KBRA Affirms Ratings for Park National Corporation

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Newark, Ohio-based Park National Corporation (NYSE: PRK) ("Park National" or "the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for the bank subsidiary, The Park National Bank ("the bank"). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by the company’s consistently strong financial performance through various interest rate and credit cycles, including a 5-year average risk weighted return on assets of approximately 1.81%. The credit profile also benefits from the company’s solid deposit franchise, primarily comprised of core customer deposits and a solid market share position (#8) in the state of Ohio. Additionally, deposits are comprised of a high percentage of NIB accounts (31% of total deposits), contributing to a relatively low deposit beta (24%) and low-cost base (136 bps during 2Q24 – approximately 85 bps below peer average). The company’s conservative balance sheet structuring, which is primarily funded by the core deposit base with loans to deposits at 92%, has helped to keep funding costs down, and an asset sensitive balance sheet has supported solid loan yields helping to maintain durable NIM over time. PRK also holds significant off balance sheet liquidity that can be drawn upon in periods of liquidity stress. Noninterest income also plays a key role in the company’s stable earnings profile with approximately 20%-25% of total revenue generated by stable, nonspread revenue sources with PRK’s trust and wealth management components becoming a more significant contribution. Although Park National’s NPA level is above the peer median, this is primarily a function of management’s conservative risk rating philosophy and the bank's willingness to work with borrowers; adjusted reserve coverage appears adequate, and historical loan loss content remains consistently low. PRK’s conservative approach to capital management is also viewed favorably by KBRA and is expected to provide adequate loss absorbing capacity if credit quality were to deteriorate unexpectedly.

Rating Sensitivities

Greater geographic diversity and a demonstrated track record of operating as a bank over $10 billion in assets (considering the related potential regulatory, balance sheet, and income statement impacts) while maintaining strong earnings/capital and consistently conservative credit quality could result in positive rating momentum over time. Conversely, ratings could become pressured if there were a material deterioration in earnings or credit quality or a considerable reduction in capital ratios to below peer levels.

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