Income Taxes

12 Months Ended

Dec. 31, 2020

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation’s deferred tax assets and liabilities are as follows:


December 31 (In thousands)	2020		2019
Deferred tax assets:
Allowance for loan losses	$	19,512	$	12,120
Accumulated other comprehensive loss – Pension Plan	9,150		7,091
Accumulated other comprehensive loss – Unrealized losses on swaps	186		121
Deferred compensation	3,887		3,131
OREO valuation adjustments	1,012		964
Net deferred loan fees	3,283		1,451
Deferred contract bonus	571		477
Nonvested equity-based compensation	2,567		2,132
Net operating loss ("NOL") carryforward	3,629		4,094
Operating lease liability	3,561		3,097
Other	1,424		843
Total deferred tax assets	$	48,782	$	35,521
Deferred tax liabilities:
Accumulated other comprehensive loss - Unrealized gains on securities	$	10,507	$	4,662
Fixed assets	3,360		585
Deferred investment income	6,637		6,231
Pension Plan	20,407		19,238
MSRs	2,781		2,153
Partnership adjustments	204		178
Purchase accounting adjustments	604		49
Operating lease right-of-use asset	3,343		2,932
Lessor adjustments	3,433		2,697
Other	398		488
Total deferred tax liabilities	$	51,674	$	39,213
Net deferred tax liability	$	(2,892)	$	(3,692)

As of December 31, 2020 and 2019, Park had a net deferred tax asset balance related to federal NOL carryforwards of approximately $3.1 million and $3.5 million, respectively, which expire at various dates from 2031-2039. Park also had a net deferred tax asset balance related to state NOL carryforwards of approximately $0.5 million and $0.6 million at December 31, 2020 and 2019, respectively, which expire at various dates from 2030-2039.

Park performs an analysis to determine if a valuation allowance against deferred tax assets is required in accordance with U.S. GAAP. Management determined that it was not required to establish a valuation allowance against the December 31, 2020 or 2019 deferred tax assets in accordance with U.S. GAAP since it was more likely than not that the deferred tax asset will be fully utilized in future periods.

The components of the provision for federal income taxes are shown below:


December 31, (In thousands)	2020		2019		2018
Currently payable
Federal	$	22,769	$	14,797	$	12,700
State	1,432		1,191		352
Amortization of qualified affordable housing projects	7,046		6,927		7,322

Deferred
Federal	(4,812)		(815)		481
State	287		(29)		57

Total	$	26,722	$	22,071	$	20,912

The following is a reconciliation of income tax expense to the amount computed at the statutory federal corporate income tax rate of 21% for the years ended December 31, 2020, 2019 and 2018.


	2020		2019		2018
Statutory federal corporate income tax rate	21.0	%	21.0	%	21.0	%
Changes in rates resulting from:
Tax exempt interest income, net of disallowed interest	(1.5)	%	(2.0)	%	(1.8)	%
Bank owned life insurance	(0.7)	%	(0.8)	%	(1.1)	%
Investments in qualified affordable housing projects, net of tax benefits	(1.1)	%	(1.5)	%	(1.3)	%
KSOP dividend deduction	(0.6)	%	(0.6)	%	(0.6)	%
Non-taxable gain on NewDominion common stock	—	%	—	%	(0.6)	%
Other	0.2	%	1.6	%	0.3	%
Effective Tax Rate	17.3	%	17.7	%	15.9	%

Park and its subsidiaries do not pay state income tax to the state of Ohio, but pay a franchise tax based on equity. The franchise tax expense is included in "State tax expense" on Park’s Consolidated Statements of Income. Park is also subject to state income tax in various states, including North Carolina and South Carolina. State income tax expense is included in “Income taxes” on Park’s Consolidated Statements of Income. Park’s state income tax expense was $1.1 million and $1.2 million for the years ended December 31, 2020 and 2019, respectively.

Unrecognized Tax Benefits

The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits.


(In thousands)	2020		2019		2018
January 1 Balance	$	954	$	1,226	$	664
Additions based on tax positions related to the current year	12		12		10
Additions for tax positions of prior years	—		2		781
Reductions for tax positions of prior years	—		(3)		—
Reductions due to statute of limitations	(333)		(283)		(229)
December 31 Balance	$	633	$	954	$	1,226

The amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in the future periods at December 31, 2020, 2019 and 2018 was $0.6 million, $0.9 million and $1.1 million, respectively. Park does not expect the total amount of unrecognized tax benefits to significantly increase or decrease during the next year.

The income (expense) related to interest and penalties recorded on unrecognized tax benefits in the Consolidated Statements of Income for the years ended December 31, 2020, 2019, and 2018 was $35,000, $7,500, and $(79,500), respectively. The amount accrued for interest and penalties at December 31, 2020, 2019 and 2018 was $111,000, $146,000 and $153,500, respectively.

Park and its subsidiaries are subject to U.S. federal income tax and income tax in various state jurisdictions. The Corporation is subject to routine audits of tax returns by the Internal Revenue Service and states in which we conduct business. No material adjustments have been made on closed federal and state tax audits. Generally, all tax years ended prior to December 31, 2017 are closed to examination by federal and state taxing authorities.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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