Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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)	2021		2020
Deferred tax assets:
Allowance for credit losses	$	18,153	$	19,512
Accumulated other comprehensive loss – Pension Plan	1,540		9,150
Accumulated other comprehensive loss – Unrealized losses on swaps	55		186
Deferred compensation	6,294		3,887
OREO valuation adjustments	909		1,012
Net deferred loan fees	2,569		3,283
Deferred contract bonus	432		571
Nonvested equity-based compensation	2,694		2,567
Net operating loss ("NOL") carryforward	3,197		3,629
Fixed assets	249		—
Operating lease liability	3,111		3,561
Partnership adjustments	69		—
Other	1,854		1,424
Total deferred tax assets	$	41,126	$	48,782
Deferred tax liabilities:
Accumulated other comprehensive loss - Unrealized gains on securities	$	5,623	$	10,507
Fixed assets	—		3,360
Deferred investment income	6,363		6,637
Pension Plan	19,182		20,407
MSRs	3,333		2,781
Partnership adjustments	—		204
Purchase accounting adjustments	880		604
Operating lease right-of-use asset	2,917		3,343
Lessor adjustments	2,764		3,433
Other	514		398
Total deferred tax liabilities	$	41,576	$	51,674
Net deferred tax liability	$	(450)	$	(2,892)

As of December 31, 2021 and 2020, Park had a net deferred tax asset balance related to federal NOL carryforwards of approximately $2.8 million and $3.1 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 $0.4 million and $0.5 million at December 31, 2021 and 2020, 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, 2021 or 2020 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)	2021		2020		2019
Currently payable
Federal	$	28,726	$	22,769	$	14,797
State	1,382		1,432		1,191
Amortization of qualified affordable housing projects	7,313		7,046		6,927
Deferred
Federal	(3,006)		(4,812)		(815)
State	(125)		287		(29)
Total	$	34,290	$	26,722	$	22,071

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, 2021, 2020 and 2019.

	2021		2020		2019
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	(1.2)	%	(1.5)	%	(2.0)	%
Bank owned life insurance	(0.5)	%	(0.7)	%	(0.8)	%
Investments in qualified affordable housing projects, net of tax benefits	(0.8)	%	(1.1)	%	(1.5)	%
KSOP dividend deduction	(0.5)	%	(0.6)	%	(0.6)	%
Other	0.2	%	0.2	%	1.6	%
Effective Tax Rate	18.2	%	17.3	%	17.7	%

Park National Corporation 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 $1.0 million, $1.1 million and $1.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Unrecognized Tax Benefits

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

(In thousands)	2021		2020		2019
January 1 Balance	$	633	$	954	$	1,226
Additions based on tax positions related to the current year	10		12		12
Additions for tax positions of prior years	—		—		2
Reductions for tax positions of prior years	—		—		(3)
Reductions due to statute of limitations	(304)		(333)		(283)
December 31 Balance	$	339	$	633	$	954

The amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in the future periods at December 31, 2021, 2020 and 2019 was $0.3 million, $0.6 million and $0.9 million, respectively. Park does not expect the total amount of unrecognized tax benefits to significantly increase or decrease during the next year.

The income related to interest and penalties recorded on unrecognized tax benefits in the Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019 was $45,500, $35,000, and $7,500, respectively. The amount accrued for interest and penalties at December 31, 2021, 2020 and 2019 was $65,500, $111,000 and $146,000, respectively.

Park National Corporation 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, 2018 are closed to examination by federal and state taxing authorities.