Executive Summary / Key Takeaways

• Park National Corporation ($PRK) is solidifying its position as a leading regional bank through a blend of organic growth, disciplined financial management, and strategic acquisitions, most notably the pending merger with First Citizens Bancshares, Inc. .
• The company demonstrated robust financial performance in the first nine months of 2025, with net income increasing by 21.8% to $137.4 million and pre-tax, pre-provision net income rising by 19.1% to $176.3 million, driven by strong net interest income growth and effective cost management.
• $PRK maintains a strong liquidity position and robust capital ratios, exceeding "well capitalized" guidelines, which provides a solid foundation for its growth initiatives and resilience against economic uncertainties.
• The upcoming merger with First Citizens Bancshares, Inc. , valued at approximately $317 million, is a transformative event expected to expand $PRK's branch network to over 100 locations across four states, enhancing its regional footprint and market share.
• Key risks include the complexities of integrating the First Citizens acquisition, potential impacts from a challenging economic environment (including commercial real estate stress and geopolitical factors), and the inherent subjectivity in credit loss allowance estimations.

A Foundation of Community Banking and Strategic Growth

Park National Corporation ($PRK), established in 1908 and headquartered in Newark, Ohio, has cultivated a deep-rooted presence in small and medium population areas across the United States. The company's core business revolves around providing comprehensive commercial banking and trust services, underpinned by a strategy that balances organic growth with strategic acquisitions. This approach has allowed $PRK to build strong community ties and a loyal customer base, differentiating itself in a competitive landscape. The company's offerings span a wide array of services, including demand, savings, and time deposit accounts, wealth management, cash management, electronic funds transfers, and a suite of digital banking solutions like Internet and mobile banking with bill pay.

In the regional banking sector, $PRK operates amidst a diverse group of competitors, ranging from larger regional players like Huntington Bancshares (HBAN), Fifth Third Bancorp (FITB), PNC Financial Services Group (PNC), and Regions Financial Corporation (RF), to smaller local institutions and emerging fintech companies. $PRK's market positioning is characterized by its emphasis on personalized, community-based services, which fosters strong customer loyalty and can lead to higher retention rates. While larger competitors often leverage extensive branch networks and advanced digital tools, $PRK's strategy focuses on operational efficiency and deep penetration in its niche markets. This allows it to maintain a competitive cost structure and deliver tailored solutions that resonate with local businesses and consumers.

The company's technological capabilities, while not defined by a single proprietary breakthrough, are strategically developed to enhance operational efficiency and customer experience. $PRK invests in software and systems to support its digital banking solutions, including its personal banking application, ParkDirect, and to streamline internal processes such as trust systems and data processing. These investments are critical for providing convenient electronic funds transfers, internet and mobile banking, and efficient cash management services. The strategic intent behind these technological enhancements is to improve service delivery, manage interest rate risk through tools like interest rate swaps, and maintain a competitive edge in a rapidly evolving digital banking environment. For investors, these technological underpinnings contribute to $PRK's operational effectiveness, supporting its ability to scale services and manage costs, thereby reinforcing its competitive moat and financial performance.

$PRK's history is marked by strategic expansions that have shaped its current footprint. The acquisition of Vision Parent in 2007 and Carolina Alliance (CAB Financial Corporation and its subsidiaries) at an unspecified date prior to or during 2024 are examples of how the company has grown its capabilities and geographic reach. These acquisitions have been instrumental in expanding its service offerings and market presence. The company also demonstrated resilience during the COVID-19 pandemic (2020-2022), where, despite significant macroeconomic deterioration, it observed minimal increases in default activity, largely due to external interventions like deferral programs and government stimulus. This period highlighted the stability of its loan portfolio and the effectiveness of its risk management practices under extraordinary circumstances.

Financial Strength and Operational Momentum

Park National Corporation has demonstrated compelling financial performance in the first nine months of 2025, reflecting effective execution of its strategic priorities. Net income for the nine months ended September 30, 2025, surged to $137.4 million, marking a significant 21.8% increase from $112.8 million in the same period of 2024. This robust growth was further underscored by a 19.1% rise in pre-tax, pre-provision net income, reaching $176.3 million compared to $148 million in the prior year. These figures highlight $PRK's ability to generate strong earnings from its core operations before accounting for taxes and credit losses.

A primary driver of this performance was the substantial increase in net interest income, which grew by $29.8 million, or 10.1%, to $324.4 million for the first nine months of 2025. This improvement was a result of an $18.3 million increase in interest income and an $11.5 million decrease in interest expense. Interest income on loans saw a notable $26.1 million increase, driven by a 4.16% rise in average loan balances to $7.90 billion and a 20 basis point increase in the average yield on loans to 6.32%. Conversely, investment income decreased by $7.8 million, primarily due to an $86.8 million reduction in average investments and a 50 basis point decrease in their yield to 3.47%. The reduction in interest expense was largely due to an $8.8 million decrease in interest expense on deposits, as the cost of deposits declined by 26 basis points to 1.74%, despite a 2.70% increase in average on-balance sheet interest-bearing deposits. This was partially offset by a decrease in transaction accounts and brokered and bid CD deposits. A further $2.7 million decrease in interest expense on borrowings was achieved through a 29 basis point reduction in the cost of borrowings and a 21.56% decrease in average borrowings, significantly aided by the full redemption of $190 million in subordinated debt during September 2025.

Beyond net interest income, $PRK's other income streams presented a mixed picture. Income from fiduciary activities increased by $2.6 million, or 8.2%, to $33.9 million, largely due to an increase in the market value of assets under management, which averaged $8.97 billion. Service charges on deposit accounts also rose by $817,000, or 12.2%, to $7.5 million, primarily from higher maintenance fees. Other service income saw a $1.9 million, or 22.6%, increase to $10.4 million, driven by higher mortgage and commercial-related loan fees. However, debit card fee income remained relatively flat, and bank-owned life insurance income decreased by $1.4 million, or 22.7%, to $4.8 million, mainly due to fewer death benefits received. Miscellaneous income also declined by $1.1 million, or 23.6%, to $3.5 million, largely due to a net loss on the sale and disposal of assets related to strategic initiatives.

Operating expenses for the nine months ended September 30, 2025, decreased by $1.5 million, or 0.6%, to $236.6 million. While salaries increased by $3.4 million, or 3.1%, due to higher base salaries, incentive compensation, and share-based compensation, employee benefits decreased by $2.1 million, or 6.6%, primarily from lower group insurance and retirement-related expenses. Data processing fees increased by $3 million, or 9.9%, driven by a $4 million rise in software expense, partially offset by a $1 million decline in debit card and ATM processing costs. Professional fees and services also increased by $1.5 million, or 7.2%, mainly due to higher consulting and trust systems provider expenses. Notably, there was no foundation contribution in 2025, compared to $2 million in 2024, and miscellaneous expenses decreased by $4.8 million, or 51.2%, largely due to a reduction in the provision for unfunded credit losses and other non-loan related losses.

The company's balance sheet reflects these operational dynamics. Total assets increased by $56.7 million to $9.86 billion at September 30, 2025, from $9.81 billion at December 31, 2024. This was primarily driven by a $58.3 million increase in cash and cash equivalents and a $175.6 million increase in loans, partially offset by a $173.9 million decrease in total investment securities. Total deposits grew by $186.4 million, or 2.3%, to $8.33 billion, with commercial deposits increasing by $414.6 million and off-balance sheet deposits rising by $35.6 million. Total shareholders' equity increased by $88 million, or 7.1%, to $1.33 billion, bolstered by net income and a decrease in accumulated other comprehensive loss.

Credit quality remains a critical focus for $PRK. The allowance for credit losses (ACL) stood at $91.8 million at September 30, 2025, an increase of $3.8 million from December 31, 2024. This increase included a $1.1 million additional qualitative reserve for special purpose mortgage loan programs, which exhibit higher delinquency rates and loan-to-value ratios compared to traditional mortgages. Nonperforming loans increased to $90.6 million at September 30, 2025, up from $69.9 million at December 31, 2024, primarily due to the downgrade of a $22.2 million loan to a non-bank consumer financial company. Despite this, net charge-offs as a percentage of average loans remained low at 0.07% annualized for the nine months ended September 30, 2025. The company also maintains a $760,000 qualitative reserve related to Hurricane Helene's impact on its Carolina region, reflecting a proactive approach to potential future losses.

$PRK maintains a robust liquidity position, with easily accessible forms of liquidity, including Fed Funds Sold, unpledged investment securities, and available FHLB borrowing capacity, totaling $1.98 billion at September 30, 2025. Management asserts that current funding sources provide "more than adequate liquidity" for both short-term and long-term cash flow needs. Capital resources are also strong, with both Park National Corporation and its banking subsidiary, PNB, meeting all "well capitalized" regulatory ratio guidelines at September 30, 2025.

Strategic Outlook and Future Growth Catalysts

The most significant strategic initiative for Park National Corporation is the pending merger with First Citizens Bancshares, Inc. , announced on October 27, 2025. This all-stock transaction, valued at approximately $317 million, is expected to close in the first quarter of 2026, subject to shareholder and regulatory approvals, with integration anticipated in the third quarter of 2026. This merger is set to be transformative, expanding $PRK's branch network to over 100 locations across Kentucky, Ohio, the Carolinas, and Tennessee. The integration of First Citizens National Bank into The Park National Bank will solidify $PRK's regional presence and is expected to generate enhanced revenue opportunities and cost synergies. The appointment of First Citizens' CEO and President, Jeff Agee, to lead the new Tennessee Region of Park National Bank, along with a First Citizens director joining $PRK's board, underscores a commitment to continuity and leveraging local expertise.

Management's outlook on interest rates suggests a "modest impact on net income" from further changes, as the company views its risk profile as "relatively interest rate risk neutral." Earnings simulations project a 1.10% increase in net income in a rising interest rate scenario and a 1.70% decrease in a declining interest rate scenario over the next year, as of September 30, 2025. This indicates a well-managed interest rate sensitivity position, supported by active monitoring and the use of derivative financial instruments like interest rate swaps for asset-liability management, not for speculative purposes. The company also anticipates permanent federal income tax differences for 2025 to be approximately $6.8 million, reflecting its tax-efficient operations.

Risks and Challenges

Despite a strong performance and strategic growth initiatives, $PRK faces several risks and challenges that warrant investor attention. The most immediate and significant risks are associated with the pending merger with First Citizens Bancshares, Inc. . The successful integration of two independent companies is complex, costly, and time-consuming, potentially leading to difficulties in combining business practices, systems, and technologies. There is also a risk that anticipated revenue synergies and cost savings may not be fully realized or may take longer than expected. Furthermore, the integration process could disrupt customer and employee relationships, and the failure to consummate the merger due to unmet conditions or regulatory hurdles could negatively impact $PRK's common share price and financial performance.

Beyond the merger, the determination of the allowance for credit losses (ACL) remains a critical accounting estimate involving a high degree of judgment. Changes in economic forecasts for Ohio unemployment, GDP, and home price index, or shifts in the weighting of economic scenarios, could materially alter ACL levels. Management's hypothetical sensitivity analysis indicates that an exclusive reliance on an adverse economic scenario could increase the ACL by $30.2 million, while a baseline scenario could decrease it by the same amount. The adverse scenario considers a widening geopolitical conflict, persistent inflation leading to Federal Reserve rate actions, a European recession, and significantly worse impacts from tariffs, culminating in a U.S. recession with rising unemployment and a falling stock market.

Specific qualitative adjustments to the ACL highlight ongoing credit risks. A $760,000 reserve for Hurricane Helene's impact in the Carolina region reflects the lingering economic uncertainty for borrowers and local businesses. Additionally, a $1.1 million reserve for special purpose mortgage loan programs, totaling $225 million, addresses higher delinquency rates and loan-to-value ratios compared to traditional mortgages. The office sector also presents a monitored risk, with $286.1 million in loans secured by non-owner-occupied office space, as this sector continues to face challenges from pandemic-related adjustments. Geopolitical instability and uncertainty regarding fiscal policy, including tariffs, are also considered in the allowance calculation, with a moderate recession scenario assuming higher tariffs for a longer duration.

Conclusion

Park National Corporation stands as a resilient and strategically focused regional bank, poised for significant expansion through its impending merger with First Citizens Bancshares, Inc. (FCNCA). The company's consistent financial performance, marked by strong net income and net interest income growth in the first nine months of 2025, underscores its operational effectiveness and disciplined approach to banking. $PRK's robust liquidity and capital positions provide a solid foundation, enabling it to pursue growth initiatives while maintaining financial stability.

The strategic rationale behind the First Citizens merger is compelling, promising an expanded geographic footprint and enhanced market share across key regional markets. This move, coupled with $PRK's ongoing commitment to leveraging technology for efficiency and customer experience, positions the company for continued relevance in a dynamic industry. While the complexities of merger integration and the broader economic uncertainties, particularly in credit quality and geopolitical factors, present notable risks, $PRK's proactive risk management and conservative capital allocation suggest a well-prepared institution. Investors should view $PRK as a regional banking entity with a clear growth trajectory, underpinned by a strong community focus and a strategic vision for expanding its regional influence, with the successful integration of its latest acquisition being a key determinant of its enhanced competitive standing.