Income Taxes

12 Months Ended

Dec. 31, 2022

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)	2022		2021
Deferred tax assets:
Allowance for credit losses	$	18,615	$	18,153
Accumulated other comprehensive loss – Pension Plan	1,776		1,540
Accumulated other comprehensive loss – Unrealized losses on swaps	—		55
Accumulated other comprehensive loss – Unrealized losses on debt securities AFS	25,443		—
Deferred compensation	6,255		6,294
OREO valuation adjustments	11		909
Net deferred loan fees	1,898		2,569
Deferred contract bonus	317		432
Nonvested equity-based compensation	2,827		2,694
Net operating loss ("NOL") carryforward	2,654		3,197
Capital loss carryforward	299		—
Fixed assets	510		249
Operating lease liability	4,206		3,111
Partnership adjustments	—		69
Other	1,950		1,854
Total deferred tax assets	$	66,761	$	41,126
Deferred tax liabilities:
Accumulated other comprehensive loss - Unrealized gains on debt securities AFS	$	—	$	5,623
Deferred investment income	4,890		6,363
Pension Plan	19,678		19,182
MSRs	3,445		3,333
Partnership adjustments	884		—
Purchase accounting adjustments	952		880
Operating lease right-of-use asset	3,837		2,917
Lessor adjustments	2,325		2,764
Other	565		514
Total deferred tax liabilities	$	36,576	$	41,576
Net deferred tax asset (liability)	$	30,185	$	(450)

As of December 31, 2022 and 2021, Park had a net deferred tax asset balance related to federal NOL carryforwards of approximately $2.4 million and $2.8 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 $0.3 million and $0.4 million at December 31, 2022 and 2021, 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, 2022 or 2021 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)	2022		2021		2020
Currently payable
Federal	$	22,574	$	28,726	$	22,769
State	1,180		1,382		1,432
Amortization of qualified affordable housing projects	7,743		7,313		7,046
Deferred
Federal	464		(3,006)		(4,812)
State	147		(125)		287
Total	$	32,108	$	34,290	$	26,722

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, 2022, 2021 and 2020.

 

	2022		2021		2020
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	(1.6)	%	(1.2)	%	(1.5)	%
Bank owned life insurance	(0.7)	%	(0.5)	%	(0.7)	%
Investments in qualified affordable housing projects, net of tax benefits	(0.8)	%	(0.8)	%	(1.1)	%
KSOP dividend deduction	(0.5)	%	(0.5)	%	(0.6)	%
Other	0.4	%	0.2	%	0.2	%
Effective Tax Rate	17.8	%	18.2	%	17.3	%

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 $1.3 million, $1.0 million and $1.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Unrecognized Tax Benefits

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

(In thousands)	2022		2021		2020
January 1 Balance	$	339	$	633	$	954
Additions based on tax positions related to the current year	—		—		12
Additions for tax positions of prior years	25		10		—
Reductions for tax positions of prior years	—		—		—
Reductions due to statute of limitations	(295)		(304)		(333)
December 31 Balance	$	69	$	339	$	633

The amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in the future periods at December 31, 2022, 2021 and 2020 was $0.1 million, $0.3 million and $0.6 million, respectively. Park does not expect the total amount of unrecognized tax benefits to significantly increase or decrease during 2023.

The income related to interest and penalties recorded on unrecognized tax benefits in the Consolidated Statements of Income for the years ended December 31, 2022, 2021, and 2020 was $56,000, $45,500, and $35,000, respectively. The amount accrued for interest and penalties at December 31, 2022, 2021 and 2020 was $9,500, $65,500 and $111,000, 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, 2019 are closed to examination by federal and state taxing authorities.