Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB, a subordinated debt rating of BBB-, and a short-term debt rating of K3 for Newark, Ohio-based Park National Corporation (NYSE: PRK) (“the company”). In addition, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 for The Park National Bank, the lead subsidiary. The Outlook for all long-term ratings is Stable.

PRK’s ratings are supported by its comparatively low-cost funding profile, which has been a primary driver of the company’s durable NIM over time. With its loan portfolio funded by customer deposits, access to additional liquidity sources for PRK is ample. Given the low interest rate environment, PRK’s trust and wealth management component is increasingly valuable as a stable source of fee revenue. Noninterest income comprises about a quarter of total revenue. While core expenses have been weighted by the high branch count and affiliate bank model with multiple operating divisions (each led by local professionals but sharing centralized resources), the move to a single brand in 2019 and branch rationalization currently underway are expected to meaningfully benefit annual expense trends going forward. Although Park National’s NPA level is above the peer median, this is primarily a function of management’s conservative risk rating philosophy; adjusted reserve coverage appears adequate, historical portfolio losses have been well contained, and loans are adequately secured. PRK’s conservative approach to capital management is also factored into the ratings, with comfortable loss absorbing capacity in the event of need. KBRA notes that the company has moderate phase 1 direct exposure to industries most impacted by COVID-19. However, PRK is led by a tenured management team with extensive financial sector experience and deep market knowledge that appears prepared to successfully navigate the current and forthcoming challenging economic and operating environment, in KBRA’s opinion.

KBRA continues to monitor the potential direct and indirect effects of the coronavirus on the banking and other sectors. Please refer to our publication U.S. Bank 1Q 2020 Ratings Compendium for our latest thoughts.

The ratings are based on KBRA’s Bank & Bank Holding Company Global Rating Methodology published on October 16, 2019.

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Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.

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