Fair Value

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value

Fair Value

The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that Park uses to measure fair value are as follows:

•Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that Park has the ability to access as of the measurement date.

•Level 2: Level 1 inputs for assets or liabilities that are not actively traded. Also consists of an observable market price for a similar asset or liability. This includes the use of “matrix pricing” to value debt securities absent the exclusive use of quoted prices.

•Level 3: Consists of unobservable inputs that are used to measure fair value when observable market inputs are not available. This could include the use of internally developed models, financial forecasting and similar inputs.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the balance sheet date. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and Park must use other valuation methods to develop a fair value. The fair value of individually evaluated collateral dependent loans is typically based on the fair value of the underlying collateral, which is estimated through third-party appraisals in accordance with Park's valuation requirements under its commercial and real estate loan policies.

Assets and Liabilities Measured at Fair Value on a Recurring Basis:

The following table presents assets and liabilities measured at fair value on a recurring basis:

 

Fair Value Measurements at June 30, 2024 using:
(In thousands)	Level 1		Level 2		Level 3		Balance at June 30, 2024
Assets
Investment securities:
Obligations of states and political subdivisions	$	—	$	202,127	$	—	$	202,127
U.S. Government sponsored entities’ asset-backed securities	—		570,839		—		570,839
Collateralized loan obligations	—		378,996		—		378,996
Corporate debt securities	—		12,317		6,427		18,744
Equity securities	2,375		—		495		2,870
Mortgage loans held for sale	—		4,309		—		4,309
Mortgage IRLCs	—		102		—		102
Loan interest rate swaps	—		1,221		—		1,221
Liabilities
Fair value swap	$	—	$	—	$	123	$	123
Loan interest rate swaps	—		1,221		—		1,221

 

Fair Value Measurements at December 31, 2023 using:
(In thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2023
Assets
Investment securities:
Obligations of states and political subdivisions	$	—	$	241,184	$	—	$	241,184
U.S. Government sponsored entities’ asset-backed securities	—		635,475		—		635,475
Collateralized loan obligations	—		438,286		—		438,286
Corporate debt securities	—		11,548		6,349		17,897
Equity securities	1,616		—		473		2,089
Mortgage loans held for sale	—		3,235		—		3,235
Mortgage IRLCs	—		87		—		87
Loan interest rate swaps	—		1,069		—		1,069
Liabilities
Fair value swap	$	—	$	—	$	123	$	123
Loan interest rate swaps	—		1,069		—		1,069

The following methods and assumptions were used by the Company in determining the fair value of the financial assets and liabilities discussed above:

Investment securities: Fair values for investment securities are based on quoted market prices, where available (Level 1). If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments (Level 2).

For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows (Level 3).

Mortgage loans held for sale: Mortgage loans held for sale are carried at their fair value. Mortgage loans held for sale are estimated using market prices for similar product types and, therefore, are classified in Level 2.

Mortgage interest rate lock commitments: Mortgage IRLCs are based on current secondary market pricing and are classified as Level 2.

Interest rate swaps:  The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2).

Fair value swap: The fair value of the swap agreement entered into with the purchaser of the Visa Class B shares represents an internally developed estimate of the exposure based upon probability-weighted potential Visa litigation losses and is classified as Level 3.

The following tables present a reconciliation of the beginning and ending balances of the Level 3 inputs for the three-month and the six-month periods ended June 30, 2024 and 2023, for financial instruments measured on a recurring basis and classified as Level 3:

Level 3 Fair Value Measurements
Three months ended June 30, 2024 and 2023
(In thousands)	Corporate debt securities		Equity securities		Fair value swap
Balance at April 1, 2024	$	6,372	$	495	$	(123)
Transfer into (out of) level 3	—		—		—
Total gains
Included in other income	—		—		—
Included in other comprehensive income	55		—		—
Balance at June 30, 2024	$	6,427	$	495	$	(123)
Balance at April 1, 2023	$	6,855	$	449	$	(121)
Transfer into (out of) level 3, net	(611)		—		—
Total (losses) / gains
Included in other income / other (expense)	—		6		(175)
Included in other comprehensive income	(128)		—		—
Balance at June 30, 2023	$	6,116	$	455	$	(296)

Level 3 Fair Value Measurements
Six months ended June 30, 2024 and 2023
(In thousands)	Corporate debt securities		Equity securities		Fair value swap
Balance at January 1, 2024	$	6,349	$	473	$	(123)
Transfer into (out of) level 3	—		—		—
Total gains
Included in other income	—		22		—
Included in other comprehensive income	78		—		—
Balance at June 30, 2024	$	6,427	$	495	$	(123)
Balance at January 1, 2023	$	7,000	$	439	$	(243)
Transfers into (out of) level 3, net	11		—		—
Total (losses) / gains
Included in other income / other (expense)	—		16		(175)
Included in other comprehensive income	(895)		—		—
Purchases, sales, issuances and settlements, other, net	—		—		122
Balance at June 30, 2023	$	6,116	$	455	$	(296)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis:

The following methods and assumptions were used by the Company in determining the fair value of assets and liabilities measured at fair value on a nonrecurring basis as described below:

Individually evaluated collateral dependent loans: When a loan is individually evaluated, it is valued at the lower of cost or fair value. Collateral dependent loans which are individually evaluated and carried at fair value have been partially charged off or receive allocations of the allowance for credit losses. For collateral dependent loans, fair value is generally based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value. Collateral is then adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the customer and the customer’s business, resulting in a Level 3 fair value classification. Individually evaluated loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Additionally, valuations for all collateral dependent loans are updated annually, either through independent valuations by a licensed appraiser or a VOV performed by an internal licensed appraiser, in accordance with Company policy. A VOV can only be used in select circumstances and verifies that the original appraised value has not deteriorated through property inspection, consideration of market conditions, and performance of all valuation methods utilized in a prior valuation.

Loans individually evaluated for impairment include all internally classified commercial nonaccrual loans.

OREO: Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs. Fair value is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both individually evaluated collateral dependent loans and OREO are performed by licensed appraisers. Appraisals are generally obtained to support the fair value of collateral. In general, there are three types of appraisals received

by the Company: real estate appraisals, income approach appraisals, and lot development loan appraisals. These are discussed below:

•Real estate appraisals typically incorporate measures such as recent sales prices for comparable properties. Appraisers may make adjustments to the sales prices of the comparable properties as deemed appropriate based on the age, condition or general characteristics of the subject property. Management generally applies a 15% discount to real estate appraised values which management expects will cover all disposition costs (including selling costs). This 15% discount is based on historical discounts to appraised values on sold OREO.

•Income approach appraisals typically incorporate the annual net operating income of the business divided by an appropriate capitalization rate, as determined by the appraiser. Management generally applies a 15% discount to income approach appraised values which management expects will cover all disposition costs (including selling costs).

•Lot development loan appraisals are typically performed using a discounted cash flow analysis. Appraisers determine an anticipated absorption period and a discount rate that takes into account an investor’s required rate of return based on recent comparable sales. Management generally applies a 6% discount to lot development appraised values, which is an additional discount above the net present value calculation included in the appraisal, to account for selling costs.

MSRs: MSRs are carried at the lower of cost or fair value. MSRs do not trade in active, open markets with readily observable prices. For example, sales of MSRs do occur, but precise terms and conditions typically are not readily available. As such, management, with the assistance of a third-party specialist, determines fair value based on the discounted value of the future cash flows estimated to be received. Significant inputs include the discount rate and assumed prepayment speeds. The calculated fair value is then compared to market values where possible to ascertain the reasonableness of the valuation in relation to current market expectations for similar products. Accordingly, MSRs are classified as Level 2.

The following tables present assets and liabilities measured at fair value on a nonrecurring basis. Individually evaluated collateral dependent loans secured by real estate are carried at fair value if they have been charged down to fair value or if a specific valuation allowance has been established. At June 30, 2024 and December 31, 2023, there were no PCD loans carried at fair value. A new cost basis is established at the time a property is initially recorded in OREO. OREO are carried at fair value if a devaluation has been taken with respect to the property's value subsequent to the initial measurement.

Fair Value Measurements at June 30, 2024 using:
(In thousands)	Level 1		Level 2		Level 3		Balance at June 30, 2024
Individually evaluated collateral dependent loans recorded at fair value:
Commercial real estate	$	—	$	—	$	2,078	$	2,078
Residential real estate	—		—		191		191
Total individually evaluated collateral dependent loans recorded at fair value	$	—	$	—	$	2,269	$	2,269
MSRs	$	—	$	499	$	—	$	499
OREO recorded at fair value:
Commercial real estate	$	—	$	—	$	938	$	938
Total OREO recorded at fair value	$	—	$	—	$	938	$	938

Fair Value Measurements at December 31, 2023 using:
(In thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2023
Individually evaluated collateral dependent loans recorded at fair value:
Commercial real estate	$	—	$	—	$	2,315	$	2,315
Residential real estate	—		—		182		182
Total individually evaluated collateral dependent loans recorded at fair value	$	—	$	—	$	2,497	$	2,497
MSRs	$	—	$	866	$	—	$	866
OREO recorded at fair value:
Commercial real estate	$	—	$	—	$	938	$	938
Total OREO recorded at fair value	$	—	$	—	$	938	$	938

The following table provides additional detail on those individually evaluated loans which are recorded at fair value as well as the remaining individually evaluated loan portfolio not included above. The remaining individually evaluated loans consist of 1) loans which are not collateral dependent, 2) loans which are not secured by real estate, and 3) loans carried at cost as the fair value of the underlying collateral or the present value of expected future cash flows on each of the loans exceeded the book value for each respective credit.

	June 30, 2024
(In thousands)	Loan Balance		Prior Charge-Offs		Specific Valuation Allowance		Carrying Balance
Total individually evaluated collateral dependent loans recorded at fair value	$	2,327	$	1,948	$	58	$	2,269
Remaining individually evaluated loans	52,666		243		5,253		47,413
Total individually evaluated loans	$	54,993	$	2,191	$	5,311	$	49,682

	December 31, 2023
(In thousands)	Loan Balance		Prior Charge-Offs		Specific Valuation Allowance		Carrying Balance
Total individually evaluated collateral dependent loans recorded at fair value	$	2,499	$	2,048	$	2	$	2,497
Remaining individually evaluated loans	42,716		301		4,981		37,735
Total individually evaluated loans	$	45,215	$	2,349	$	4,983	$	40,232

The expense from credit adjustments related to individually evaluated loans carried at fair value was $23,000 and $551,000 for the three-month periods ended June 30, 2024 and 2023, respectively, and was $58,000 and $658,000 for the six-month periods ended June 30, 2024 and 2023, respectively.

MSRs totaled $14.3 million at June 30, 2024. Of this $14.3 million MSR carrying balance, $0.5 million was recorded at fair value and included a valuation allowance of $28,000. The remaining $13.8 million was recorded at cost, as the fair value exceeded cost at June 30, 2024. At December 31, 2023, MSRs totaled $14.7 million. Of this $14.7 million MSR carrying balance, $0.9 million was recorded at fair value and included a valuation allowance of $94,000. The remaining $13.8 million was recorded at cost, as the fair value exceeded cost at December 31, 2023. The income related to MSRs carried at fair value during the three-month periods ended June 30, 2024 and 2023 was $41,000 and $67,000, respectively, and was $66,000 and $81,000 for the six-month periods ended June 30, 2024 and 2023, respectively.

Total OREO held by Park at June 30, 2024 and December 31, 2023 was $1.2 million and $1.0 million, respectively. At both June 30, 2024 and December 31, 2023 there was $938,000 of OREO held by Park that was carried at fair value due to fair value adjustments made subsequent to the initial OREO measurement. There was no net income (expense) related to OREO fair

value adjustments for the three-month or the six-month periods ended June 30, 2024. The net expense related to OREO fair value adjustments was $77,000 for both the three-month and the six-month periods ended June 30, 2023.

The following tables present qualitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at June 30, 2024 and December 31, 2023:

June 30, 2024
(In thousands)	Fair Value		Valuation Technique	Unobservable Input(s)	Range (Weighted Average)
Individually evaluated collateral dependent loans:
Commercial real estate	$	2,078	Sales comparison approach	Adj to comparables	0.4% - 52.0% (19.9%)
			Income approach	Capitalization rate	6.3% - 9.5% (8.2%)
Residential real estate	$	191	Sales comparison approach	Adj to comparables	0.0% - 78.6% (3.4%)
Other real estate owned:
Commercial real estate	$	938	Sales comparison approach	Adj to comparables	5.0% - 10.0% (7.5%)
			Cost approach	Entrepreneurial profit	5.0% 5.0%
			Cost approach	Accumulated depreciation	50.0% 50.0%

December 31, 2023
(In thousands)	Fair Value		Valuation Technique	Unobservable Input(s)	Range (Weighted Average)
Individually evaluated collateral dependent loans:
Commercial real estate	$	2,315	Sales comparison approach	Adj to comparables	0.2% - 89.0% (21.2%)
			Income approach	Capitalization rate	7.5% - 9.5% (8.9%)
Residential real estate	$	182	Sales comparison approach	Adj to comparables	1.2% - 78.6% (7.6%)
Other real estate owned:
Commercial real estate	$	938	Sales comparison approach	Adj to comparables	5.0% - 10.0% (7.5%)
			Cost approach	Entrepreneurial profit	5.0% (5.0%)
			Cost approach	Accumulated depreciation	50.0% (50.0%)

Assets Measured at Net Asset Value:

Park's portfolio of Partnership Investments is valued using the NAV practical expedient in accordance with ASC 820.

At June 30, 2024 and at December 31, 2023, Park had Partnership Investments with a NAV of $28.0 million and $27.5 million, respectively. At June 30, 2024 and at December 31, 2023, Park had $20.1 million and $18.4 million, respectively, in unfunded commitments related to these Partnership Investments. For the three-month periods ended June 30, 2024 and 2023, Park recognized (expense) income of $(92,000) and $137,000, respectively, and for the six-month periods ended June 30, 2024 and 2023, Park recognized (expense) of $(782,000) and $(241,000), respectively, related to these Partnership Investments.

Fair Value Balance Sheet:

The fair value of certain financial instruments at June 30, 2024 and at December 31, 2023, was as follows:

	June 30, 2024
			Fair Value Measurements
(In thousands)	Carrying value		Level 1		Level 2		Level 3		Total fair value
Financial assets:
Cash and money market instruments	$	261,465	$	261,465	$	—	$	—	$	261,465
Investment securities (1)	1,170,706		—		1,164,279		6,427		1,170,706
Other investment securities (2)	2,870		2,375		—		495		2,870
Mortgage loans held for sale	4,309		—		4,309		—		4,309
Mortgage IRLCs	102		—		102		—		102
Individually evaluated loans carried at fair value	2,269		—		—		2,269		2,269
Other loans, net	7,571,122		—		—		7,399,488		7,399,488
Loans receivable, net	$	7,577,802	$	—	$	4,411	$	7,401,757	$	7,406,168
Financial liabilities:
Time deposits	$	682,207	$	—	$	682,949	$	—	$	682,949
Brokered deposits and Bid Ohio CDs	176,199		—		176,133		—		176,133
Other	3,520		3,520		—		—		3,520
Deposits (excluding demand deposits)	$	861,926	$	3,520	$	859,082	$	—	$	862,602
Short-term borrowings	$	94,478	$	—	$	94,478	$	—	$	94,478
Subordinated notes	189,396		—		178,474		—		178,474
Derivative financial instruments - assets:
Loan interest rate swaps	$	1,221	$	—	$	1,221	$	—	$	1,221
Derivative financial instruments - liabilities:
Fair value swap	$	123	$	—	$	—	$	123	$	123
Loan interest rate swaps	1,221		—		1,221		—		1,221

(1) Includes debt securities AFS.

(2) Excludes FHLB stock and FRB stock which are carried at their respective redemption values, investment securities accounted for at modified cost as these investments do not have a readily determinable fair value, and Partnership Investments valued using the NAV practical expedient.

	December 31, 2023
			Fair Value Measurements
(In thousands)	Carrying value		Level 1		Level 2		Level 3		Total fair value
Financial assets:
Cash and money market instruments	$	218,268	$	218,268	$	—	$	—	$	218,268
Investment securities (1)	1,332,842		—		1,326,493		6,349		1,332,842
Other investment securities (2)	2,089		1,616		—		473		2,089
Mortgage loans held for sale	3,235		—		3,235		—		3,235
Mortgage IRLCs	87		—		87		—		87
Individually evaluated loans carried at fair value	2,497		—		—		2,497		2,497
Other loans, net	7,386,657		—		—		7,200,851		7,200,851
Loans receivable, net	$	7,392,476	$	—	$	3,322	$	7,203,348	$	7,206,670
Financial liabilities:
Time deposits	$	641,615	$	—	$	641,180	—		$	641,180
Brokered deposits and Bid Ohio CDs	164,985		—		165,059		—		165,059
Other	1,261		1,261		—		—		1,261
Deposits (excluding demand deposits)	$	807,861	$	1,261	$	806,239	$	—	$	807,500
Short-term borrowings	$	328,182	$	—	$	328,182	$	—	$	328,182
Subordinated notes	189,147		—		172,059		—		172,059
Derivative financial instruments - assets:
Loan interest rate swaps	$	1,069	$	—	$	1,069	$	—	$	1,069
Derivative financial instruments - liabilities:
Fair value swap	$	123	$	—	$	—	$	123	$	123
Loan interest rate swaps	1,069		—		1,069		—		1,069

(1) Includes debt securities AFS.

(2) Excludes FHLB stock and FRB stock which are carried at their respective redemption values, investment securities accounted for at modified cost as these investments do not have a readily determinable fair value, and Partnership Investments valued using the NAV practical expedient.