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 historically consistent and strong financial performance through various interest rate and credit cycles, including a 5-year return on risk-weighted assets ratio of approximately 1.80%. The credit strength 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. Deposits also reflect a significant amount of NIB accounts (33% of total deposits), contributing to a relatively low deposit beta and low-cost base (96 bps for 2Q23 and 74 bps for 2019). PRK’s solid funding profile (5-year average loans-to-core deposits at 91% excluding off balance sheet deposits) has been a primary driver of the company’s durable NIM over time. With its loan portfolio funded by customer deposits, access to additional liquidity sources remains solid. Given the rising interest rate environment, PRK’s trust and wealth management components are increasingly valuable as a stable source of fee revenue. Noninterest income has consistently ranged between 20% - 30% of total revenues throughout various interest rate cycles. 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 loan loss content remains 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. In addition, PRK is led by a tenured management team with extensive financial sector experience and deep market knowledge that has successfully navigated the current challenging economic and operating environment to date, in KBRA’s opinion.

Rating Sensitivities

A rating upgrade is not expected over the medium-term. However, greater geographic diversity and solid financial performance through different interest rate cycles 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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