting adjustments related to the acquisitions ofNewDominion 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 endedSeptember 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 endedSeptember 30, 2020 .
Comparison for the First Nine Months of 2021 and 2020
Net interest income increased by$4.9 million , or 2.0%, to$246.2 million for the first nine months of 2021, compared to$241.3 million for the first nine months of 2020. See the discussion under the table below. Nine months ended Nine months ended September 30, 2021 September 30, 2020 Tax Tax Average equivalent Average equivalent (Dollars in thousands) balance Interest yield/cost balance Interest yield/cost Loans (1)$ 7,062,336 $ 238,568 4.52 %$ 6,904,900 $ 243,913 4.72 % Taxable investments 969,628 13,760 1.90 % 905,665 15,398 2.27 % Tax-exempt investments (2) 278,379 7,719 3.71 % 292,672 8,096 3.69 % Money market instruments 724,561 689 0.13 % 286,909 667 0.31 % Interest earning assets$ 9,034,904 $ 260,736 3.86 %$ 8,390,146 $ 268,074 4.27 % Interest bearing deposits$ 5,284,664 5,102 0.13 %$ 5,350,009 18,945 0.47 % Short-term borrowings 296,132 552 0.25 % 264,842 912 0.46 % Long-term debt 211,857 6,746 4.26 % 190,285 4,754 3.34 % Interest bearing liabilities$ 5,792,653 $ 12,400 0.29 %$ 5,805,136 $ 24,611 0.57 % Excess interest earning assets$ 3,242,251 $ 2,585,010 Tax equivalent net interest income$ 248,336 $ 243,463 Net interest spread 3.57 % 3.70 % Net interest margin 3.67 % 3.88 % (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 for the nine months endedSeptember 30, 2021 and$454,000 for the same period of 2020. (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 million for the nine months endedSeptember 30, 2021 and$1.7 million for the same period of 2020. Average interest earning assets for the first nine months of 2021 increased by$644.8 million , or 7.7%, to$9,035 million , compared to$8,390 million for the first nine months of 2020. The average yield on interest earning assets decreased by 41 basis points to 3.86% for the first nine months of 2021, compared to 4.27% for the first nine months of 2020. Interest income for the nine months endedSeptember 30, 2021 and 2020 included purchase accounting accretion of$2.7 million and$3.6 million , respectively, related to the acquisitions ofNewDominion and Carolina Alliance, as well as$3.4 million and$351,000 , respectively, of interest income related to payments received on certain SEPH impaired loan relationships, some of which are participated with PNB. Interest income for the nine months endedSeptember 30, 2021 and 2020 also included$15.5 million and$8.7 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% and 4.68% for the nine months endedSeptember 30, 2021 and 2020, respectively, and the yield on earning assets was 3.66% and 4.22% for the nine months endedSeptember 30, 2021 and 2020, respectively. Average interest bearing liabilities for the first nine months of 2021 decreased by$12.5 million , or 0.2%, to$5,793 million , compared to$5,805 million for the first nine months of 2020. The average cost of interest bearing liabilities decreased by 28 basis points to 0.29% for the first nine months of 2021, compared to 0.57% for the first nine months of 2020. During the nine months endedSeptember 30, 2020 , Park made the decision to participate in a OWS program in order to manage the growth of the balance sheet. AtSeptember 30, 2021 and 2020, Park had$818.3 million and$773.3 million , respectively, in OWS insured cash sweep deposits which were off-balance sheet. Excluding the impact of these off-balance sheet OWS deposits, 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. 86 -------------------------------------------------------------------------------- Table of Contents Interest expense for the nine months endedSeptember 30, 2021 and 2020 included a benefit from purchase accounting accretion of$39,000 and$194,000 , respectively, related to the acquisitions ofNewDominion 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 endedSeptember 30, 2021 and 0.48% for the nine months endedSeptember 30, 2020 . Removing the impacts of the accretion of purchase accounting adjustments related to the acquisitions ofNewDominion and Carolina Alliance, the interest income related to payments on certain SEPH impaired loan relationships and the interest income related to PPP loans, the net interest margin was 3.47% and 3.81% for the nine months endedSeptember 30, 2021 and 2020, respectively. Yield on Loans: Average loan balances increased$157 million , or 2.3%, to$7,062 million for the first nine months of 2021, compared to$6,905 million for the first nine months of 2020. The average yield on the loan portfolio decreased by 20 basis points to 4.52% for the first nine months of 2021, compared to 4.72% for the first nine months of 2020. Average loans for the first nine months of 2021 and 2020 included$309.0 million and$312.2 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
Nine months ended Nine months ended
September 30, 2021 September 30, 2020
Tax Tax
Average equivalent Average equivalent
(Dollars in thousands) balance yield balance 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 %
(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 for the nine months ended September 30, 2021
and $454,000 for the same period of 2020.
Loan interest income 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, interest income related to
payments on certain SEPH impaired 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 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 .
Cost of Deposits: Average interest bearing deposit balances decreased $65.3
million , or 1.2%, to $5,285 million for the first nine months of 2021, compared
to $5,350 for the first nine months of 2020. The average cost of funds on
deposit balances decreased by 34 basis points to 0.13% for the first nine months
of 2021, compared to 0.47% for the first nine months of 2020.
The table below shows for the nine months ended
Nine months ended Nine months ended
September 30, 2021 September 30, 2020
Average Average
(Dollars in thousands) balance Cost of funds 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 %
87-------------------------------------------------------------------------------- Table of Contents Deposit interest expense for the nine months endedSeptember 30, 2021 and 2020 included the accretion of purchase accounting adjustments related to the acquisitions ofNewDominion 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 endedSeptember 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 endedSeptember 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 endedSeptember 30, 2021 and for the years endedDecember 31, 2020 , 2019 and 2018. Money Market Loans (1) (3) Investments (2) Instruments Total(3) 2018 - year 4.98 % 2.72 % 1.93 % 4.46 % 2019 - year 5.19 % 2.76 % 2.33 % 4.70 % 2020 - year 4.71 % 2.66 % 0.26 % 4.28 % 2021 - first nine months 4.52 % 2.30 % 0.13 % 3.86 % (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 for the nine months endedSeptember 30, 2021 , and$623,000 ,$576,000 and$528,000 for the years endedDecember 31, 2020 , 2019 and 2018, 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 million for the nine months endedSeptember 30, 2021 , and$2.2 million ,$2.4 million and$2.3 million for the years endedDecember 31, 2020 , 2019 and 2018, respectively. (3) Interest income for the nine months endedSeptember 30, 2021 and for the years endedDecember 31, 2020 , 2019 and 2018 included$3.4 million ,$453,000 ,$256,000 and$3.4 million , respectively, related to payments received on certain SEPH impaired loan relationships, some of which are participated with PNB, as well as$2.7 million ,$4.4 million ,$5.2 million and$1.1 million , respectively, of the accretion of purchase accounting adjustments related to the acquisitions ofNewDominion and Carolina Alliance. Interest income for the nine months endedSeptember 30, 2021 and for the year endedDecember 31, 2020 included$15.5 million and$16.7 million , respectively, of income related to PPP loans. Excluding all of these sources of income, the yield on loans was 4.29%, 4.63%, 5.09% and 4.89%, for the nine months endedSeptember 30, 2021 , and for the years endedDecember 31, 2020 , 2019 and 2018, respectively, and the yield on earning assets was 3.66%, 4.20%, 4.62% and 4.40%, for the nine months endedSeptember 30, 2021 and for the years endedDecember 31, 2020 , 2019 and 2018, 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
Interest bearing
deposits (1) Short-term borrowings Long-term debt Total (1)
2018 - year 0.72 % 0.74 % 2.38 % 0.86 %
2019 - year 1.01 % 1.15 % 2.77 % 1.12 %
2020 - year 0.41 % 0.40 % 3.55 % 0.52 %
2021 - first nine months 0.13 % 0.25 % 4.26 % 0.29 %
(1) Interest expense for the nine months ended September 30, 2021 and the years
ended December 31, 2020 , 2019 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). Excluding this income, for the nine months
ended September 30, 2021 and the years ended December 31, 2020 , 2019 and 2018,
the cost of funds on interest bearing deposits was 0.13%, 0.41%, 1.02% and
0.73%, respectively, and the cost of interest bearing liabilities was 0.29%,
0.53%, 1.13% and 0.86%, respectively.
Credit Metrics and Provision for (Recovery of) Credit Losses
The provision for credit losses is the amount added to the allowance for credit losses to ensure the allowance is sufficient to absorb estimated credit losses over the life of a loan. The amount of the provision for credit losses is determined by management based on relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets.
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
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
88--------------------------------------------------------------------------------
Table of Contents
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
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 toJanuary 1, 2021 . This allowed Park to utilize the CECL standard for the entire year of adoption. The adoption of ASU 2016-13 onJanuary 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) credit losses for the three-month and nine-month periods endedSeptember 30, 2021 and 2020. Three Months
Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2021 2020 2021 2020
Allowance for credit losses:
Beginning balance $ 83,577 $ 73,476 $ 85,675 $ 56,679
Cumulative change in accounting principle; adoption of ASU
2016-13 - - 6,090 -
Charge-offs 1,002 1,529 3,773 6,344
Recoveries 3,582 1,255 7,060 5,490
Net (recoveries) charge-offs (2,580) 274 (3,287) 854
Provision for (recovery of) credit losses 1,972 13,836 (6,923) 31,213
Ending balance $ 88,129 87,038
Net (recoveries) charge-offs as a % of average loans
(annualized) (0.15) % 0.02 % (0.06) % 0.02 %
89-------------------------------------------------------------------------------- Table of Contents The following table provides additional information related to the allowance for credit losses for Park including information related to specific reserves and general reserves, atSeptember 30, 2021 ,December 31, 2020 andSeptember 30, 2020 . Also included is theJanuary 1, 2021 allowance for credit losses calculated under the CECL methodology prescribed in ASU 2016-13. Park - Allowance for Credit
Losses
9/30/2021 (CECL1/1/2021 (CECL12/31/2020 (Incurred9/30/2020 (Incurred (Dollars in thousands) methodology)
methodology) Loss methodology) Loss methodology) Total allowance for credit losses
$ 88,129 $ 91,764 $ 85,675 $ 87,038 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 Specific reserves on individually evaluated loans 3,466 5,434 5,434 8,666 General reserves on collectively evaluated loans$ 84,663 $ 86,278 $ 79,396 $ 77,898 Total loans$ 6,908,417 $
7,177,537
11,153 11,877
Purchased loans excluded from collectively
evaluated loans - - 360,056 393,752
Individually evaluated loans 79,264 108,274 108,407 116,138
Collectively evaluated loans $ 6,820,448 $
7,058,360
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 (excluding PPP loans) (1) 1.30 % 1.34 % 1.25 % 1.28 % General reserve as a % of collectively evaluated loans 1.24 % 1.22 % 1.19 % 1.15 % General reserve as a % of collectively evaluated loans (excluding PPP loans) (1) 1.27 % 1.28 % 1.24 % 1.24 %
(1) Excludes
The allowance for credit losses of$88.1 million atSeptember 30, 2021 represented a$3.6 million , or 4.0%, decrease compared to$91.8 million atJanuary 1, 2021 as calculated under the CECL methodology. The decline sinceJanuary 1, 2021 was largely due to a$1.6 million decrease in general reserves, taking into consideration improved economic forecasts while balancing the risks associated with the COVID-19 pandemic and the Delta variant, particularly in high risk portfolios such as hotels and accommodations, restaurants and food service and strip shopping centers. Additionally, there was a$2.0 million decrease in specific reserves on individually evaluated loans from$5.4 million atJanuary 1, 2021 to$3.5 million atSeptember 30, 2021 . See the section entitled "Allowance for Credit Losses" for further details. Generally, management obtains updated valuations for all nonperforming loans at least annually. As new valuation information is received, management performs an evaluation and applies a discount for anticipated disposition costs to determine the net realizable value of the collateral, which is compared against the outstanding principal balance to determine if additional write-downs are necessary. Nonperforming Assets: Nonperforming assets include: (1) loans whose interest is accounted for on a nonaccrual basis; (2) TDRs on accrual status; (3) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue; (4) OREO which results from taking possession of property that served as collateral for a defaulted loan; and (5) other nonperforming assets. AtSeptember 30, 2021 ,December 31, 2020 andSeptember 30, 2020 , other nonperforming assets consisted of aircraft acquired as part of a loan workout. 90
-------------------------------------------------------------------------------- Table of Contents The following table compares Park's nonperforming assets atSeptember 30, 2021 ,December 31, 2020 andSeptember 30, 2020 . Park National Corporation - Nonperforming Assets September 30, September 30, (In thousands) 2021 December 31, 2020 2020 Nonaccrual loans$ 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
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 atSeptember 30, 2021 ,December 31, 2020 andSeptember 30, 2020 . Loans are classified as current if they are less than 30 days past due. September 30, 2021 December 31, 2020 September 30, 2020 Percent of Percent of Percent of (In thousands) Balance Total Loans Balance Total Loans Balance Total Loans Nonaccrual loans - current$ 67,722 0.98 %$ 92,600 1.29 %$ 101,551 1.39 % Nonaccrual loans - past due 20,069 0.29 % 24,768 0.35 % 21,499 0.30 % Total nonaccrual loans$ 87,791 1.27 %$ 117,368 1.64 %$ 123,050 1.69 % 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. Any commercial loan graded an 8 (loss) is completely charged-off. 91
--------------------------------------------------------------------------------
Table of Contents The following table highlights the credit trends within the commercial loan portfolio.
September 30, December 31, September 30,
Commercial loans * (In thousands) 2021 2020 2020
Pass-rated $ 3,676,310 $ 3,893,205 $ 3,959,026
Special mention 92,659 102,812 103,570
Substandard 39 109 1,147
Impaired 79,264 108,407 116,138
Accruing PCI 8,187 10,296 11,018
Total $ 3,856,459 $ 4,114,829 $ 4,190,899
* 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 million of collectively evaluated commercial loans included on
the watch list at September 30, 2021 , compared to $102.9 million at December 31,
2020 , and $104.7 million at September 30, 2020 . 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 million of collectively evaluated commercial watch list loans as of
September 30, 2021 is elevated compared to pre-pandemic levels, an increase of
$65.9 million compared to $26.8 million at March 31, 2020 . This $65.9 million
increase was largely due to $68.3 million of hotels and accommodations loans
that were downgraded to special mention or substandard as a result of the impact
of COVID-19. In addition to the $68.3 million in hotels and accommodations loans
that were downgraded to special mention, $15.6 million in hotels and
accommodations loans were downgraded to impaired status. Park is closely
monitoring the impact of COVID-19 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. Individual analysis will
establish 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. 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.
Impaired commercial loans were $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 . The $79.3
million of impaired commercial loans at September 30, 2021 included $8.2 million
of loans modified in a TDR which were then currently on accrual status and
performing in accordance with the restructured terms, down from $8.8 million at
December 31, 2020 .
At September 30, 2021 , Park had taken partial charge-offs of $688,000 related to
the $79.3 million of commercial loans considered to be impaired, compared to
partial charge-offs of $655,000 related to the $108.4 million of impaired
commercial loans at December 31, 2020 .
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 was reclassified to the allowance for credit losses. At September 30,
2021 , there was no allowance for credit losses on PCD loans. The carrying amount
of loans
92
--------------------------------------------------------------------------------
Table of Contents
acquired with deteriorated credit quality at September 30, 2021 and December 31,
2020 was $8.7 million and $11.2 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, 2021 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
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.
•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 March 31, 2021 , the "most likely" scenario forecasted Ohio unemployment
to decrease significantly, to a range between 3.70% and 4.93% during the next
four quarters. In determining the appropriate weighting of scenarios at March
31, 2021 , management considered this improved economic forecast while balancing
the risks associated with the COVID-19 pandemic, including the risk of
pandemic-related losses lagging behind the projected improvement in
unemployment. Management determined it was appropriate to weight the "most
likely" scenario 50% and the "moderate recession" scenario 50%.
•As of June 30, 2021 , the "most likely" scenario forecasted Ohio unemployment to
decrease significantly, to a range between 2.85% and 3.92% during the next four
quarters. In determining the appropriate weighting of scenarios at June 30,
2021 , management considered this improved economic forecast and other positive
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. Management determined it was
appropriate to weight the "most likely" scenario 55% and the "moderate
recession" scenario 45% at June 30, 2021 . Management believed that the resulting
quantitative reserve appropriately balanced economic improvement with the
ongoing risks.
•As of September 30, 2021 , the "most likely" scenario forecasted Ohio
unemployment to decrease, to a range between 3.03% and 4.02%, during the next
four quarters. In determining the appropriate weighting of scenarios at
September 30, 2021 , management considered a number of less optimistic economic
indicators, including: a slight uptick in Ohio unemployment, which was contrary
to the forecast; increased COVID cases; decreased consumer confidence; and
decreased occupancy, among others. Considering these factors, management
determined it was appropriate to return to the March 31, 2021 weighting and
weigh the "most likely" scenario 50% and the "moderate recession" scenario 50%
at September 30, 2021 .
93-------------------------------------------------------------------------------- Table of Contents 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; 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 theU.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. 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. As ofSeptember 30, 2021 , additional reserves totaling$4.6 million were added for these portfolios on top of the quantitative reserve already calculated. This is an increase from$3.4 million as ofJune 30, 2021 and$4.5 million as ofMarch 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 ofSeptember 30, 2021 is also an increase compared to$3.8 million as ofDecember 31, 2020 , which had been calculated under the previous incurred loss methodology.
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
Additionally, management applied a 1.00% reserve to all hotels and
accommodations loans in the general reserve population to account for increased
valuation risk. This is an increase from 0.50% at June 30, 2021 and considers
some decline in various conditions due to the Delta variant and a decline in
hotel occupancy rates. At September 30, 2021 , Park's originated hotels and
accommodation loans had a balance of $193.8 million with an additional reserve
related to valuation risks of $1.9 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.
94
--------------------------------------------------------------------------------
Table of Contents
As of September 30, 2021 , Park had $131.5 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 decreased by$4.1 million to$32.4 million for the quarter endedSeptember 30, 2021 , compared to$36.6 million for the third quarter of 2020 and increased by$7.7 million to$97.7 million for the first nine months of 2021, compared to$90.0 million for the first nine months of 2020. The decrease for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 was primarily due: (a) to decreases in other service income; gains on sale of OREO, net; and gains on equity securities, net; (b) partially offset by increases in income from fiduciary activities; service charges on deposit accounts; debit card fee income; bank owned life insurance income; and miscellaneous income. The increase for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was primarily due to: (a) increases in income from fiduciary activities; gain (loss) on equity securities, net; debit card fee income; ATM fees; and miscellaneous income; (b) partially offset by declines in other service income; gain (loss) on sale of OREO, net; and net (loss) gain on sale of debt securities. The following table is a summary of the changes in the components of other income: Three months ended Nine months ended September 30, September 30, (In thousands) 2021 2020 Change 2021 2020 Change Income from fiduciary activities$ 8,820 $ 7,335
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
Income from fiduciary activities increased by $1.5 million , or 20.2%, to $8.8
million for the three months ended September 30, 2021 , compared to $7.3 million
for the same period of 2020 and increased $4.3 million , or 20.3%, to $25.6
million for the nine months ended September 30, 2021 , compared to $21.2 million
for the same period in 2020. Fiduciary fees charged are generally based on the
market value of customer accounts. The average market value of assets under
management for the three months ended September 30, 2021 was $7,548 million
compared to $6,301 million for the same period in 2020. The average market value
of assets under management for the first nine months of 2021 was $7,355 million
compared to $6,023 million for the same period in 2020.
Service charges on deposit accounts increased by $271,000 , or 12.8%, to $2.4
million for the three months ended September 30, 2021 , compared to $2.1 million
for the same period of 2020 and increased $153,000 , or 2.4%, to $6.5 million for
the nine months ended September 30, 2021 , compared to $6.3 million for the same
period of 2020. The changes for both the three and nine month periods ended
September 30, 2021 compared to September 30, 2020 were due mostly to increases
in NSF income. Park implemented an NSF fee increase in December 2020 .
95
--------------------------------------------------------------------------------
Table of Contents
Other service income decreased by $6.4 million , or 48.9%, to $6.7 million for
the three months ended September 30, 2021 , compared to $13.0 million for the
same period of 2020, and decreased $2.1 million , or 8.3%, to $23.4 million for
the nine months ended September 30, 2021 , compared to $25.6 million for the same
period in 2020. 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% compared to the same period
in 2020 and the dollar value of transactions increased 17.7% compared to the
same period in 2020.
ATM fees increased $131,000 , or 26.7%, to $622,000 for the three months ended
September 30, 2021 , 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 , compared to $1.3 million for the first nine months of 2020.
The increase in ATM fee income was primarily due to Park implementing additional
charges for ATM balance inquiries and transfers during the second quarter of
2021.
Gain (loss) on sale of OREO, net decreased by $566,000 , to a net gain of $3,000
for the three months ended September 30, 2021 , compared to a net gain of
$569,000 for the same period of 2020, and decreased by $1.2 million , to a net
loss of $26,000 for the nine months ended September 30, 2021 , compared to a net
gain of $1.2 million for the same period of 2020. The decrease 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 2021 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, 2021 , compared to a net gain
of $1.2 million for the same period in 2020 and increased $3.6 million 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. The $592,000 decrease
for the three months ended September 30, 2021 was related to a $778,000 decrease
in the gain (loss) on equity securities held at NAV, which went from a $1.3
million gain for the three months ended September 30, 2020 to 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 . The $3.6 million
increase for the nine months ended September 30, 2021 was related to a $2.4
million 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 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 .
Miscellaneous income increased $556,000 , or 19.9%, to $3.3 million for the three
months ended September 30, 2021 , compared to $2.8 million for the same period of
2020 and increased $2.6 million , or 44.2%, to $8.4 million for the nine months
ended September 30, 2021 compared to $5.9 million for the same period of 2020
The increase for the three months period ended September 30, 2021 was primarily
a result of an increase in printed check sales income, an increase in wire
transfer fees, an increase in VISA incentive income, and a decrease in the loss
on sales of assets. The increase for the nine months period ended September 30,
2021 was primarily the result of an increase in printed check sales income, an
insurance refund received on a consumer loan insurance product, an increase in
VISA incentive income, and an increase in wire transfer fees.
96
--------------------------------------------------------------------------------
Table of Contents
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:
Three months ended Nine months ended
September 30, 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
Salaries decreased by $2.2 million , or 7.0%, to $29.4 million for the three
months ended September 30, 2021 , compared to $31.6 million for the same period
in 2020. The decrease was due to a $1.1 million decrease in officer incentive
compensation, and a $934,000 decrease in additional compensation expense,
primarily related to calamity pay and special one-time bonuses to certain
associates as a result of the COVID-19 public health crisis.
Salaries decreased by $1.1 million , or 1.2%, to $89.6 million for the nine
months ended September 30, 2021 , compared to $90.8 million for the same period
in 2020. The decrease was due to a $1.7 million decrease in base salary expense
and a $906,000 decrease in additional compensation expense, partially offset by
a $1.0 million increase in officer incentive compensation expense and a $746,000
increase in share-based compensation expense.
Employee benefits decreased $36,000 , or 0.3%, to $10.6 million for the three
months ended September 30, 2021 , compared to $10.7 million for the same period
in 2020, and increased $1.1 million , or 3.7%, to $30.9 million for the nine
months ended September 30, 2021 , compared to $29.8 million for the same period
in 2020. The $36,000 decrease for the three months ended September 30, 2021 was
due to a $365,000 decrease in group insurance costs and a $87,000 decrease in
employer payroll taxes partially offset by an increase of $399,000 in pension
service cost expense. The $1.1 million increase for the nine months ended
September 30, 2021 was due to a $1.2 million increase in pension service cost
expense and a $112,000 increase in group insurance cost, partially offset by a
$201,000 decrease in miscellaneous employee benefits expense.
Furniture and equipment expense decreased by $1.9 million , or 40.3%, to $2.8
million for the three months ended September 30, 2021 , compared to $4.7 million
for the same period in 2020, and decreased $5.7 million , or 41.1%, to $8.2
million for the nine months ended September 30, 2021 , compared to $13.9 million
for the same period in 2020. The decrease for both periods 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,
partially offset by increases in depreciation of furniture and equipment.
97
--------------------------------------------------------------------------------
Table of Contents
Data processing fees increased by $4.5 million , to $7.8 million for the three
months ended September 30, 2021 , compared to $3.3 million for the same period of
2020, and increased by $14.3 million , to $22.7 million for the nine months ended
September 30, 2021 , compared to $8.3 million for the same period of 2020. The
increase for both periods was related to increased 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 change in data processing fees was also impacted by changes
in debit card processing costs. During the three months ended September 30,
2021 , debit card processing costs declined $68,000 compared to the same period
of 2020 and increased by $770,000 for the nine months ended September 30, 2021
compared to the same period of 2020.
Professional fees and services decreased $1.0 million , or 12.6%, to $7.0 million
for the three months ended September 30, 2021 , compared to $8.0 million for the
same period of 2020 and decreased $2.3 million , or 10.6%, to $19.6 million for
the nine months ended September 30, 2021 compared to $21.9 million for the same
period of 2020. The $1.0 million decrease for the three months ended September
30, 2021 was primarily due to decreases in other fees (due to 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. The $2.3 million decrease for the nine
months ended September 30, 2021 was primarily due to decreases 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 fourth 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 , or 23.9%, to $6.8 million for the nine months
period ended September 30, 2021 , compared to $8.9 million for the same period of
2020. The $2.1 million decrease was primarily due to a $1.8 million prepayment
penalty on FHLB borrowings paid during the nine months ended September 30, 2020
and no similar prepayment during the first nine months of 2021 partially offset
by an increase in expense related to the allowance for unfunded credit losses
and an increase in non-loan related losses.
98
--------------------------------------------------------------------------------
Table of Contents
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 from 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.
THREE MONTHS ENDED NINE MONTHS ENDED
(in thousands, except share and per September 30, September 30, September 30, September 30,
share data) 2021 2020 2021 2020 Affected Line Item
Net interest income $ 81,602 $ 83,840 $ 246,187 $ 241,309
less purchase accounting accretion
related to NewDominion and Carolina Interest and fees on
Alliance acquisitions 799 1,029 2,704 3,556 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 Interest and fees on
Bank relationships 414 8 3,357 351 loans
Net interest income - adjusted
Provision for (recovery of) credit losses$ 1,972 $ 13,836 $ (6,923) $ 31,213 less recoveries on former Vision Bank Provision for (recovery relationships (2,231) (37) (2,640) (1,486) of) credit losses Provision for (recovery of) credit losses - adjusted$ 4,203 $ 13,873 $ (4,283) $ 32,699 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 Net (loss) gain on sale of business - (27) - 3,286 of debt securities less rebranding initiative related expenses - - - (274) Miscellaneous income less net gain on sale of former Vision Gain (loss) on sale of Bank OREO properties - 371 - 1,208 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 Total other expense$ 68,489 $ 69,859 $ 207,754 $ 200,934 less merger-related expenses related toNewDominion and Carolina Alliance acquisitions - 7 8 117 Salaries less merger-related expenses related to NewDominion and Carolina Alliance Professional fees and acquisitions - 152 - 491 services less merger-related expenses related toNewDominion 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 Professional fees and former Vision Bank loan relationships 254 232 661 232 services less rebranding initiative related expenses - - - 72 Employee benefits less rebranding initiative related expenses 79 47 231 47 Occupancy expense less rebranding initiative related Furniture and equipment expenses 263 - 786 75 expense less rebranding initiative related expenses - - 591 - Data processing fees less rebranding initiative related Professional fees and expenses 95 372 126 531 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 Amortization of Carolina Alliance acquisitions 420 525
1,378 1,738 intangible assets
99--------------------------------------------------------------------------------
Table of Contents
THREE MONTHS ENDED NINE MONTHS ENDED
(in thousands, except share and per September 30, September 30, September 30, September 30,
share data) 2021 2020 2021 2020 Affected Line Item
less Foundation contribution - 4,000 - Foundation contribution
less FHLB prepayment penalty - -
- 1,793 Miscellaneous
Total other expense - adjusted
Tax effect of adjustments to net income identified above (7)$ (491) $ 139 $ 142 $ (291) Net income - reported$ 35,434 $ 30,846 $ 117,397 $ 82,723 Net income - adjusted$ 33,585 $ 31,371 $ 117,932 $ 81,626 Diluted EPS$ 2.16 $ 1.88 $ 7.14 $ 5.04 Diluted EPS, adjusted (6)$ 2.04 $ 1.91 $ 7.17 $ 4.98 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 %
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 %
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 % Efficiency ratio (5) 59.70 % 57.69 %
60.03 % 60.26 % Efficiency ratio, adjusted (5)(6) 59.31 % 56.58 % 58.31 % 59.20 %
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 %
100--------------------------------------------------------------------------------
Table of Contents
THREE MONTHS ENDED NINE MONTHS ENDED
(in thousands, except share and per September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
share data) Affected Line Item
Financial Reconciliations
(1) Reported measure uses net income (2) Averages are for the three months and nine months endedSeptember 30, 2021 andSeptember 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, September 30, September 30, September 30,
2021 2020 2021 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
(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, September 30, September 30, September 30,
2021 2020 2021 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
(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.
RECONCILIATION OF FULLY TAXABLE EQUIVALENT NET INTEREST INCOME TO NET INTEREST INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30, September 30, September 30,
2021 2020 2021 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
(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.
101-------------------------------------------------------------------------------- Table of Contents Income Tax Income tax expense was$8.1 million for the third quarter of 2021 and 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 2021 was 18.6%, compared to 16.0% for the same period in 2020. Income tax expense was$25.7 million for the first nine months of 2021 and 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 2021 was 18.0%, compared to 16.6% for the same period in 2020. 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 2021 year will be approximately$6.3 million . Comparison of Financial Condition AtSeptember 30, 2021 andDecember 31, 2020
Changes in Financial Condition
Total assets increased by$755.0 million , or 8.1%, during the first nine months of 2021 to$10,034 million atSeptember 30, 2021 , compared to$9,279 million atDecember 31, 2020 . This increase was primarily due to the following: •Cash and cash equivalents increased by$506.9 million , or 136.8%, to$877.4 million atSeptember 30, 2021 , compared to$370.5 million atDecember 31, 2020 . Money market instruments were$749.7 million atSeptember 30, 2021 , compared to$214.9 million atDecember 31, 2020 and cash and due from banks were$127.7 million atSeptember 30, 2021 , compared to$155.6 million atDecember 31, 2020 . •Investment securities increased$484.5 million , or 43.1%, to$1,609 million atSeptember 30, 2021 , compared to$1,125 million atDecember 31, 2020 . •Other assets increased by$21.4 million , or 456.2%, to$26.1 million atSeptember 30, 2021 , compared to$4.7 million atDecember 31, 2020 . This was primarily related to a re-classification of deferred items and tax payables between assets and liabilities. •Prepaid assets increased by$12.7 million , or 12.3%, to$116.2 million atSeptember 30, 2021 , compared to$103.5 million atDecember 31, 2020 . •Loans decreased by$269.4 million , or 3.8%, to$6,908 million atSeptember 30, 2021 , compared to$7,178 million atDecember 31, 2020 . PPP loans were$131.5 million atSeptember 30, 2021 compared to$331.6 million atDecember 31, 2020 .
Total liabilities increased by
•Total deposits increased by$792.0 million , or 10.5%, to$8,364 million atSeptember 30, 2021 , compared to$7,572 million atDecember 31, 2020 . During 2020, Park made the decision to participate in a OWS program in order to manage the balance sheet. AtSeptember 30, 2021 andDecember 31, 2020 , Park had$818.3 million and$710.1 million , respectively, in OWS insured cash sweep deposits which were off-balance sheet. •Unsettled investment commitments were$52.5 million atSeptember 30, 2021 . There were no unsettled investment commitments atDecember 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 atSeptember 30, 2021 , compared to$54.6 million atDecember 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 atSeptember 30, 2021 , compared to$116,000 atDecember 31, 2020 . This increase was due to the adoption of ASU 2016-13 effectiveJanuary 1, 2021 . •Short-term borrowings decreased by$106.3 million , or 31.0%, to$236.0 million atSeptember 30, 2021 , compared to$342.2 million atDecember 31, 2020 . 102
--------------------------------------------------------------------------------
Table of Contents
•Long-term borrowings decreased by
Total shareholders' equity increased by
•Retained earnings increased by$54.9 million during the period primarily as a result of net income of$117.4 million , partially offset by common share dividends of$54.4 million and the impact of the adoption of ASU 2016-13 of$8.0 million . •Treasury shares decreased by$13.1 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 of taxes declined by$13.4 million , from a positive$5.6 million atDecember 31, 2020 , to a negative$7.8 million atSeptember 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 . 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 million and$52.4 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Net income was the primary source of cash from operating activities for each of the nine-month periods endedSeptember 30, 2021 and 2020. Cash used in investing activities was$186.2 million and$531.8 million for the nine months endedSeptember 30, 2021 and 2020, 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$447.9 million for the nine months endedSeptember 30, 2021 and provided cash of$213.9 million for the nine months endedSeptember 30, 2020 . Another major use or source of cash in investing activities is the net increase or decrease in the loan portfolio. Cash provided by the net decrease in the loan portfolio was$269.4 million for the nine months endedSeptember 30, 2021 and cash used by the net increase in the loan portfolio was$727.4 million for the nine months endedSeptember 30, 2020 . Cash provided by financing activities was$580.5 million and$566.1 million for the nine months endedSeptember 30, 2021 and 2020, respectively. A major source of cash for financing activities is the net change in deposits. Deposits increased and provided$792.1 million (net of OWS) and$423.4 million of cash for the nine months endedSeptember 30, 2021 and 2020, 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 endedSeptember 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 endedSeptember 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 million and$53.7 million for the nine months endedSeptember 30, 2021 and 2020, 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 68.85% atSeptember 30, 2021 , compared to 77.35% atDecember 31, 2020 and 78.77% atSeptember 30, 2020 . Cash and cash equivalents were$877.4 million atSeptember 30, 2021 , compared to$370.5 million atDecember 31, 2020 and$246.7 million atSeptember 30, 2020 . Management believes that the present funding sources provide more than adequate liquidity for the Corporation to meet its cash flow needs. 103 -------------------------------------------------------------------------------- Table of Contents Capital Resources Shareholders' equity atSeptember 30, 2021 was$1,067.9 million , or 10.6% of total assets, compared to$1,040.3 million , or 11.2% of total assets, atDecember 31, 2020 and$1,017.0 million , or 11.0% of total assets, atSeptember 30, 2020 . 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 adopted the Basel III regulatory capital framework as approved by the federal banking agencies. The adoption of this framework modified the calculation of the various 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 above the adequately capitalized risk-based capital ratios. The capital conservation buffer was fully phased in at 2.50% onJanuary 1, 2019 . The amounts shown below as the adequately capitalized ratio plus capital conservation buffer includes the 2.50% buffer. TheFederal Reserve Board 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 atSeptember 30, 2021 . The following table indicates the capital ratios for PNB and Park atSeptember 30, 2021 andDecember 31, 2020 . At September 30, 2021 Tier 1 Common Equity Tier Total Leverage Risk-Based 1 Risk-Based The Park National Bank 8.28 % 11.04 % 11.04 % 12.63 % Park National Corporation 9.32 % 12.40 % 12.19 % 15.97 % Adequately capitalized ratio 4.00 % 6.00 % 4.50 % 8.00 % Adequately capitalized ratio plus capital conservation buffer 4.00 % 8.50 % 7.00 % 10.50 % Well capitalized ratio (PNB) 5.00 % 8.00 % 6.50 % 10.00 % Well capitalized ratio (Park) N/A 6.00 % N/A 10.00 % At December 31, 2020 Tier 1 Common Equity Tier Total Leverage Risk-Based 1 Risk-Based The Park National Bank 8.59 % 10.66 % 10.66 % 12.16 % Park National Corporation 9.63 % 11.92 % 11.72 % 15.43 % Adequately capitalized ratio 4.00 % 6.00 % 4.50 % 8.00 % Adequately capitalized ratio plus capital conservation buffer 4.00 % 8.50 % 7.00 % 10.50 % Well capitalized ratio (PNB) 5.00 % 8.00 % 6.50 % 10.00 % Well capitalized ratio (Park) N/A 6.00 % N/A 10.00 %
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 83 of Park's 2020 Form 10-K (Table 42) for disclosure concerning contractual obligations and commitments atDecember 31, 2020 . There were no other significant changes in contractual obligations and commitments during the first nine months of 2021.
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.
104
--------------------------------------------------------------------------------
Table of Contents
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:
September 30,
(In thousands) 2021 December 31, 2020
Loan commitments $ 1,379,838 $ 1,372,182
Standby letters of credit $ 19,641 $ 17,015
105--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
