UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to __________________________

  

Commission File Number 1-13006

 

PARK NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Ohio	31-1179518
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

50 North Third Street,	P.O. Box 3500	Newark,	Ohio	43058-3500
(Address of principal executive offices) (Zip Code)

(740)	349-8451
(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares, without par value	PRK	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 Yes   ☒   No   ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  ☒   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”,

“smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes   ☐   No   ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 16,178,425 Common Shares, no par value per share, outstanding at April 28, 2023.

PARK NATIONAL CORPORATION

CONTENTS

	Page
PART I.   FINANCIAL INFORMATION
Item 1.  Financial Statements
Consolidated Condensed Balance Sheets at March 31, 2023 and December 31, 2022 (unaudited)	5
Consolidated Condensed Statements of Income for the three months ended March 31, 2023 and 2022 (unaudited)	7
Consolidated Condensed Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022 (unaudited)	9
Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2023 and 2022 (unaudited)	10
Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (unaudited)	11
Notes to Unaudited Consolidated Condensed Financial Statements	13
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	58
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	86
Item 4.  Controls and Procedures	87
PART II.  OTHER INFORMATION	88
Item 1.  Legal Proceedings	88
Item 1A. Risk Factors	88
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	89
Item 3.  Defaults Upon Senior Securities	90
Item 4.  Mine Safety Disclosures	90
Item 5.  Other Information	90
Item 6.  Exhibits	90
SIGNATURES	93

3

Glossary of Abbreviations and Acronyms

Park has identified the following list of abbreviations and acronyms that are used in the Unaudited Consolidated Condensed Financial Statements, Notes to Unaudited Consolidated Condensed Financial Statements, and Management's Discussion and Analysis of Financial Condition and Results of Operations.

ACL	Allowance for credit losses	LIBOR	London Inter-Bank Offered Rate
AFS	Available-for-sale	MSRs	Mortgage servicing rights
Allowance	Allowance for credit losses	NAV	Net asset value
ASC	Accounting Standards Codification	NewDominion	NewDominion Bank
ASU	Accounting Standards Update	OREO	Other real estate owned
ATM	Automated teller machine	OWS	One-way sell
CARES Act	Coronavirus Aid, Relief, and Economic Security Act	Park	Park National Corporation and its subsidiaries
Carolina Alliance	CAB Financial Corporation and its subsidiaries	Park National Bank	The Park National Bank
CECL	Current expected credit loss	PBRSUs	Performance-based restricted stock units
Company	Park National Corporation and its subsidiaries	PCD	Purchased credit deteriorated
Corporation	Park National Corporation and its subsidiaries	PD	Probability of default
COVID	Novel coronavirus	PNB	The Park National Bank
DCF	Discounted cash flow	PPP	CARES Act Paycheck Protection Program
DOJ	Department of Justice	PTPP	Pre-tax, pre-provision
EPS	Earnings per common share	ROU	Right-of-use
FASB	Financial Accounting Standards Board	SARs	Stock appreciation rights
FHLB	Federal Home Loan Bank	SBA	Small Business Administration
FRB	Federal Reserve Bank	SEC	U.S. Securities and Exchange Commission
FTE	Fully taxable equivalent	SEPH	SE Property Holdings, LLC
GDP	Gross domestic product	TBRSUs	Time-based restricted stock units
GFSC	Guardian Financial Services Company	TDRs	Troubled debt restructurings
HELOC	Home equity line of credit	U.S.	United States of America
HPI	Home price index	U.S. GAAP	United States Generally Accepted Accounting Principles
IRLC	Interest rate lock commitment	United States	United States of America
KSOP	Park's qualified retirement plan that combines an employee stock ownership plan (ESOP) with a 401(k) plan	Vision	Vision Bancshares, Inc.
LDA	Loss driver analysis	VOV	Verification of value
LGD	Loss given default

4

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PART I. FINANCIAL INFORMATION

Item 1.      Financial Statements

PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (Unaudited)

(in thousands, except common share and per common share data)    

                

	March 31, 2023		December 31, 2022
Assets:
Cash and due from banks	$	146,155	$	156,750
Money market instruments	115,764		32,978
Cash and cash equivalents	261,919		189,728
Investment securities:
Debt securities available-for-sale, at fair value (amortized cost of $1,819,950 and $1,854,852 at March 31, 2023 and December 31, 2022, respectively, and no allowance for credit losses at March 31, 2023 and at December 31, 2022)	1,714,440		1,733,696
Other investment securities	85,970		87,091
Total investment securities	1,800,410		1,820,787
Loans	7,093,857		7,141,891
Allowance for credit losses	(85,946)		(85,379)
Net loans	7,007,911		7,056,512
Bank owned life insurance	223,528		220,072
Prepaid assets	157,426		153,579
Goodwill	159,595		159,595
Other intangible assets	5,648		5,975
Premises and equipment, net	81,223		82,126
Affordable housing tax credit investments	58,871		60,968
OREO	1,468		1,354
Accrued interest receivable	33,245		34,704
Operating lease right-of-use asset	17,150		17,600
Mortgage loan servicing rights	15,505		15,792
Other	33,082		36,201
Total assets	$	9,856,981	$	9,854,993

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (Unaudited) (Continued)

(in thousands, except common share and per common share data)

	March 31, 2023		December 31, 2022
Liabilities and Shareholders' Equity:
Deposits:
Non-interest bearing	$	2,922,242	$	3,074,276
Interest bearing	5,372,202		5,160,439
Total deposits	8,294,444		8,234,715
Short-term borrowings	172,058		227,342
Subordinated notes	188,785		188,667
Unfunded commitments in affordable housing tax credit investments	26,723		28,132
Operating lease liability	18,651		19,291
Allowance for credit losses on off-balance sheet commitments	5,329		5,214
Accrued interest payable	1,661		3,486
Other	67,177		78,920
Total liabilities	$	8,774,828	$	8,785,767
Shareholders' equity:
Preferred shares (No par value; 200,000 shares authorized; No shares issued)	$	—	$	—
Common shares (No par value; 20,000,000 shares authorized; 17,623,104 shares issued at March 31, 2023 and at December 31, 2022)	459,431		462,404
Retained earnings	862,518		847,235
Treasury shares (1,449,037 shares at March 31, 2023 and 1,359,521 shares at December 31, 2022)	(149,763)		(138,019)
Accumulated other comprehensive loss, net of taxes	(90,033)		(102,394)
Total shareholders' equity	1,082,153		1,069,226
Total liabilities and shareholders’ equity	$	9,856,981	$	9,854,993

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Income (Unaudited)

(in thousands, except common share and per common share data)

	Three Months Ended March 31,
	2023		2022
Interest and dividend income:
Interest and fees on loans	$	91,614	$	72,416
Interest and dividends on:
Debt securities - taxable	12,979		6,130
Debt securities - tax-exempt	2,912		2,447
Other interest income	3,396		153
Total interest and dividend income	110,901		81,146
Interest expense:
Interest on deposits:
Demand and savings deposits	14,212		351
Time deposits	1,347		720
Interest on borrowings:
Short-term borrowings	824		244
Subordinated notes and long-term debt	2,320		2,145
Total interest expense	18,703		3,460
Net interest income	92,198		77,686
Provision for (recovery of) credit losses	183		(4,605)
Net interest income after provision for (recovery of) credit losses	$	92,015	$	82,291
Other income:
Income from fiduciary activities	$	8,615	$	8,797
Service charges on deposit accounts	2,241		2,074
Other service income	2,697		4,819
Debit card fee income	6,457		6,126
Bank owned life insurance income	1,185		1,175
ATM fees	533		532
Loss on the sale of OREO, net	(9)		—
OREO valuation markup	15		30
(Loss) gain on equity securities, net	(405)		2,353
Other components of net periodic pension benefit income	1,893		3,027
Miscellaneous	1,165		2,723
Total other income	$	24,387	$	31,656

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Income (Unaudited) (Continued)

(in thousands, except common share and per common share data)

	Three Months Ended March 31,
	2023		2022
Other expense:
Salaries	$	34,871	$	30,521
Employee benefits	10,816		10,499
Occupancy expense	3,353		3,214
Furniture and equipment expense	3,246		2,937
Data processing fees	8,750		7,504
Professional fees and services	7,221		5,858
Marketing	1,319		1,317
Insurance	1,814		1,405
Communication	1,037		890
State tax expense	1,278		1,192
Amortization of intangible assets	327		402
Miscellaneous	2,471		1,634
Total other expense	$	76,503	$	67,373
Income before income taxes	$	39,899	$	46,574
Income taxes	6,166		7,699
Net income	$	33,733	$	38,875
Earnings per common share:
Basic	$	2.08	$	2.40
Diluted	$	2.07	$	2.38
Weighted average common shares outstanding:
Basic	16,242,353		16,219,889
Diluted	16,324,823		16,331,031
Regular cash dividends declared per common share	$	1.05	$	1.04

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited)

(in thousands)

	Three Months Ended March 31,
	2023		2022
Net income	$	33,733	$	38,875
Other comprehensive income (loss), net of tax:
Unrealized net holding gain (loss) on debt securities available-for-sale, net of income tax effect of $3,285 and $(14,823) for the three months ended March 31, 2023 and 2022, respectively	12,361		(55,763)
Unrealized gain on cash flow hedging derivatives, net of income tax effect of $37 for the three months ended March 31, 2022	—		139
Other comprehensive income (loss)	$	12,361	$	(55,624)
Comprehensive income (loss)	$	46,094	$	(16,749)

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited)

(in thousands, except common share and per common share data)

  

	Preferred Shares		Common Shares		Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Loss
Balance at December 31, 2022	$	—	$	462,404	$	847,235	$	(138,019)	$	(102,394)
Cumulative effect of a change in accounting principle					(303)
Balance at January 1, 2023	$	—	$	462,404	$	846,932	$	(138,019)	$	(102,394)
Net income					33,733
Other comprehensive income, net of tax									12,361
Dividends on common shares at $1.05 per common share					(17,285)
Issuance of 34,484 common shares under share-based compensation awards, net of 21,981 common shares withheld to pay employee income taxes			(5,309)		(862)		3,564
Share-based compensation expense			2,336
Repurchase of 124,000 common shares to be held as treasury shares							$	(15,308)
Balance at March 31, 2023	$	—	$	459,431	$	862,518	$	(149,763)	$	(90,033)

	Preferred Shares		Common Shares		Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2021	$	—	$	461,800	$	776,294	$	(142,490)	$	15,155
Net income					38,875
Other comprehensive loss, net of tax									(55,624)
Dividends on common shares at $1.04 per common share					(17,172)
Cash payment for fractional common shares in dividend reinvestment plan			(2)
Issuance of 29,757 common shares under share-based compensation awards, net of 18,658 common shares withheld to pay employee income taxes			(4,508)		(964)		3,021
Share-based compensation expense			1,981
Balance at March 31, 2022	$	—	$	459,271	$	797,033	$	(139,469)	$	(40,469)

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows (Unaudited)

(in thousands)

	Three Months Ended March 31,
	2023		2022
Operating activities:
Net income	$	33,733	$	38,875
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (recovery of) credit losses	183		(4,605)
Accretion of loan fees and costs, net	(2,169)		(3,772)
Depreciation of premises and equipment	3,500		3,482
Amortization of investment securities, net	817		875
Net amortization (accretion) of purchase accounting adjustments	119		(86)
Loss (gain) on equity securities, net	405		(2,353)
Loan originations to be sold in secondary market	(15,332)		(73,713)
Proceeds from sale of loans in secondary market	15,730		77,189
Gain on sale of loans in secondary market	(325)		(1,941)
Share-based compensation expense	2,336		1,981
Loss on sale of OREO, net	9		—
OREO valuation markup	(15)		(30)
Bank owned life insurance income	(1,185)		(1,175)
Investment in qualified affordable housing tax credits amortization	2,097		1,980
Changes in assets and liabilities:
Decrease in prepaid dealer premiums	601		94
(Increase) decrease in other assets	(2,116)		1,253
Decrease in other liabilities	(13,986)		(9,742)
Net cash provided by operating activities	$	24,402	$	28,312
Investing activities:
Proceeds from the redemption/repurchase of Federal Home Loan Bank stock	$	3,094	$	—
Proceeds from calls and maturities of:
Debt securities AFS	34,085		54,263
Purchases of:
Debt securities AFS	—		(128,731)
Equity securities	(2,195)		(1,630)
Net (increase) decrease in other investments	(183)		124
Net loan paydowns, portfolio loans	50,208		52,474
Investment in qualified affordable housing tax credits	(1,409)		(7,252)
Proceeds from the sale of OREO	13		38
Life insurance death benefits	229		367
Purchases of bank owned life insurance	(2,500)		(7,500)
Purchases of premises and equipment	(2,674)		(2,127)
Net cash provided by (used in) investing activities	$	78,668	$	(39,974)

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PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued) (in thousands)
	Three Months Ended March 31,
	2023		2022
Financing activities:
Net increase in deposits	$	28,392	$	257,927
Net decrease (increase) in off-balance sheet deposits	31,337		(166,134)
Net decrease in short-term borrowings	(55,284)		(32,859)
Value of common shares withheld to pay employee income taxes	(2,607)		(2,451)
Repurchase of common shares to be held as treasury shares	(15,308)		—
Cash dividends paid	(17,409)		(17,109)
Net cash (used in) provided by financing activities	$	(30,879)	$	39,374
Increase in cash and cash equivalents	72,191		27,712
Cash and cash equivalents at beginning of year	189,728		219,180
Cash and cash equivalents at end of period	$	261,919	$	246,892
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	20,528	$	5,429
Non-cash items:
Loans transferred to OREO	$	138	$	55
Right-of-use assets obtained in exchange for lease obligations	136		—
New commitments in other investment securities	—		10,000

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

The accompanying unaudited consolidated condensed financial statements included in this report have been prepared for Park National Corporation (sometimes also referred to as the “Registrant”) and its subsidiaries. Unless the context otherwise requires, references to "Park", the "Corporation" or the "Company" and similar terms mean Park National Corporation and its subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the interim periods included herein have been made. The results of operations for the three-month period ended March 31, 2023 are not necessarily indicative of the operating results to be anticipated for the year ending December 31, 2023.

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Quarterly Reports on Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of the consolidated condensed balance sheets, consolidated condensed statements of income, consolidated condensed statements of comprehensive income (loss), consolidated condensed statements of changes in shareholders’ equity and consolidated condensed statements of cash flows in conformity with U.S. GAAP. These financial statements should be read in conjunction with the consolidated financial statements included in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA in the Annual Report on Form 10-K of Park National Corporation for the fiscal year ended December 31, 2022 ("Park's 2022 Form 10-K"). Certain prior period amounts have been reclassified to conform to the current period presentation.

Park’s significant accounting policies are described in Note 1. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 2022 Form 10-K. For interim reporting purposes, Park follows the same basic accounting policies, as updated by the information contained in this report, and considers each interim period an integral part of an annual period.

Recent bank failures have called into question the stability of the financial services industry. While Park is well capitalized and has significant available liquidity, the effects of these failures and potential future failures may meaningfully impact significant estimates such as the allowance for credit losses, goodwill, and pension plan obligations and related expenses.

Note 2 - Adoption of New Accounting Pronouncements and Issued But Not Yet Effective Accounting Standards

The following is a summary of new accounting pronouncements impacting Park's consolidated financial statements:

Adoption of New Accounting Pronouncements

ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures: In March 2022, FASB issued ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures. ASU 2022-02 eliminated the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the amendments in this ASU require that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost.

Park adopted ASU 2022-02 using the modified retrospective transition method on January 1, 2023. Park recorded a $383,000 increase to the ACL, a $303,000 decrease to retained earnings and an $80,000 increase to deferred tax assets as of January 1, 2023 for the cumulative effect of adopting ASU 2022-02. Additionally, as a result of the adoption of this ASU and elimination of the concept of TDRs, total nonperforming loans decreased by $20.1 million during the three months ended March 31, 2023 and individually evaluated loans decreased by $11.5 million.

The adoption of ASU 2022-02 impacted disclosures in Note 5 - Loans and Note 6 - Allowance for Credit Losses.

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Issued But Not Yet Effective Accounting Standards

There are no issued but not yet effective accounting standards that are significant to Park.

Note 3 – Investment Securities

Investment securities at March 31, 2023 and at December 31, 2022, were as follows:

Debt securities AFS (In thousands)	Amortized Cost		Gross Unrealized Holding  Gains		Gross Unrealized Holding  Losses		Fair Value
March 31, 2023:
Obligations of U.S. Government sponsored entities	$	39,000	$	—	$	1,656	$	37,344
Obligations of states and political subdivisions	422,398		3,941		14,333		412,006
U.S. Government sponsored entities' asset-backed securities	805,466		—		75,205		730,261
Collateralized loan obligations	535,436		—		16,008		519,428
Corporate debt securities	17,650		—		2,249		15,401
Total	$	1,819,950	$	3,941	$	109,451	$	1,714,440

 

Debt securities AFS (In thousands)	Amortized Cost		Gross Unrealized Holding  Gains		Gross Unrealized Holding  Losses		Fair Value
December 31, 2022:
Obligations of U.S. Government sponsored entities	$	39,000	$	—	$	1,787	$	37,213
Obligations of states and political subdivisions	423,285		1,620		18,194		406,711
U.S. Government sponsored entities' asset-backed securities	839,399		—		82,638		756,761
Collateralized loan obligations	535,518		—		18,979		516,539
Corporate debt securities	17,650		—		1,178		16,472
Total	$	1,854,852	$	1,620	$	122,776	$	1,733,696

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Investment securities in an unrealized loss position at March 31, 2023, were as follows:

	Unrealized loss position for less than 12 months				Unrealized loss position for 12 months or longer				Total
(In thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Debt securities AFS:
Obligations of U.S. Government sponsored entities	$	13,411	$	590	$	23,933	$	1,066	$	37,344	$	1,656
Obligations of states and political subdivisions	52,910		1,102		85,762		13,231		138,672		14,333
U.S. Government sponsored entities' asset-backed securities	197,348		7,644		532,913		67,561		730,261		75,205
Collateralized loan obligations	35,179		492		484,249		15,516		519,428		16,008
Corporate debt securities	11,844		1,556		3,557		693		15,401		2,249
Total	$	310,692	$	11,384	$	1,130,414	$	98,067	$	1,441,106	$	109,451

 Investment securities in an unrealized loss position at December 31, 2022, were as follows:

 

	Unrealized loss position for less than 12 months				Unrealized loss position for 12 months or longer				Total
(In thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Debt securities AFS:
Obligations of U.S. Government sponsored entities	$	37,213	$	1,787	$	—	$	—	$	37,213	$	1,787
Obligations of states and political subdivisions	270,905		18,194		—		—		270,905		18,194
U.S. Government sponsored entities' asset-backed securities	446,423		27,507		310,338		55,131		756,761		82,638
Collateralized loan obligations	415,491		15,446		101,048		3,533		516,539		18,979
Corporate debt securities	7,388		862		1,684		316		9,072		1,178
Total	$	1,177,420	$	63,796	$	413,070	$	58,980	$	1,590,490	$	122,776

At March 31, 2023, Park’s debt securities portfolio consisted of $1.7 billion of securities, $1.4 billion of which were in an unrealized loss position with unrealized losses of $109.5 million. Of the $1.4 billion of securities in an unrealized loss position, $1.1 billion were in an unrealized loss position for 12 months or longer. Of the $109.5 million in unrealized losses, an aggregate of $76.9 million were related to Park's "Obligations of U.S. Government sponsored entities" portfolio and Park's "U.S. Government sponsored entities' asset-backed securities" portfolio. For non-agency debt securities, Park verified that the current credit ratings remain above investment grade. Management periodically reviews the credit profile of each non-agency debt security and assesses whether any impairment to the contractually obligated cash flow is likely to occur. Based on these reviews, management has concluded that the underlying creditworthiness for each security remains sufficient to maintain required payment obligations and, therefore, unrealized losses have not been recognized into net income. Management does not intend to sell, and it is not more likely than not that management would be required to sell, the securities prior to their anticipated recovery in respect of the unrealized losses. Management believes the value will recover as the securities approach maturity or market rates change.

There was no allowance for credit losses recorded for debt securities AFS at either March 31, 2023 or December 31, 2022. Additionally, for the three months ended March 31, 2023 and 2022, there were no credit-related investment impairment losses recognized.

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The amortized cost and estimated fair value of investments in debt securities AFS at March 31, 2023, are shown in the following table by contractual maturity, except for asset-backed securities and collateral loan obligations, which are shown as a single total, due to the unpredictability of the timing of principal repayments. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

(In thousands)	Amortized cost		Fair value		Tax equivalent yield (1)
Debt Securities AFS
Obligations of U.S. Treasury and other U.S. Government sponsored entities
Due one through five years	$	39,000	$	37,344	2.37	%
Obligations of state and political subdivisions:
Due one through five years	$	2,280	$	2,282	2.97	%
Due five through ten years	275,512		278,622		3.69	%
Due over ten years	144,606		131,102		3.12	%
Total (1)	$	422,398	$	412,006	3.49	%
U.S. Government sponsored entities' asset-backed securities	$	805,466	$	730,261	1.90	%
Collateralized loan obligations	$	535,436	$	519,428	6.51	%
Corporate debt securities
Due five through ten years	$	17,650	$	15,401	3.89	%

(1) The tax equivalent yield for certain obligations of state and political subdivisions includes the effect of a taxable equivalent adjustment using a 21% federal corporate income tax rate.

There were no sales of debt securities AFS during the three-month periods ended March 31, 2023 or 2022.

Investment securities having a fair value of $778.7 million and $753.6 million at March 31, 2023 and December 31, 2022, respectively, were pledged to collateralize government and public fund deposits, to secure repurchase agreements sold and as collateral for FHLB advance borrowings.

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Note 4 – Other Investment Securities

Other investment securities consist of restricted stock investments in the FHLB and the FRB, and equity securities. The restricted FHLB and FRB stock investments are carried at their redemption value. Equity securities with a readily determinable fair value are carried at fair value. Equity securities without a readily determinable fair value are recorded at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions ("modified cost"). Park's portfolio of equity investments in limited partnerships which provide mezzanine funding ("Partnership Investments") are valued using the NAV practical expedient in accordance with ASC 820.

The carrying amounts of other investment securities at March 31, 2023 and December 31, 2022 were as follows:

 

(In thousands)	March 31, 2023		December 31, 2022
FHLB stock	$	8,103	$	11,197
FRB stock	14,653		14,653
Equity investments carried at fair value	2,832		1,859
Equity investments carried at modified cost (1)	15,921		14,725
Equity investments carried at NAV	44,461		44,657
Total other investment securities	$	85,970	$	87,091

(1) There have been no impairments or downward adjustments made to equity investments carried at modified cost. An upward adjustment of $871,000 was recorded during the year ended December 31, 2022 as a result of observable price changes. There were no adjustments recorded during the three months ended March 31, 2023 or March 31, 2022 as a result of observable price changes.

During the three months ended March 31, 2023, the FHLB repurchased 30,938 shares of FHLB stock with a book value of $3.1 million. No shares of FHLB stock were repurchased during the the three months ended March 31, 2022. No shares of FRB stock were purchased or sold during the three months ended March 31, 2023 or 2022.

During the three months ended March 31, 2023 and 2022, $(27,000) and $(92,000), respectively, of losses on equity investments carried at fair value were recorded within "(Loss) gain on equity securities, net" on the Consolidated Condensed Statements of Income.

During the three months ended March 31, 2023 and 2022, $(378,000) and $2.4 million, respectively, of (losses) gains on equity investments carried at NAV were recorded within “(Loss) gain on equity securities, net” on the Consolidated Condensed Statements of Income.

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Note 5 – Loans

The composition of the loan portfolio at March 31, 2023 and December 31, 2022 was as follows:

 

	March 31, 2023		December 31, 2022
(In thousands)	Amortized Cost		Amortized Cost
Commercial, financial and agricultural: (1)
Commercial, financial and agricultural (1)	$	1,256,705	$	1,295,238
PPP loans	3,445		4,206
Overdrafts	1,831		1,489
Commercial real estate (1)	1,800,878		1,794,054
Construction real estate:
Commercial	173,668		208,982
Retail	117,075		116,433
Residential real estate:
Commercial	562,759		550,183
Mortgage	1,089,772		1,075,446
HELOC	164,656		167,151
Installment	3,987		4,091
Consumer:
Consumer	1,898,398		1,902,557
GFSC	140		274
Check loans	2,071		2,150
Leases	18,472		19,637
Total	$	7,093,857	$	7,141,891
Allowance for credit losses	(85,946)		(85,379)
Net loans	$	7,007,911	$	7,056,512

(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that were not broken out by class.

In order to support customers, Park participated in the CARES Act Paycheck Protection Program ("PPP"). For its assistance in making and retaining these loans, Park received an aggregate of $33.1 million in fees from the SBA. During the three months ended March 31, 2023 and March 31, 2022, $17,400 and $1.5 million, respectively, of PPP fee income was recognized within loan interest income.

Loans are shown net of deferred origination fees, costs and unearned income of $17.7 million at March 31, 2023, and of $18.2 million at December 31, 2022, which represented a net deferred income position in both years. At March 31, 2023 and December 31, 2022, included in the net deferred origination fees, costs and unearned income were $51,000 and $68,000, respectively, in net origination fees related to PPP loans. At March 31, 2023 and December 31, 2022, loans included purchase accounting adjustments of $2.3 million and $2.5 million, respectively, which represented a net deferred income position at each date. This fair market value purchase accounting adjustment is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.

Overdrawn deposit accounts of $1.8 million and $1.5 million were reclassified to loans at March 31, 2023 and December 31, 2022, respectively.

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Credit Quality

Among other things, the adoption of ASU 2022-02 on January 1, 2023 eliminated the concept of TDRs. After the adoption of ASU 2022-02 on January 1, 2023, nonperforming loans consisted of nonaccrual loans and loans past due 90 days or more and still accruing. Prior to the adoption of ASU 2022-02, nonperforming loans consisted of nonaccrual loans, accruing TDRs and loans past due 90 days or more and still accruing.

The following table presents the amortized cost of nonaccrual loans and loans past due 90 days or more and still accruing, by class of loan, at March 31, 2023.

 

	March 31, 2023
(In thousands)	Nonaccrual Loans		Loans Past Due 90 Days  or More and Accruing		Total Nonperforming Loans
Commercial, financial and agricultural:
Commercial, financial and agricultural	$	39,054	$	—	$	39,054
PPP loans	—		294		294
Overdrafts	—		—		—
Commercial real estate	15,476		—		15,476
Construction real estate:
Commercial	1,997		—		1,997
Retail	—		—		—
Residential real estate:
Commercial	2,338		—		2,338
Mortgage	10,888		291		11,179
HELOC	1,145		16		1,161
Installment	47		—		47
Consumer:
Consumer	1,545		634		2,179
GFSC	7		1		8
Check loans	—		—		—
Leases	617		15		632
Total loans	$	73,114	$	1,251	$	74,365

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The following table presents the amortized cost of nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing, by class of loan, at December 31, 2022:

	December 31, 2022
(In thousands)	Nonaccrual Loans		Accruing TDRs		Loans Past Due 90 Days or More and Accruing		Total Nonperforming Loans
Commercial, financial and agricultural
Commercial, financial and agricultural	$	38,158	$	3,261	$	—	$	41,419
PPP loans	—		—		389		389
Overdrafts	—		—		—		—
Commercial real estate	24,504		7,919		—		32,423
Construction real estate:
Commercial	1,712		—		—		1,712
Retail	1,254		12		—		1,266
Residential real estate:
Commercial	1,894		298		—		2,192
Mortgage	9,260		6,750		182		16,192
HELOC	1,133		187		7		1,327
Installment	51		1,037		—		1,088
Consumer
Consumer	1,012		670		703		2,385
GFSC	10		—		—		10
Check loans	—		—		—		—
Leases	708		—		—		708
Total loans	$	79,696	$	20,134	$	1,281	$	101,111

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The following tables provide additional detail on nonaccrual loans and the related ACL, by class of loan, at March 31, 2023 and December 31, 2022:

	March 31, 2023
(In thousands)	Nonaccrual Loans With No ACL		Nonaccrual Loans With an ACL		Related ACL
Commercial, financial and agricultural:
Commercial, financial and agricultural	$	29,007	$	10,047	$	4,112
PPP loans	—		—		—
Overdrafts	—		—		—
Commercial real estate	12,730		2,746		215
Construction real estate:
Commercial	1,997		—		—
Retail	—		—		—
Residential real estate:
Commercial	2,338		—		—
Mortgage	—		10,888		105
HELOC	—		1,145		175
Installment	—		47		18
Consumer
Consumer	—		1,545		364
GFSC	—		7		1
Check loans	—		—		—
Leases	593		24		2
Total loans	$	46,665	$	26,449	$	4,992

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	December 31, 2022
(In thousands)	Nonaccrual Loans With No ACL		Nonaccrual Loans With an ACL		Related ACL
Commercial, financial and agricultural:
Commercial, financial and agricultural	$	28,291	$	9,867	$	3,440
PPP loans	—		—		—
Overdrafts	—		—		—
Commercial real estate	22,965		1,539		130
Construction real estate:			—
Commercial	1,712		—		—
Retail	—		1,254		19
Residential real estate:			—
Commercial	1,894		—		—
Mortgage	—		9,260		85
HELOC	—		1,133		191
Installment	—		51		17
Consumer
Consumer	—		1,012		283
GFSC	—		10		1
Check loans	—		—		—
Leases	680		28		9
Total	$	55,542	$	24,154	$	4,175

Nonaccrual commercial loans are evaluated on an individual basis and are excluded from the collective evaluation. Management’s general practice is to proactively charge down loans individually evaluated to the fair value of the underlying collateral. Nonaccrual consumer loans are collectively evaluated based on similar risk characteristics.

The following tables provide the amortized cost basis of collateral-dependent loans by class of loan, as of March 31, 2023 and December 31, 2022:

	March 31, 2023
(In thousands)	Real Estate		Business Assets		Other		Total
Commercial, financial and agricultural
Commercial, financial and agricultural	$	8,541	$	7,364	$	23,133	$	39,038
Commercial real estate	18,782		155		—		18,937
Construction real estate:
Commercial	2,648		—		—		2,648
Residential real estate:
Commercial	2,613		—		—		2,613
Mortgage	86		—		—		86
Leases	—		617		—		617
Total loans	$	32,670	$	8,136	$	23,133	$	63,939

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	December 31, 2022
(In thousands)	Real Estate		Business Assets		Other		Total
Commercial, financial and agricultural
Commercial, financial and agricultural	$	8,242	$	7,788	$	23,125	$	39,155
Commercial real estate	35,908		28		—		35,936
Construction real estate:
Commercial	2,372		—		—		2,372
Residential real estate:
Commercial	2,479		—		—		2,479
Mortgage	90		—		—		90
Leases	—		708		—		708
Total loans	$	49,091	$	8,524	$	23,125	$	80,740

Interest income on nonaccrual loans individually evaluated for impairment is recognized on a cash basis only when Park expects to receive the entire recorded investment in the loans. The following table presents interest income recognized on nonaccrual loans for the three-month periods ended March 31, 2023 and 2022:

	Interest Income Recognized
(In thousands)	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Commercial, financial and agricultural:
Commercial, financial and agricultural	$	605	$	17
PPP loans	—		—
Overdrafts	—		—
Commercial real estate	160		257
Construction real estate:
Commercial	32		1
Retail	—		4
Residential real estate:
Commercial	26		20
Mortgage	49		33
HELOC	8		4
Installment	1		2
Consumer:
Consumer	19		14
GFSC	—		2
Check loans	—		—
Leases	—		14
Total loans	$	900	$	368

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The following tables present the aging of the amortized cost in past due loans at March 31, 2023 and December 31, 2022 by class of loan:

	March 31, 2023
(In thousands)	Accruing  Loans Past Due  30-89 Days		Past Due  Nonaccrual Loans and Loans Past Due 90 Days or More and  Accruing (1)		Total Past  Due		Total Current (2)		Total  Amortized Cost
Commercial, financial and agricultural:
Commercial, financial and agricultural	$	2,732	$	31,450	$	34,182	$	1,222,523	$	1,256,705
PPP loans	—		294		294		3,151		3,445
Overdrafts	—		—		—		1,831		1,831
Commercial real estate	390		2,478		2,868		1,798,010		1,800,878
Construction real estate:
Commercial	—		—		—		173,668		173,668
Retail	50		—		50		117,025		117,075
Residential real estate:
Commercial	18		328		346		562,413		562,759
Mortgage	4,439		5,362		9,801		1,079,971		1,089,772
HELOC	418		745		1,163		163,493		164,656
Installment	11		—		11		3,976		3,987
Consumer:
Consumer	4,593		878		5,471		1,892,927		1,898,398
GFSC	26		2		28		112		140
Check loans	1		—		1		2,070		2,071
Leases	98		15		113		18,359		18,472
Total loans	$	12,776	$	41,552	$	54,328	$	7,039,529	$	7,093,857

(1) Includes an aggregate of $1.3 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.

(2) Includes an aggregate of $32.8 million of nonaccrual loans which were current in regards to contractual principal and interest payments.

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	December 31, 2022
(in thousands)	Accruing  Loans Past Due  30-89 Days		Past Due  Nonaccrual Loans and Loans Past Due 90 Days or More and  Accruing (1)		Total Past  Due		Total Current (2)		Total  Amortized Cost
Commercial, financial and agricultural
Commercial, financial and agricultural	$	378	$	9,246	$	9,624	$	1,285,614	$	1,295,238
PPP loans	155		389		544		3,662		4,206
Overdrafts	—		—		—		1,489		1,489
Commercial real estate	737		4,738		5,475		1,788,579		1,794,054
Construction real estate:
Commercial	751		—		751		208,231		208,982
Retail	1,035		523		1,558		114,875		116,433
Residential real estate:
Commercial	519		477		996		549,187		550,183
Mortgage	7,630		5,157		12,787		1,062,659		1,075,446
HELOC	832		587		1,419		165,732		167,151
Installment	57		4		61		4,030		4,091
Consumer
Consumer	5,451		964		6,415		1,896,142		1,902,557
GFSC	48		—		48		226		274
Check loans	2		—		2		2,148		2,150
Leases	—		—		—		19,637		19,637
Total loans	$	17,595	$	22,085	$	39,680	$	7,102,211	$	7,141,891

(1) Includes an aggregate of $1.3 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.

(2) Includes an aggregate of $58.9 million of nonaccrual loans which were current in regards to contractual principal and interest payments.

Credit Quality Indicators

Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information at March 31, 2023 and December 31, 2022 is included in the previous tables. The past due information is the primary credit quality indicator within the following classes of loans: (1) overdrafts in the commercial, financial and agricultural portfolio segment; (2) retail loans in the construction real estate portfolio segment; (3) mortgage loans, HELOC and installment loans in the residential real estate portfolio segment; and (4) consumer loans, GFSC loans, and check loans in the consumer portfolio segment. The primary credit indicator for commercial loans is based on an internal grading system that grades all commercial loans on a scale from 1 to 8. Credit grades are continuously monitored by the responsible loan officer and adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded a 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher PD is applied to these loans. Loans classified as special mention have potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of Park’s credit position at some future date. Commercial loans graded a 6 (substandard), also considered watch list credits, are considered to represent higher credit risk and, as a result, a higher PD is applied to these loans. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or the value of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that Park will sustain some loss if the deficiencies are not corrected. Commercial loans graded a 7 (doubtful) are shown as nonaccrual and Park generally charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and included within the individually evaluated category. A commercial loan is deemed nonaccrual, and is individually evaluated, when management

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determines the borrower's ability to perform in accordance with the contractual loan agreement is in doubt. Any commercial loan graded an 8 (loss) is completely charged off.

Based on the then most recent analysis performed, the risk category of commercial loans by class of loans as of March 31, 2023 and December 31, 2022 were as follows:

March 31, 2023	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial, financial and agricultural: Commercial, financial and agricultural (1)
Risk rating
Pass	$	36,402	$	191,499	$	186,796	$	134,697	$	54,571	$	72,782	$	501,803	$	1,178,550
Special Mention	38		1,037		657		965		267		87		33,982		37,033
Substandard	19		254		126		2,777		122		1,718		26,511		31,527
Doubtful	—		786		—		—		150		8,568		91		9,595
Total	$	36,459	$	193,576	$	187,579	$	138,439	$	55,110	$	83,155	$	562,387	$	1,256,705
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	52	$	—	$	52

Commercial, financial and agricultural: PPP
Risk rating
Pass	$	—	$	—	$	1,342	$	2,103	$	—	$	—	$	—	$	3,445
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Total	$	—	$	—	$	1,342	$	2,103	$	—	$	—	$	—	$	3,445
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate (1)
Risk rating
Pass	$	66,791	$	318,942	$	369,914	$	362,128	$	217,432	$	390,197	$	14,372	$	1,739,776
Special Mention	—		197		4,859		3,845		743		35,851		96		45,591
Substandard	—		918		1,585		1,753		2,692		6,879		335		14,162
Doubtful	—		—		81		740		130		398		—		1,349
Total	$	66,791	$	320,057	$	376,439	$	368,466	$	220,997	$	433,325	$	14,803	$	1,800,878
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction real estate: Commercial
Risk rating
Pass	$	17,938	$	98,767	$	17,350	$	20,875	$	2,388	$	4,091	$	9,383	$	170,792
Special Mention	—		—		—		228		—		—		—		228
Substandard	988		647		105		257		—		651		—		2,648
Doubtful	—		—		—		—		—		—		—		—
Total	$	18,926	$	99,414	$	17,455	$	21,360	$	2,388	$	4,742	$	9,383	$	173,668
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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March 31, 2023	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Residential Real Estate: Commercial
Risk rating
Pass	$	24,461	$	115,770	$	115,043	$	136,483	$	54,408	$	91,876	$	18,062	$	556,103
Special Mention	—		343		563		1,674		423		1,018		—		4,021
Substandard	56		597		350		260		38		995		339		2,635
Doubtful	—		—		—		—		—		—		—		—
Total	$	24,517	$	116,710	$	115,956	$	138,417	$	54,869	$	93,889	$	18,401	$	562,759
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Leases
Risk rating
Pass	$	1,205	$	6,618	$	3,007	$	2,939	$	864	$	1,304	$	—	$	15,937
Special Mention	413		857		526		85		37		—		—		1,918
Substandard	—		—		—		412		157		24		—		593
Doubtful	—		—		—		—		24		—		—		24
Total	$	1,618	$	7,475	$	3,533	$	3,436	$	1,082	$	1,328	$	—	$	18,472
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total Commercial Loans
Risk rating
Pass	$	146,797	$	731,596	$	693,452	$	659,225	$	329,663	$	560,250	$	543,620	$	3,664,603
Special Mention	451		2,434		6,605		6,797		1,470		36,956		34,078		88,791
Substandard	1,063		2,416		2,166		5,459		3,009		10,267		27,185		51,565
Doubtful	—		786		81		740		304		8,966		91		10,968
Total	$	148,311	$	737,232	$	702,304	$	672,221	$	334,446	$	616,439	$	604,974	$	3,815,927
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	52	$	—	$	52

(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.

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December 31, 2022	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial, financial and agricultural: Commercial, financial and agricultural (1)
Risk rating
Pass	$	197,497	$	198,999	$	142,487	$	60,845	$	32,887	$	47,135	$	546,237	$	1,226,087
Special Mention	700		313		918		315		4		35		25,536		27,821
Substandard	1,101		18		2,737		226		1,836		8,424		26,464		40,806
Doubtful	—		—		3		77		80		172		192		524
Total	$	199,298	$	199,330	$	146,145	$	61,463	$	34,807	$	55,766	$	598,429	$	1,295,238

Commercial, financial and agricultural: PPP
Risk rating
Pass	$	—	$	1,875	$	2,331	$	—	$	—	$	—	$	—	$	4,206
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Total	$	—	$	1,875	$	2,331	$	—	$	—	$	—	$	—	$	4,206

Commercial real estate (1)
Risk rating
Pass	$	323,235	$	374,763	$	372,653	$	220,072	$	107,467	$	305,539	$	14,052	$	1,717,781
Special Mention	199		3,256		3,388		5,863		16,059		22,220		150		51,135
Substandard	7,856		1,427		3,007		3,561		856		5,471		428		22,606
Doubtful	—		—		—		—		1,941		591		—		2,532
Total	$	331,290	$	379,446	$	379,048	$	229,496	$	126,323	$	333,821	$	14,630	$	1,794,054

Construction real estate: Commercial
Risk rating
Pass	$	107,976	$	40,534	$	21,556	$	2,686	$	1,428	$	3,015	$	29,183	$	206,378
Special Mention	—		—		232		—		—		—		—		232
Substandard	652		800		260		—		660		—		—		2,372
Doubtful	—		—		—		—		—		—		—		—
Total	$	108,628	$	41,334	$	22,048	$	2,686	$	2,088	$	3,015	$	29,183	$	208,982

Residential Real Estate: Commercial
Risk rating
Pass	$	107,086	$	120,303	$	147,802	$	56,980	$	33,140	$	63,499	$	15,191	$	544,001
Special Mention	—		92		1,477		440		—		1,625		—		3,634
Substandard	610		449		264		29		304		553		339		2,548
Doubtful	—		—		—		—		—		—		—		—
Total	$	107,696	$	120,844	$	149,543	$	57,449	$	33,444	$	65,677	$	15,530	$	550,183

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December 31, 2022	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2022	2021	2020	2019	2018	Prior	Revolving Loans Amortized Cost Basis	Total

Leases
Risk rating
Pass	$	7,629	$	3,310	$	3,347	$	1,167	$	981	$	605	$	—	$	17,039
Special Mention	1,085		614		130		60		—		—		—		1,889
Substandard	—		—		464		111		12		26		—		613
Doubtful	—		—		—		96		—		—		—		96
Total	$	8,714	$	3,924	$	3,941	$	1,434	$	993	$	631	$	—	$	19,637

Total Commercial Loans
Risk rating
Pass	$	743,423	$	739,784	$	690,176	$	341,750	$	175,903	$	419,793	$	604,663	$	3,715,492
Special Mention	1,984		4,275		6,145		6,678		16,063		23,880		25,686		84,711
Substandard	10,219		2,694		6,732		3,927		3,668		14,474		27,231		68,945
Doubtful	—		—		3		173		2,021		763		192		3,152
Total	$	755,626	$	746,753	$	703,056	$	352,528	$	197,655	$	458,910	$	657,772	$	3,872,300

(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.

Park considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential and consumer loan classes, Park also evaluates credit quality based on the aging status of the loan, which was previously presented, and by performing status. The following tables present the amortized cost in residential and consumer loans based on performing status. As previously mentioned, the adoption of ASU 2022-02 on January 1, 2023 eliminated the concept of TDRs. After the adoption of ASU 2022-02 on January 1, 2023, nonperforming loans consisted of nonaccrual loans and loans past due 90 days or more and still accruing. Prior to the adoption of ASU 2022-02, nonperforming loans consisted of nonaccrual loans, accruing TDRs and loans past due 90 days or more and still accruing.

March 31, 2023	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial, financial and agricultural: Overdrafts
Performing	$	1,831	$	—	$	—	$	—	$	—	$	—	$	—	$	1,831
Nonperforming	—		—		—		—		—		—		—		—
Total	$	1,831	$	—	$	—	$	—	$	—	$	—	$	—	$	1,831
Current period gross write offs	$	297	$	—	$	—	$	—	$	—	$	—	$	—	$	297

Construction Real Estate: Retail
Performing	$	6,050	$	79,178	$	17,718	$	5,986	$	4,121	$	3,948	$	74	$	117,075
Nonperforming	—		—		—		—		—		—		—		—
Total	$	6,050	$	79,178	$	17,718	$	5,986	$	4,121	$	3,948	$	74	$	117,075
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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March 31, 2023	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Residential Real Estate: Mortgage
Performing	$	29,761	$	208,136	$	229,318	$	189,929	$	87,938	$	333,511	$	—	$	1,078,593
Nonperforming	—		835		597		939		549		8,259		—		11,179
Total	$	29,761	$	208,971	$	229,915	$	190,868	$	88,487	$	341,770	$	—	$	1,089,772
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	20	$	—	$	20

Residential Real Estate: HELOC
Performing	$	—	$	140	$	299	$	71	$	137	$	2,120	$	160,728	$	163,495
Nonperforming	—		—		—		—		99		787		275		1,161
Total	$	—	$	140	$	299	$	71	$	236	$	2,907	$	161,003	$	164,656
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	9	$	—	$	9

Residential Real Estate: Installment
Performing	$	74	$	180	$	—	$	7	$	213	$	3,466	$	—	$	3,940
Nonperforming	—		—		—		—		—		47		—		47
Total	$	74	$	180	$	—	$	7	$	213	$	3,513	$	—	$	3,987
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer: Consumer
Performing	$	146,771	$	778,177	$	422,523	$	299,815	$	129,981	$	109,603	$	9,349	$	1,896,219
Nonperforming	—		660		459		314		250		496		—		2,179
Total	$	146,771	$	778,837	$	422,982	$	300,129	$	130,231	$	110,099	$	9,349	$	1,898,398
Current period gross write offs	$	8	$	600	$	588	$	314	$	195	$	142	$	—	$	1,847

Consumer: GFSC
Performing	$	—	$	—	$	—	$	30	$	40	$	21	$	41	$	132
Nonperforming	—		—		—		—		8		—		—		8
Total	$	—	$	—	$	—	$	30	$	48	$	21	$	41	$	140
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer: Check loans
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	2,071	$	2,071
Nonperforming	—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	2,071	$	2,071
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	10	$	10

Total Consumer Loans
Performing	$	184,487	$	1,065,811	$	669,858	$	495,838	$	222,430	$	452,669	$	172,263	$	3,263,356
Nonperforming	—		1,495		1,056		1,253		906		9,589		275		14,574
Total	$	184,487	$	1,067,306	$	670,914	$	497,091	$	223,336	$	462,258	$	172,538	$	3,277,930
Current period gross write offs	$	305	$	600	$	588	$	314	$	195	$	171	$	10	$	2,183

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December 31, 2022	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial, financial and agricultural: Overdrafts
Performing	$	1,489	$	—	$	—	$	—	$	—	$	—	$	—	$	1,489
Nonperforming	—		—		—		—		—		—		—		—
Total	1,489		$	—	$	—	$	—	$	—	$	—	$	—	$	1,489

Construction Real Estate: Retail
Performing	$	71,923	$	26,134	$	8,218	$	4,619	$	1,618	$	2,580	$	75	$	115,167
Nonperforming	731		—		523		—		—		12		—		1,266
Total	$	72,654	$	26,134	$	8,741	$	4,619	$	1,618	$	2,592	$	75	$	116,433

Residential Real Estate: Mortgage
Performing	$	207,093	$	227,131	$	192,904	$	90,014	$	55,648	$	286,464	$	—	$	1,059,254
Nonperforming	—		—		700		650		518		14,324		—		16,192
Total	$	207,093	$	227,131	$	193,604	$	90,664	$	56,166	$	300,788	$	—	$	1,075,446

Residential Real Estate: HELOC
Performing	$	140	$	299	$	23	$	130	$	141	$	1,957	$	163,134	$	165,824
Nonperforming	—		—		43		100		—		999		185		1,327
Total	$	140	$	299	$	66	$	230	$	141	$	2,956	$	163,319	$	167,151

Residential Real Estate: Installment
Performing	$	187	$	—	$	1	$	241	$	62	$	2,512	$	—	$	3,003
Nonperforming	—		—		7		2		16		1,063		—		1,088
Total	$	187	$	—	$	8	$	243	$	78	$	3,575	$	—	$	4,091

Consumer: Consumer
Performing	$	823,484	$	462,014	$	333,336	$	150,237	$	61,174	$	65,612	$	4,315	$	1,900,172
Nonperforming	440		489		424		355		157		520		—		2,385
Total	$	823,924	$	462,503	$	333,760	$	150,592	$	61,331	$	66,132	$	4,315	$	1,902,557

Consumer: GFSC
Performing	$	—	$	—	$	55	$	111	$	45	$	2	$	51	$	264
Nonperforming	—		—		—		10		—		—		—		10
Total	$	—	$	—	$	55	$	121	$	45	$	2	$	51	$	274

Consumer: Check loans
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	2,150	$	2,150
Nonperforming	—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	2,150	$	2,150

Total Consumer Loans
Performing	$	1,104,316	$	715,578	$	534,537	$	245,352	$	118,688	$	359,127	$	169,725	$	3,247,323
Nonperforming	1,171		489		1,697		1,117		691		16,918		185		22,268
Total	$	1,105,487	$	716,067	$	536,234	$	246,469	$	119,379	$	376,045	$	169,910	$	3,269,591

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Loans and Leases Acquired with Deteriorated Credit Quality

In conjunction with the NewDominion acquisition, Park acquired loans with a book value of $277.9 million as of the July 1, 2018 acquisition date. These loans were recorded at the initial fair value of $272.8 million. Loans acquired with deteriorated credit quality (ASC 310-30) with a book value of $5.1 million were recorded at the initial fair value of $4.9 million. In conjunction with the Carolina Alliance acquisition, Park acquired loans and leases with a book value of $589.7 million as of the April 1, 2019 acquisition date. These loans and leases were recorded at the initial fair value of $578.6 million. Loans and leases acquired with deteriorated credit quality (ASC 310-30) with a book value of $19.9 million were recorded at the initial fair value of $18.4 million.

Upon adoption of CECL on January 1, 2021, $52,000 of the credit discount on PCD loans was reclassified to the allowance for credit losses. PCD loans are individually evaluated on a quarterly basis to determine if a specific reserve is necessary. At March 31, 2023 and December 31, 2022, there was no allowance for credit losses on PCD loans. The carrying amount of loans acquired with deteriorated credit quality at March 31, 2023 and December 31, 2022 was $4.6 million and $4.7 million, respectively.

Modifications to Borrowers Experiencing Financial Difficulty

Management identifies loans as modifications to borrowers experiencing financial difficulty when a borrower is experiencing financial difficulties and Park has altered the cash flow of the the loan as part of a modification or in the loan renewal process. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of the borrower's debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy. Park modifies loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate adjustments.

In some cases, Park provides multiple types of modifications on one loan. Typically, one type of modification, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another modification, such as principal forgiveness, may be granted. For the loans included in the combination columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate adjustment.

The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. As a result, the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses and a change to the allowance for credit losses is generally not recorded upon modification. When principal forgiveness is provided, the amount of forgiveness is charged off against the allowance for credit losses.

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The following table presents the amortized cost basis of loans at March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2023 by class of and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below.

	March 31, 2023
(In thousands)	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Adjustment		Combination Term Extension and Interest Rate Adjustment		Total		Percent of Total Class of Financing Receivable
Commercial, financial and agricultural:
Commercial, financial and agricultural	$	—	$	—	$	3,104	$	—	$	—	$	3,104	0.25	%
PPP loans	—		—		—		—		—		—		—	%
Overdrafts	—		—		—		—		—		—		—	%
Commercial real estate	—		—		—		—		—		—		—	%
Construction real estate:
Commercial	—		—		988		—		—		988		0.57	%
Retail	—		—		—		—		—		—		—	%
Residential real estate:
Commercial	—		—		150		—		13		163		0.03	%
Mortgage	—		—		—		—		—		—		—	%
HELOC	—		—		—		—		—		—		—	%
Installment	—		—		—		—		64		64		1.61	%
Consumer:
Consumer	—		—		—		15		—		15		—	%
GFSC	—		—		—		—		—		—		—	%
Check loans	—		—		—		—		—		—		—	%
Leases	—		—		—		—		—		—		—	%
Total	$	—	$	—	$	4,242	$	15	$	77	$	4,334	0.06	%

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Park has committed to lend additional amounts totaling $1.7 million to the borrowers included in the previous table as of March 31, 2023.

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended March 31, 2023:

	Principal Forgiveness		Weighted Average Interest Rate Adjustment		Weighted Average Term Extension (years)
Commercial, financial and agricultural:
Commercial, financial and agricultural	$	—	—	%	0.3
PPP loans	—		—	%	0.0
Overdrafts	—		—	%	0.0
Commercial real estate	—		—	%	0.0
Construction real estate:
Commercial	—		—	%	0.2
Retail	—		—	%	0.0
Residential real estate:
Commercial	—		1.43	%	0.5
Mortgage	—		—	%	0.0
HELOC	—		—	%	0.0
Installment	—		(1.13)	%	10.0
Consumer:
Consumer	—		(4.19)	%	0.0
GFSC	—		—	%	0.0
Check loans	—		—	%	0.0
Leases	—		—	%	0.0
Total	$	—	(1.26)	%	0.4

Park closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. There were no loans modified to borrowers experiencing financial difficulty that had been modified during the three months ended March 31, 2023 that were greater than 30 days past due as of March 31, 2023. Additionally, there were no loans that had a payment default during the three months ended March 31, 2023 and were modified to borrowers experiencing financial difficulty in the three months prior to that default.

Upon the determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amounts.

Note 6 – Allowance for Credit Losses

The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors.

During the first quarter of 2023, Park adopted ASU 2022-02. This standard was adopted using a modified retrospective transition method on January 1, 2023, resulting in a $383,000 increase to the ACL. A cumulative effect adjustment resulting in a $303,000 decrease to retained earnings was also recorded as a result of the adoption of ASU 2022-02.

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Quantitative Considerations

The ACL is primarily calculated utilizing a DCF model. Key inputs and assumptions used in this model are discussed below:

•Forecast model - For each portfolio segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized Park's own FFIEC Call Report data for the commercial, financial and agricultural and residential real estate portfolio segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer portfolio segments. Park updated the LDA in the fourth quarter of 2022 with data through September 30, 2022. After considering the impact of the inclusion of periods impacted by COVID, as well as analysis of the ongoing applicability of the selected peer group, management decided it was appropriate to continue to utilize the LDA analysis from the fourth quarter of 2019 as the correlation of the LDA was higher.

•Probability of default – PD is the probability that an asset will be in default within a given time frame. Park has defined default to be when a charge-off has occurred, a loan is placed on nonaccrual, or a loan is greater than 90 days past due. Whenever possible, Park utilizes its own loan-level PDs for the reasonable and supportable forecast period. When loan-level data is not available reflecting the forecasted economic conditions, a forecast model is utilized to estimate PDs.

•Loss given default – LGD is the percentage of the asset not expected to be collected due to default. Whenever possible, Park utilizes its own loan-level LGDs for the reasonable and supportable forecast period. When it is not possible to use Park's own LGDs, the LGD is derived using a method referred to as Frye Jacobs.

•Prepayments and curtailments – Prepayments and curtailments are calculated based on Park’s own data utilizing a three-year average. This analysis is updated annually in the fourth quarter and was last updated in the fourth quarter of 2022.

•Forecast and reversion – Park has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.

•Economic forecast - Park utilizes a third party to provide economic forecasts under various scenarios, which are weighted in order to reflect model risk in the current economic environment. The scenario weighting is evaluated by management on a quarterly basis.

◦As of December 31, 2022, the "most likely" scenario forecasted Ohio unemployment between 4.14% and 4.36% during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2022, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued high level of inflation, historically low consumer confidence, rising interest rates, geopolitical conflict (including the conflict between Russia and Ukraine), and workforce and supply chain challenges continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2022.

◦As of March 31, 2023, the "most likely" scenario forecasted Ohio unemployment between 4.15% and 4.51% during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2023, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued high level of inflation, historically low consumer confidence, rising interest rates, financial system stress related to recent bank failures, geopolitical conflict, and workforce challenges continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at March 31, 2023.

Qualitative Considerations

Park reviews various internal and external factors to consider the need for any qualitative adjustments to the quantitative model. Factors considered include the following:

•The nature and volume of Park’s financial assets; the existence, growth, and effect of any concentrations of credit and the volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets. Specifically, management considers:

◦Trends (e.g., growth, reduction) in specific categories of the loan portfolio, as well as adjustments to the types of loans offered by Park.

◦Level of and trend in loan delinquencies, troubled loans, commercial watch list loans and nonperforming loans.

◦Level of and trend in new nonaccrual loans.

◦Level of and trend in loan charge-offs and recoveries.

•Park's lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, write-offs, and recoveries.

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•The quality of Park’s credit review function.

•The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff.

•The effect of other external factors such as the regulatory, legal and technological environments; competition; geopolitical conflict; and events such as natural disasters or pandemics.

•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in the markets in which Park operates that affect the collectibility of financial assets.

•Where the U.S. economy is within a given credit cycle.

•The extent that there is government assistance (stimulus).

As of March 31, 2023 and December 31, 2022, Park had $3.4 million and $4.2 million, respectively, of PPP loans which were included in the commercial, financial and agricultural portfolio segment. These loans are guaranteed by the SBA and thus have not been reserved for using the same methodology as the rest of Park’s loan portfolio. A 10 basis point reserve at both March 31, 2023 and December 31, 2022 was calculated for these loans to reflect minimal credit risk.

ACL Activity

The activity in the ACL for the three-month periods ended March 31, 2023 and March 31, 2022 is summarized in the following tables:

	Three Months Ended March 31, 2023
(In thousands)	Commercial, financial and agricultural		Commercial real estate		Construction real estate		Residential real estate		Consumer		Leases		Total
ACL:
Beginning balance	$	16,987	$	17,829	$	5,550	$	16,831	$	28,021	$	161	$	85,379
Impact of Adoption of ASU 2022-02	222		181		—		(20)		—		—		383
Charge-offs	349		—		—		29		1,857		—		2,235
Recoveries	46		232		496		357		1,105		—		2,236
Net charge-offs/(recoveries)	$	303	$	(232)	$	(496)	$	(328)	$	752	$	—	$	(1)
(Recovery of) provision for credit losses	(334)		(296)		(684)		750		784		(37)		183
Ending balance	$	16,572	$	17,946	$	5,362	$	17,889	$	28,053	$	124	$	85,946

 

	Three Months Ended March 31, 2022
(In thousands)	Commercial, financial and agricultural		Commercial real estate		Construction real estate		Residential real estate		Consumer		Leases		Total
ACL:
Beginning balance	$	14,025	$	25,466	$	5,758	$	11,424	$	26,286	$	238	$	83,197
Charge-offs	190		—		—		35		1,116		6		1,347
Recoveries	118		48		501		32		917		—		1,616
Net charge-offs/(recoveries)	$	72	$	(48)	$	(501)	$	3	$	199	$	6	$	(269)
(Recovery of) provision for credit losses	(665)		(1,783)		(2,029)		163		(290)		(1)		(4,605)
Ending balance	$	13,288	$	23,731	$	4,230	$	11,584	$	25,797	$	231	$	78,861

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ACL Summary

Loans collectively evaluated for impairment in the following tables include all performing loans at March 31, 2023 and December 31, 2022, as well as nonperforming loans internally classified as consumer loans. Nonperforming consumer loans are not typically individually evaluated for impairment, but receive a portion of the statistical allocation of the ACL. Loans individually evaluated for impairment include all internally classified commercial nonaccrual loans at March 31, 2023 and all internally classified commercial nonaccrual loans and TDRs at December 31, 2022, which are individually evaluated for impairment in accordance with U.S. GAAP (see Note 1 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 2022 Form 10-K).

The composition of the ACL at March 31, 2023 and at December 31, 2022 was as follows:

 

	March 31, 2023
(In thousands)	Commercial, financial and agricultural			Commercial real estate			Construction real estate			Residential real estate			Consumer			Leases			Total
ACL:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	4,100		$	216		$	—		$	—		$	—		$	2		$	4,318
Collectively evaluated for impairment	12,472			17,730			5,362			17,889			28,053			122			81,628
Acquired with deteriorated credit quality	—			—			—			—			—			—			—
Total ending allowance balance	$	16,572		$	17,946		$	5,362		$	17,889		$	28,053		$	124		$	85,946
Loan balance:
Loans individually evaluated for impairment	$	38,955		$	15,477		$	1,997		$	2,338		$	—		$	617		$	59,384
Loans collectively evaluated for impairment	1,222,943			1,781,941			288,095			1,818,475			1,900,609			17,855			7,029,918
Loans acquired with deteriorated credit quality	83			3,460			651			361			—			—			4,555
Total ending loan balance	$	1,261,981		$	1,800,878		$	290,743		$	1,821,174		$	1,900,609		$	18,472		$	7,093,857
ACL as a percentage of loan balance:
Loans individually evaluated for impairment	10.52		%	1.40		%	—		%	—		%	—		%	0.32		%	7.27		%
Loans collectively evaluated for impairment	1.02		%	0.99		%	1.86		%	0.98		%	1.48		%	0.68		%	1.16		%
Loans acquired with deteriorated credit quality	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Total	1.31		%	1.00		%	1.84		%	0.98		%	1.48		%	0.67		%	1.21		%

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	December 31, 2022
(In thousands)	Commercial, financial and agricultural			Commercial real estate			Construction real estate			Residential real estate			Consumer			Leases			Total
ACL:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	3,426		$	131		$	—		$	—		$	—		$	9		$	3,566
Collectively evaluated for impairment	13,561			17,698			5,550			16,831			28,021			152			81,813
Acquired with deteriorated credit quality	—			—			—			—			—			—			—
Total ending allowance balance	$	16,987		$	17,829		$	5,550		$	16,831		$	28,021		$	161		$	85,379
Loan balance:
Loans individually evaluated for impairment	$	41,307		$	32,423		$	1,712		$	2,191		$	—		$	708		$	78,341
Loans collectively evaluated for impairment	1,259,524			1,758,118			323,043			1,794,302			1,904,981			18,929			7,058,897
Loans acquired with deteriorated credit quality	102			3,513			660			378			—			—			4,653
Total ending loan balance	$	1,300,933		$	1,794,054		$	325,415		$	1,796,871		$	1,904,981		$	19,637		$	7,141,891
ACL as a percentage of loan balance:
Loans individually evaluated for impairment	8.29		%	0.40		%	—		%	—		%	—		%	1.27		%	4.55		%
Loans collectively evaluated for impairment	1.08		%	1.01		%	1.72		%	0.94		%	1.47		%	0.80		%	1.16		%
Loans acquired with deteriorated credit quality	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Total	1.31		%	0.99		%	1.71		%	0.94		%	1.47		%	0.82		%	1.20		%

Note 7 – Loans Held For Sale

Mortgage loans held for sale are carried at their fair value. At both March 31, 2023 and December 31, 2022, Park had $2.1 million in mortgage loans held for sale. These amounts are included in loans on the Consolidated Condensed Balance Sheets and in the residential real estate loan portfolio segment in Note 5 - Loans, and Note 6 - Allowance for Credit Losses. The contractual balance was $2.0 million and $2.1 million at March 31, 2023 and December 31, 2022, respectively. The gain expected upon sale was $32,000 and $41,000 at March 31, 2023 and December 31, 2022, respectively. None of these loans were 90 days or more past due or on nonaccrual status at March 31, 2023 or December 31, 2022.

Note 8 – Goodwill and Other Intangible Assets

The following table shows the activity in goodwill and other intangible assets for the three-month periods ended March 31, 2023 and 2022.

(in thousands)	Goodwill		Other intangible assets		Total
December 31, 2021	$	159,595	$	7,462	$	167,057
Amortization	—		402		402
March 31, 2022	$	159,595	$	7,060	$	166,655
December 31, 2022	$	159,595	$	5,975	$	165,570
Amortization	—		327		327
March 31, 2023	$	159,595	$	5,648	$	165,243

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Park evaluates goodwill for impairment during the second quarter of each year, with financial data as of the immediately prior March 31. Based on the qualitative analysis performed as of April 1, 2022, the Company determined that goodwill for Park's reporting unit, PNB, was not impaired.

Acquired Intangible Assets

The following table shows the balance of acquired intangible assets at March 31, 2023 and at December 31, 2022.

	March 31, 2023				December 31, 2022
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Other intangible assets:
Core deposit intangible assets	$	14,456	$	8,808	$	14,456	$	8,481
Trade name intangible assets	1,300		1,300		1,300		1,300
Total	$	15,756	$	10,108	$	15,756	$	9,781

Core deposit intangible assets are being amortized, on an accelerated basis, over a period of ten years. Aggregate amortization expense was $327,000 and $402,000 for the three months ended March 31, 2023 and 2022, respectively.

Estimated amortization expense related to core deposit intangible assets for each of the next five years follows:

(in thousands)	Total
Nine months ending December 31, 2023	$	995
2024	1,215
2025	1,042
2026	887
2027	754

Note 9 – Investment in Qualified Affordable Housing

Park makes certain equity investments in various limited partnerships that sponsor affordable housing projects. The purposes of these investments are to achieve a satisfactory return on capital, help create affordable housing opportunities, and assist the Company to achieve its goals associated with the Community Reinvestment Act.

The table below details the balances of Park’s affordable housing tax credit investments and related unfunded commitments at March 31, 2023 and December 31, 2022.

(in thousands)	March 31, 2023		December 31, 2022
Affordable housing tax credit investments	$	58,871	$	60,968
Unfunded commitments	26,723		28,132

Commitments are funded when capital calls are made by the general partner. Park expects that the current commitments will be funded between the remainder of 2023 through 2032.

Park recognized amortization expense of $2.1 million and $2.0 million, respectively, for the three months ended March 31, 2023 and 2022, which was included within the provision for income taxes. Additionally, during the three months ended March 31, 2023 and 2022, Park recognized tax credits and other benefits from its affordable housing tax credit investments of $2.4 million and $2.8 million, respectively, which were included within the provision for income taxes.

Note 10 – Foreclosed and Repossessed Assets

Park typically transfers a loan to OREO at the time that Park takes deed/title to the real estate property asset. The carrying amounts of foreclosed real estate properties held at March 31, 2023 and December 31, 2022 are listed below, as well as the

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recorded investment of loans secured by residential real estate properties for which formal foreclosure proceedings were in process at those dates.

(in thousands)	March 31, 2023		December 31, 2022
OREO:
Commercial real estate	$	1,354	$	1,354
Residential real estate	114		—
Total OREO	$	1,468	$	1,354
Loans in process of foreclosure:
Residential real estate	$	1,709	$	1,614

In addition to real estate, Park may also repossess different types of collateral. At March 31, 2023 and December 31, 2022, Park had $0.7 million and $0.6 million, respectively, in other repossessed assets which are included in "Other assets" on the Consolidated Condensed Balance Sheets.

Note 11 – Loan Servicing

Park serviced sold mortgage loans of $2.02 billion at March 31, 2023, $2.05 billion at December 31, 2022 and $2.14 billion at March 31, 2022. At March 31, 2023, $3.2 million of the sold mortgage loans were sold with recourse, compared to $3.2 million at December 31, 2022 and $3.4 million at March 31, 2022. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. At March 31, 2023 and December 31, 2022, management had established reserves of $56,000 and $59,000, respectively, to account for expected losses on loan repurchases.

When Park sells mortgage loans with servicing rights retained, these servicing rights are initially recorded at fair value. Park has selected the “amortization method” as permissible within U.S. GAAP, whereby the servicing rights capitalized are amortized in proportion to and over the period of estimated future servicing income with respect to the underlying loan. At the end of each reporting period, the carrying value of MSRs is assessed for impairment with a comparison to fair value. MSRs are carried at the lower of their amortized cost or fair value. The amortization of MSRs is included within "Other service income" in the Consolidated Condensed Statements of Income.

Activity for MSRs and the related valuation allowance follows:

 

	Three Months Ended March 31,
(In thousands)	2023		2022
Mortgage servicing rights:
Carrying amount, net, beginning of period	$	15,792	$	15,264
Additions	124		626
Amortization	(425)		(628)
Change in valuation allowance	14		442
Carrying amount, net, end of period	$	15,505	$	15,704
Valuation allowance:
Beginning of period	$	182	$	1,568
Change in valuation allowance	(14)		(442)
End of period	$	168	$	1,126

Servicing fees included in "Other service income" were $1.3 million and $1.4 million for the three months ended March 31, 2023 and 2022, respectively.

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Note 12 - Leases

Park is a lessee in several noncancellable operating lease arrangements, primarily for retail branches, administrative and warehouse buildings, ATMs, and certain office equipment within its Ohio, North Carolina, South Carolina, and Kentucky markets. Certain of these leases contain renewal options for periods ranging from one to five years. Park’s leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. Payments due under the lease arrangements include fixed payments plus, for many of Park’s real estate leases, variable payments such as Park's proportionate share of property taxes, insurance and common area maintenance.

Park's operating lease ROU asset and lease liability are presented in “Operating lease right-of-use asset" and "Operating lease liability," respectively, on Park's Consolidated Condensed Balance Sheets. The carrying amounts of Park's ROU asset and lease liability at March 31, 2023 were $17.2 million and $18.7 million, respectively. At December 31, 2022, the carrying amounts of Park's ROU asset and lease liability were $17.6 million and $19.3 million, respectively. Park's operating lease expense is recorded in "Occupancy expense" on the Company's Consolidated Condensed Statements of Income.

Other information related to operating leases for the three-month periods ended March 31, 2023 and 2022 follows:

	Three Months Ended
(in thousands)	March 31, 2023		March 31, 2022
Lease cost
Operating lease cost	$	732	$	724
Sublease income	(63)		(63)
Total lease cost	$	669	$	661
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	923	$	773
ROU assets obtained in exchange for new operating lease liabilities	$	136	$	—
Reductions to ROU assets resulting from reductions to lease obligations	$	(777)	$	(698)

At both March 31, 2023 and December 31, 2022, Park's operating leases had a weighted average remaining term of 10.0 years. The weighted average discount rate of Park's operating leases was 3.3% at both March 31, 2023 and December 31, 2022.

Undiscounted cash flows included in lease liabilities have expected contractual payments as follows:

(in thousands)	March 31, 2023
Nine months ending December 31, 2023	$	2,713
2024	2,523
2025	2,180
2026	2,132
2027	2,030
Thereafter	11,020
Total undiscounted minimum lease payments	$	22,598
Present value adjustment	(3,947)
Total lease liabilities	$	18,651

Note 13 – Repurchase Agreement Borrowings

Securities sold under agreements to repurchase ("repurchase agreements") with customers represent funds deposited by customers, generally on an overnight basis, that are collateralized by investment securities owned by Park. Repurchase agreements with customers are included in "Short-term borrowings" on the Consolidated Condensed Balance Sheets.

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All repurchase agreements are subject to terms and conditions of repurchase/security agreements between Park and the client and are accounted for as secured borrowings. Park's repurchase agreements consist of customer accounts and securities which are pledged on an individual security basis.

At March 31, 2023 and December 31, 2022, Park's repurchase agreement borrowings totaled $172.1 million and $227.3 million, respectively. These borrowings were collateralized with U.S. Government sponsored entities' asset-backed securities with a fair value of $304.8 million and $313.1 million at March 31, 2023 and December 31, 2022, respectively. Declines in the value of the collateral would require Park to pledge additional securities. As of March 31, 2023 and December 31, 2022, Park had $1,150 million and $1,147 million, respectively, of available unpledged securities.

The table below shows the remaining contractual maturity of repurchase agreements by collateral pledged at March 31, 2023 and December 31, 2022:

	March 31, 2023
(in thousands)	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
U.S. government and agency securities	$	172,058	$	—	$	—	$	—	$	172,058
	December 31, 2022
(in thousands)	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
U.S. government and agency securities	$	227,342	$	—	$	—	$	—	$	227,342

Note 14 - Derivatives

Park uses certain derivative financial instruments (or "derivatives") to meet the needs of Park's clients while managing the interest rate risk associated with certain transactions. Park does not use derivatives for speculative purposes. A summary of derivative financial instruments utilized by Park follows.

Interest Rate Swaps

Park utilizes interest rate swap agreements as part of its asset-liability management strategy to help manage its interest rate risk position and as a means to meet the financing, interest rate and other risk management needs of qualifying commercial banking customers. The notional amount of the interest rate swaps does not represent the amount exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

Borrowing Derivatives: At March 31, 2023 and December 31, 2022, Park had no borrowing derivatives. During the three-month period ended March 31, 2022, Park recognized interest expense of $148,000 related to borrowing swaps. Additionally, during the three-month period ended March 31, 2022, Park recognized a gain of $139,000, net of income taxes, related to borrowing swaps that was recorded in "Other comprehensive income (loss)" on the Consolidated Condensed Statements of Comprehensive Income.

Loan Derivatives: In conjunction with the Carolina Alliance acquisition, Park acquired interest rate swaps related to certain commercial loans. Simultaneously with borrowers entering into interest rate swaps, Carolina Alliance entered into offsetting interest rate swaps executed with a third party, such that Carolina Alliance minimized its net interest rate risk exposure resulting from such transactions. These interest rate swaps had a notional amount totaling $21.3 million and $21.7 million at March 31, 2023 and December 31, 2022, respectively.

All of the Company's interest rate swaps were determined to be fully effective during each of the three-month periods ended March 31, 2023 and March 31, 2022. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in "Other assets" and "Other liabilities" with changes in fair value recorded in "Other comprehensive income (loss)". The amount included in "Accumulated other comprehensive loss, net of tax" would be

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reclassified to net income should the hedges no longer be considered effective. Park expects the outstanding hedges to remain fully effective during the remaining respective terms of the swaps.

Summary information about Park's interest rate swaps at March 31, 2023 and at December 31, 2022 follows:

	March 31, 2023			December 31, 2022
(In thousands, except weighted average data)	Loan Derivatives			Loan Derivatives
Notional amounts	$	21,277		$	21,700
Weighted average pay rates	4.555		%	4.553		%
Weighted average receive rates	4.555		%	4.553		%
Weighted average maturity (years)	7.7			7.9
Unrealized losses	$	—		$	—

Interest Rate Swaps

The following table reflects the interest rate swaps included in the Consolidated Condensed Balance Sheets at March 31, 2023 and at December 31, 2022.

(In thousands)	March 31, 2023				December 31, 2022
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in "Other assets":
Loan derivatives - instruments associated with loans
Matched interest rate swaps with borrower	$	—	$	—	$	—	$	—
Matched interest rate swaps with counterparty	21,277		1,119		21,700		1,508
Total included in "Other assets"	$	21,277	$	1,119	$	21,700	$	1,508
Included in "Other liabilities":
Loan derivatives - instruments associated with loans
Matched interest rate swaps with borrower	$	21,277	$	(1,119)	$	21,700	$	(1,508)
Matched interest rate swaps with counterparty	—		—		—		—
Total included in "Other liabilities"	$	21,277	$	(1,119)	$	21,700	$	(1,508)

Mortgage Banking Derivatives

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. In order to hedge the change in interest rates resulting from its commitments to fund the loans, the Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into. These mortgage banking derivatives are not designated as hedge relationships. The fair value of an interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Fair values of these mortgage banking derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in "Other service income" in the Condensed Consolidated Statements of Income.

At March 31, 2023 and December 31, 2022, Park had $3.9 million and $2.1 million, respectively, of interest rate lock commitments. The fair value of these mortgage banking derivatives was reflected by a derivative asset of $77,000 and $46,000 at March 31, 2023 and December 31, 2022, respectively.

Other Derivatives

In connection with the sale of Park’s Class B Visa shares during 2009, Park entered into a swap agreement with the purchaser of the shares. The swap agreement adjusts for dilution in the conversion ratio of Class B Visa shares resulting from certain Visa litigation. At March 31, 2023 and December 31, 2022, the fair value of the swap liability of $121,000 and $243,000, respectively, represented an estimate of the exposure based upon probability-weighted potential Visa litigation losses.

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Note 15 – Accumulated Other Comprehensive Loss

Other comprehensive loss components, net of tax, are shown in the following table for the three-month periods ended March 31, 2023 and 2022:

(in thousands)		Changes in pension plan assets and benefit obligations		Unrealized net holding (loss) gain on cash flow hedge		Unrealized (losses) gains on debt securities AFS		Total
Beginning balance at January 1, 2023		$	(6,680)	$	—	$	(95,714)	$	(102,394)
	Other comprehensive income before reclassifications	—		—		12,361		12,361
Net current period other comprehensive income		—		—		12,361		12,361
Ending balance at March 31, 2023		$	(6,680)	$	—	$	(83,353)	$	(90,033)
Beginning balance at January 1, 2022		$	(5,792)	$	(206)	$	21,153	$	15,155
	Other comprehensive income (loss) before reclassifications	—		139		(55,763)		(55,624)
Net current period other comprehensive income (loss)		—		139		(55,763)		(55,624)
Ending balance at March 31, 2022		$	(5,792)	$	(67)	$	(34,610)	$	(40,469)

During the three-month periods ended March 31, 2023 and 2022, there were no reclassifications out of accumulated other comprehensive loss.

Note 16 – Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2023 and 2022.

 

	Three Months Ended March 31,
(In thousands, except share and per common share data)	2023		2022
Numerator:
Net income	$	33,733	$	38,875
Denominator:
Weighted-average common shares outstanding	16,242,353		16,219,889
Effect of dilutive PBRSUs and TBRSUs	82,470		111,142
Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs	16,324,823		16,331,031
Earnings per common share:
Basic earnings per common share	$	2.08	$	2.40
Diluted earnings per common share	$	2.07	$	2.38

Park awarded 54,698 PBRSUs and 52,335 PBRSUs to certain employees during the three months ended March 31, 2023 and 2022, respectively.

Park repurchased an aggregate of 124,000 common shares during the three months ended March 31, 2023, to fund the PBRSUs, the TBRSUs and the common shares to be awarded to directors of Park and to directors of Park's subsidiary PNB (and its divisions). These repurchases were made pursuant to Park's previously announced stock repurchase authorizations. No common shares were repurchased during the three months ended March 31, 2022.

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Note 17 – Segment Information

The Corporation is a financial holding company headquartered in Newark, Ohio. The reportable segment for the Corporation is its chartered national bank subsidiary, PNB (headquartered in Newark, Ohio). "All Other", which primarily consists of Park as the "Parent Company", GFSC and SEPH, is shown to reconcile the segment totals to the Consolidated Condensed Statements of Income.

Management is required to disclose information about the different types of business activities in which a company engages and also information on the different economic environments in which a company operates, so that the users of the financial statements can better understand the company’s performance, better understand the potential for future cash flows, and make more informed judgments about the company as a whole. Park has one reportable segment, as: (i) discrete financial information is available for this reportable segment and (ii) the segment is aligned with internal reporting to Park’s Chief Executive Officer, who is the chief operating decision-maker.

	Operating Results for the three months ended March 31, 2023
(In thousands)	PNB		All Other		Total
Net interest income (expense)	$	93,589	$	(1,391)	$	92,198
Provision for (recovery of) credit losses	915		(732)		183
Other income	24,262		125		24,387
Other expense	72,997		3,506		76,503
Income (loss) before income taxes	$	43,939	$	(4,040)	$	39,899
Income tax expense (benefit)	7,670		(1,504)		6,166
Net income (loss)	$	36,269	$	(2,536)	$	33,733
Assets (at March 31, 2023)	$	9,817,967	$	39,014	$	9,856,981

 

	Operating Results for the three months ended March 31, 2022
(In thousands)	PNB		All Other		Total
Net interest income (expense)	$	79,372	$	(1,686)	$	77,686
Recovery of credit losses	(4,547)		(58)		(4,605)
Other income	31,247		409		31,656
Other expense	64,216		3,157		67,373
Income (loss) before income taxes	$	50,950	$	(4,376)	$	46,574
Income tax expense (benefit)	9,482		(1,783)		7,699
Net income (loss)	$	41,468	$	(2,593)	$	38,875
Assets (at March 31, 2022)	$	9,544,545	$	31,807	$	9,576,352

The operating results in the “All Other” column are used to reconcile the segment totals to the Consolidated Condensed Statements of Income for the three-month periods ended March 31, 2023 and 2022. The reconciling amounts for consolidated total assets for the periods ended March 31, 2023 and 2022 consisted of the elimination of intersegment borrowings and the assets of the Parent Company, GFSC and SEPH which were not eliminated.

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Note 18 - Share-Based Compensation

The Park National Corporation 2017 Long-Term Incentive Plan for Employees (the "2017 Employees LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. The 2017 Employees LTIP makes equity-based awards and cash-based awards available for grant to employee participants in the form of incentive stock options, nonqualified stock options, stock appreciation rights ("SARs"), restricted stock, restricted stock units, other stock-based awards and cash-based awards. Under the 2017 Employees LTIP, 750,000 common shares are authorized to be delivered in connection with grants under the 2017 Employees LTIP. The common shares to be delivered under the 2017 Employees LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At March 31, 2023, 320,302 common shares were available for future grants under the 2017 Employees LTIP.

The Park National Corporation 2017 Long-Term Incentive Plan for Non-Employee Directors (the "2017 Non-Employee Directors LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. The 2017 Non-Employee Directors LTIP makes equity-based awards and cash-based awards available for grant to non-employee director participants in the form of nonqualified stock options, SARs, restricted stock, restricted stock units, other stock-based awards, and cash-based awards. Under the 2017 Non-Employee Directors LTIP, 150,000 common shares are authorized to be delivered in connection with grants under the 2017 Non-Employee Directors LTIP. The common shares to be delivered under the 2017 Non-Employee Directors LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At March 31, 2023, 75,000 common shares were available for future grants under the 2017 Non-Employee Directors LTIP.

During the three months ended March 31, 2023 and 2022, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 54,698 common shares and 52,335 common shares, respectively, to certain employees of Park and its subsidiaries.

As of March 31, 2023, Park has nonvested PBRSUs as well as TBRSUs. The number of PBRSUs earned or settled will depend on the level of achievement with respect to certain performance criteria over a three-year period and are also subject to subsequent service-based vesting. The number of TBRSUs earned or settled are subject to service-based vesting.

A summary of changes in the common shares subject to nonvested PBRSUs and TBRSUs for the three months ended March 31, 2023 follows:

	Common shares subject to PBRSUs and TBRSUs
Nonvested at January 1, 2023	199,650
Granted	54,698
Vested	(56,465)
Forfeited	(570)
Adjustment for performance conditions of PBRSUs (1)	—
Nonvested at March 31, 2023 (2)	197,313

(1) The number of PBRSUs earned depends on the level of achievement with respect to certain performance criteria. Adjustment herein, if any, represents the difference between the maximum number of common shares which could be earned and the actual number earned for those PBRSUs as to which the performance period was completed.

(2) Nonvested amount herein represents the maximum number of nonvested PBRSUs and TBRSUs. As of March 31, 2023, an aggregate of 194,287 PBRSUs and TBRSUs were expected to vest.

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A summary of awards vested during the three months ended March 31, 2023 and 2022 follows:

	Three Months Ended March 31,
	2023	2022
PBRSUs and TBRSUs vested	56,465	48,415
Common shares withheld to satisfy employee income tax withholding obligations	21,981	18,658
Net common shares issued	34,484	29,757

Share-based compensation expense of $2.3 million and $2.0 million was recognized for the three-month periods ended March 31, 2023 and 2022, respectively.

The following table details expected additional share-based compensation expense related to PBRSUs and TBRSUs outstanding at March 31, 2023:

(In thousands)
Nine months ending December 31, 2023	$	4,350
2024	4,693
2025	3,076
2026	1,285
2027	206
Total	$	13,610

Note 19 – Benefit Plans

Park has a noncontributory defined benefit pension plan (the "Pension Plan") covering substantially all of its employees. The Pension Plan provides benefits based on an employee’s years of service and compensation.

There were no Pension Plan contributions for either of the three-month periods ended March 31, 2023 and 2022. Additionally, no contributions are expected to be made during the remainder of 2023.

The following table shows the components of net periodic pension benefit (income) expense:

	Three Months Ended March 31,				Affected Line Item in the Consolidated Condensed Statements of Income
(In thousands)	2023		2022
Service cost	$	1,559	$	2,437	Employee benefits
Interest cost	1,631		1,426		Other components of net periodic pension benefit income
Expected return on plan assets	(3,536)		(4,449)		Other components of net periodic pension benefit income
Recognized prior service cost (credit)	12		(4)		Other components of net periodic pension benefit income
Net periodic pension benefit (income) expense	$	(334)	$	(590)

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Park has entered into Supplemental Executive Retirement Plan Agreements (the “SERP Agreements”) with certain key officers of Park and its subsidiaries which provide defined pension benefits in excess of limits imposed by federal tax law. The expense for the Corporation related to the SERP Agreements for the three months ended March 31, 2023 and 2022 was as follows:

	Three Months Ended March 31,				Affected Line Item in the Consolidated Condensed Statements of Income
(In thousands)	2023		2022
Service cost	$	234	$	213	Employee benefits
Interest cost	176		183		Miscellaneous expense
Total SERP expense	$	410	$	396

Note 20 – 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.

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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 March 31, 2023 using:
(In thousands)	Level 1		Level 2		Level 3		Balance at March 31, 2023
Assets
Investment securities:
Obligations of U.S. Government sponsored entities	$	—	$	37,344	$	—	$	37,344
Obligations of states and political subdivisions	—		412,006		—		412,006
U.S. Government sponsored entities’ asset-backed securities	—		730,261		—		730,261
Collateralized loan obligations	—		519,428		—		519,428
Corporate debt securities	—		8,546		6,855		15,401
Equity securities	2,383		—		449		2,832
Mortgage loans held for sale	—		2,076		—		2,076
Mortgage IRLCs	—		77		—		77
Loan interest rate swaps	—		1,119		—		1,119
Liabilities
Fair value swap	$	—	$	—	$	121	$	121
Loan interest rate swaps	—		1,119		—		1,119

 

Fair Value Measurements at December 31, 2022 using:
(In thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2022
Assets
Investment securities:
Obligations of U.S. Government sponsored entities	$	—	$	37,213	$	—	$	37,213
Obligations of states and political subdivisions	—		406,711		—		406,711
U.S. Government sponsored entities’ asset-backed securities	—		756,761		—		756,761
Collateralized loan obligations	—		516,539		—		516,539
Corporate debt securities	—		9,472		7,000		16,472
Equity securities	1,420		—		439		1,859
Mortgage loans held for sale	—		2,149		—		2,149
Mortgage IRLCs	—		46		—		46
Loan interest rate swaps	—		1,508		—		1,508
Liabilities
Fair value swap	$	—	$	—	$	243	$	243
Loan interest rate swaps	—		1,508		—		1,508

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

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).

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).

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.

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

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.

The following tables present a reconciliation of the beginning and ending balances of the Level 3 inputs for the three-month periods ended March 31, 2023 and 2022, for financial instruments measured on a recurring basis and classified as Level 3:

Level 3 Fair Value Measurements
Three months ended March 31, 2023 and 2022
(In thousands)	Corporate Debt Securities		Equity securities		Fair value swap
Balance at January 1, 2023	$	7,000	$	439	$	(243)
Transfers into level 3	622		—		—
Total (losses) / gains
Included in other income	—		10		—
Included in other comprehensive income	(767)		—		—
Purchases, sales, issuances and settlements, other, net	—		—		122
Balance at March 31, 2023	$	6,855	$	449	$	(121)
Balance at January 1, 2022	$	—	$	499	$	(226)
Total losses
Included in other income	—		(8)		—
Balance at March 31, 2022	$	—	$	491	$	(226)

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 specific 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

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management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’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 verification of value ("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.

After the adoption of ASU 2022-02 on January 1, 2023, loans individually evaluated for impairment include all internally classified commercial nonaccrual loans. Prior to the adoption of ASU 2022-02, loans individually evaluated for impairment included all internally classified commercial nonaccrual loans and accruing TDRs.

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 properties.

•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 March 31, 2023 and December 31, 2022, 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 properties are carried at fair value if a devaluation has been taken with respect to the property's value subsequent to the initial measurement.

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At March 31, 2023 and December 31, 2022, there were no OREO properties held by Park that were carried at fair value due to fair value adjustments made subsequent to the initial OREO measurement.

Fair Value Measurements at March 31, 2023 using:
(In thousands)	Level 1		Level 2		Level 3		Balance at March 31, 2023
Individually evaluated collateral dependent loans recorded at fair value:
Commercial real estate	$	—	$	—	$	2,873	$	2,873
Residential real estate	—		—		195		195
Total individually evaluated collateral dependent loans recorded at fair value	$	—	$	—	$	3,068	$	3,068
MSRs	$	—	$	1,793	$	—	$	1,793

 

Fair Value Measurements at December 31, 2022 using:
(In thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2022
Individually evaluated collateral dependent loans recorded at fair value:
Commercial real estate	$	—	$	—	$	5,573	$	5,573
Residential real estate	—		—		200		200
Total individually evaluated collateral dependent loans recorded at fair value	$	—	$	—	$	5,773	$	5,773
MSRs	$	—	$	1,717	$	—	$	1,717

The table below 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.

	March 31, 2023
(In thousands)	Loan Balance		Prior Charge-Offs		Specific Valuation Allowance		Carrying Balance
Total individually evaluated collateral dependent loans recorded at fair value	$	3,284	$	1,293	$	216	$	3,068
Remaining individually evaluated loans	56,100		245		4,102		51,998
Total individually evaluated loans	$	59,384	$	1,538	$	4,318	$	55,066

	December 31, 2022
(In thousands)	Loan Balance		Prior Charge-Offs		Specific Valuation Allowance		Carrying Balance
Total individually evaluated collateral dependent loans recorded at fair value	$	5,903	$	1,523	$	130	$	5,773
Remaining individually evaluated loans	72,438		252		3,436		69,002
Total individually evaluated loans	$	78,341	$	1,775	$	3,566	$	74,775

The (expense) income from credit adjustments related to individually evaluated loans carried at fair value was $(107,000) and $24,000 for the three-month periods ended March 31, 2023 and 2022, respectively.

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MSRs totaled $15.5 million at March 31, 2023. Of this $15.5 million MSR carrying balance, $1.8 million were recorded at fair value and included a valuation allowance of $0.2 million. The remaining $13.7 million were recorded at cost, as the fair value exceeded cost at March 31, 2023. At December 31, 2022, MSRs totaled $15.8 million. Of this $15.8 million MSR carrying balance, $1.7 million were recorded at fair value and included a valuation allowance of $0.2 million. The remaining $14.1 million were recorded at cost, as the fair value exceeded cost at December 31, 2022. The income related to MSRs carried at fair value during the three-month periods ended March 31, 2023 and 2022 was $14,000 and $442,000, respectively.

The following tables present qualitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at March 31, 2023 and December 31, 2022:

March 31, 2023
(In thousands)	Fair Value		Valuation Technique	Unobservable Input(s)	Range (Weighted Average)
Individually evaluated collateral dependent loans:
Commercial real estate	$	2,873	Sales comparison approach	Adj to comparables	3.9% - 202.0% (25.3%)
			Income approach	Capitalization rate	7.5% - 8.5% (8.0%)
Residential real estate	$	195	Sales comparison approach	Adj to comparables	1.2% - 78.6% (7.9%)

December 31, 2022
(In thousands)	Fair Value		Valuation Technique	Unobservable Input(s)	Range (Weighted Average)
Individually evaluated collateral dependent loans:
Commercial real estate	$	5,573	Sales comparison approach	Adj to comparables	0.0% - 202.0% (19.4%)
			Income approach	Capitalization rate	7.0% - 10.0% (7.9%)
			Cost approach	Entrepreneurial profit	10.0% - 12.0% (11.4%)
			Cost approach	Accumulated depreciation	38.8% (38.8%)
Residential real estate	$	200	Sales comparison approach	Adj to comparables	1.9% - 119.8% (17.4%)

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Assets Measured at Net Asset Value:

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

At March 31, 2023 and December 31, 2022, Park had Partnership Investments with a NAV of $24.9 million and $24.4 million, respectively. At March 31, 2023 and December 31, 2022, Park had $19.6 million and $20.3 million, respectively, in unfunded commitments related to these Partnership Investments. For the three-month periods ended March 31, 2023 and 2022, Park recognized (expense) income of $(0.4) million and $2.4 million respectively, related to these Partnership Investments.

The fair value of certain financial instruments at March 31, 2023 and December 31, 2022, was as follows:

	March 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	$	261,919	$	261,919	$	—	$	—	$	261,919
Investment securities (1)	1,714,440		—		1,707,585		6,855		1,714,440
Other investment securities (2)	2,832		2,383		—		449		2,832
Mortgage IRLCs	77		—		77		—		77
Mortgage loans held for sale	2,076		—		2,076		—		2,076
Individually evaluated loans carried at fair value	3,068		—		—		3,068		3,068
Other loans, net	7,002,690		—		—		6,887,490		6,887,490
Loans receivable, net	$	7,007,911	$	—	$	2,153	$	6,890,558	$	6,892,711
Financial liabilities:
Time deposits	$	531,850	$	—	$	531,277	$	—	$	531,277
Other	2,630		2,630		—		—		2,630
Deposits (excluding demand deposits)	$	534,480	$	2,630	$	531,277	$	—	$	533,907
Short-term borrowings	$	172,058	$	—	$	172,058	$	—	$	172,058
Subordinated notes	188,785		—		179,251		—		179,251
Derivative financial instruments - assets:
Loan interest rate swaps	$	1,119	$	—	$	1,119	$	—	$	1,119
Derivative financial instruments - liabilities:
Fair value swap	$	121	$	—	$	—	$	121	$	121
Loan interest rate swaps	1,119		—		1,119		—		1,119

(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.

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	December 31, 2022
			Fair Value Measurements
(In thousands)	Carrying value		Level 1		Level 2		Level 3		Total fair value
Financial assets:
Cash and money market instruments	$	189,728	$	189,728	$	—	$	—	$	189,728
Investment securities (1)	1,733,696		—		1,726,696		7,000		1,733,696
Other investment securities (2)	1,859		1,420		—		439		1,859
Mortgage loans held for sale	2,149		—		2,149		—		2,149
Mortgage IRLCs	46		—		46		—		46
Individually evaluated loans carried at fair value	5,773		—		—		5,773		5,773
Other loans, net	7,048,544		—		—		6,918,326		6,918,326
Loans receivable, net	$	7,056,512	$	—	$	2,195	$	6,924,099	$	6,926,294
Financial liabilities:
Time deposits	$	554,445	$	—	$	552,443	—		$	552,443
Other	1,325		1,325		—		—		1,325
Deposits (excluding demand deposits)	$	555,770	$	1,325	$	552,443	$	—	$	553,768
Short-term borrowings	$	227,342	$	—	$	227,342	$	—	$	227,342
Subordinated notes	188,667		—		177,928		—		177,928
Derivative financial instruments - assets:
Loan interest rate swaps	$	1,508	$	—	$	1,508	$	—	$	1,508
Derivative financial instruments - liabilities:
Fair value swap	$	243	$	—	$	—	$	243	$	243
Loan interest rate swaps	1,508		—		1,508		—		1,508

(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.

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Note 21 - Revenue from Contracts with Customers

All of Park's revenue from contracts with customers within the scope of ASC 606 is recognized within "Other income" in the Consolidated Condensed Statements of Income.

The following table presents the Corporation's sources of other income by revenue stream and operating segment for the three-month periods ended March 31, 2023 and March 31, 2022:

	Three Months Ended March 31, 2023
Revenue by Operating Segment (in thousands)	PNB		All Other		Total
Income from fiduciary activities
Personal trust and agency accounts	$	2,504	$	—	$	2,504
Employee benefit and retirement-related accounts	2,472		—		2,472
Investment management and investment advisory agency accounts	3,162		—		3,162
Other	477		—		477
Service charges on deposit accounts
Non-sufficient funds (NSF) fees	1,061		—		1,061
Demand deposit account (DDA) charges	1,038		—		1,038
Other	142		—		142
Other service income (1)
Credit card	683		—		683
HELOC	89		—		89
Installment	49		—		49
Real estate	1,455		—		1,455
Commercial	286		135		421
Debit card fee income	6,457		—		6,457
Bank owned life insurance income (2)	1,134		51		1,185
ATM fees	533		—		533
Loss on sale of OREO, net	(9)		—		(9)
OREO valuation markup	15		—		15
Loss on equity securities, net (2)	(307)		(98)		(405)
Other components of net periodic pension benefit income (2)	1,857		36		1,893
Miscellaneous (3)	1,164		1		1,165
Total other income	$	24,262	$	125	$	24,387

(1) Of the $2.7 million of aggregate revenue included within "Other service income", approximately $1.4 million is within the scope of ASC 606, with the remaining $1.3 million consisting primarily of certain residential real estate loan fees which are out of scope.

(2) Not within the scope of ASC 606.

(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $1.2 million, all of which are within scope of ASC 606.

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	Three Months Ended March 31, 2022
Revenue by Operating Segment (in thousands)	PNB		All Other		Total
Income from fiduciary activities
Personal trust and agency accounts	$	2,506	$	—	$	2,506
Employee benefit and retirement-related accounts	2,560		—		2,560
Investment management and investment advisory agency accounts	3,260		—		3,260
Other	471		—		471
Service charges on deposit accounts
Non-sufficient funds (NSF) fees	1,417		—		1,417
Demand deposit account (DDA) charges	516		—		516
Other	141		—		141
Other service income (1)
Credit card	642		—		642
HELOC	89		—		89
Installment	43		—		43
Real estate	3,719		—		3,719
Commercial	354		(28)		326
Debit card fee income	6,126		—		6,126
Bank owned life insurance income (2)	1,093		82		1,175
ATM fees	532		—		532
Loss on sale of OREO, net	—		—		—
OREO valuation markup	30		—		30
Gain on equity securities, net (2)	2,219		134		2,353
Other components of net periodic pension benefit income (2)	2,955		72		3,027
Miscellaneous (3)	2,574		149		2,723
Total other income	$	31,247	$	409	$	31,656

(1) Of the $4.8 million of aggregate revenue included within "Other service income", approximately $1.2 million is within the scope of ASC 606, with the remaining $3.6 million consisting primarily of certain residential real estate loan fees which are out of scope.

(2) Not within the scope of ASC 606.

(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $2.7 million, all of which are within scope of ASC 606.

A description of Park's material revenue streams accounted for under ASC 606 follows:

Income from fiduciary activities (gross): Park earns fiduciary fee income and investment brokerage fees from its contracts with trust customers for various fiduciary and investment-related services. These fees are earned over time as the Company provides the contracted monthly and quarterly services and are generally assessed based on the market value of the trust assets.

Service charges on deposit accounts and ATM fees: The Corporation earns fees from the Corporation's deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering fees, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are generally recognized at the end of the month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.

Other service income: Other service income includes income from (1) the sale and servicing of loans sold to the secondary market, (2) incentive income from third-party credit card issuers, and (3) loan customers for various loan-related activities and services. Income related to the sale and servicing of loans sold to the secondary market is included within "Other service income", but is not within the scope of ASC 606. Services that fall within the scope of ASC 606 are recognized as revenue when the Company satisfies the Company's performance obligation to the customer.

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Debit card fee income: Park earns interchange fees from debit cardholder transactions conducted primarily through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, net of card network fees, concurrently with the transaction processing services provided to the cardholder.

Gain or loss on sale of OREO, net: The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of delivery of an executed deed. When Park finances the sale of OREO to the buyer, the Corporation assesses whether the buyer is committed to perform the buyer's obligation under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Corporation adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

OREO valuation markup: The Corporation records an OREO valuation markup immediately prior to the transfer of a loan to OREO when the fair market value of the property less costs to sell exceeds the principal balance of the loan.

Note 22 - Other Matters

On February 28, 2023, Park National Bank reached an agreement with the DOJ to increase the efforts of Park National Bank to promote home lending in the Columbus, Ohio market. The agreement, which is reflected in the consent order filed on February 28, 2023, in the U.S. District Court for the Southern District of Ohio (the “DOJ Consent Order”) and approved by that Court on March 2, 2023, served to voluntarily resolve all claims of the U.S. alleging that Park National Bank’s mortgage lending practices within the Columbus, Ohio Metropolitan Statistical Area violated the Fair Housing Act and the Equal Credit Opportunity Act.

In accordance with the terms of the DOJ Consent Order, Park National Bank will invest a minimum of $7.75 million over five years in a loan subsidy fund to increase credit opportunities for home mortgage loans, home improvement loans, home refinance loans and home equity loans and lines of credit for consumers applying for loans in majority-minority census tracts ("MMCTs") in Fairfield, Franklin, Hocking, Licking, Morrow and Perry counties in Ohio (the “Columbus Lending Area”). Park National Bank will also devote a minimum of $500,000 over five years toward one or more community development partnership programs that provide services to residents of MMCTs in the Columbus Lending Area related to credit, financial education, homeownership and foreclosure prevention; and at least $750,000 over five years toward advertising, community outreach, consumer financial education and credit counseling in the Columbus Lending Area. Park National Bank will also establish one new mortgage loan production office and one new full-service branch in MMCTs in the Columbus Lending Area and hire four lenders, one of whom will be Spanish-speaking, focused on serving these communities. In addition, Park National Bank will continue to maintain, throughout the term of the DOJ Consent Order, Park National Bank’s full-time Director of Community Home Lending and Development position, who will oversee Park National Bank’s lending in MMCTs in the Columbus Lending Area.

Park is committed to investing at least $9.0 million over five years and will record the related expenses incurred in the period in which the associated activities occur.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements.

Risks and uncertainties that could cause actual results to differ materially include, without limitation:

•Park's ability to execute our business plan successfully and within the expected timeframe as well as our ability to manage strategic initiatives;

•current and future economic and financial market conditions, either nationally or in the states in which Park and our subsidiaries do business, that may reflect deterioration in business and economic conditions, including the effects of higher unemployment rates, an acceleration in the pace of inflation, interest rate fluctuations, changes in the economy or global supply chain, supply-demand imbalances affecting local real estate prices, U.S. fiscal debt, budget and tax matters, geopolitical matters (including the impact of

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the Russia-Ukraine conflict and associated sanctions and export controls), and any slowdown in global economic growth, in addition to the continuing impact of the COVID pandemic and recovery therefrom on our customers’ operations and financial condition, any of which may result in adverse impacts on the demand for loan, deposit and other financial services, delinquencies, defaults and counterparties' inability to meet credit and other obligations and the possible impairment of collectability of loans;

•factors that can impact the performance of our loan portfolio, including changes in real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance, including any loans acquired in acquisition transactions;

•the effect of monetary and other fiscal policies (including the impact of money supply, market interest rate policies and policies impacting inflation, of the Federal Reserve Board, the U.S. Treasury and other governmental agencies) as well as disruption in the liquidity and functioning of U.S. financial markets, may adversely impact prepayment penalty income, mortgage banking income, income from fiduciary activities, the value of securities, deposits and other financial instruments, in addition to the loan demand and the performance of our loan portfolio, and the interest rate sensitivity of our consolidated balance sheet as well as reduce net interest margins;

•changes in the federal, state, or local tax laws may adversely affect the fair values of net deferred tax assets and obligations of state and political subdivisions held in Park's investment securities portfolio and otherwise negatively impact our financial performance;

•the impact of the changes in federal, state and local governmental policy, including the regulatory landscape, capital markets, elevated government debt, potential changes in tax legislation that may increase tax rates, infrastructure spending and social programs;

•changes in laws or requirements imposed by Park's regulators impacting Park's capital actions, including dividend payments and stock repurchases;

•changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behaviors, changes in business and economic conditions, legislative and regulatory initiatives, or other factors may be different than anticipated;

•changes in customers', suppliers', and other counterparties' performance and creditworthiness, and Park's expectations regarding future credit losses and our allowance for credit losses, may be different than anticipated due to the continuing impact of and the various responses to inflationary pressures;

•Park may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;

•the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;

•the adequacy of our internal controls and risk management program in the event of changes in the market, economic, operational (including those which may result from our associates working remotely), asset/liability repricing, legal, compliance, strategic, cybersecurity, liquidity, credit and interest rate risks associated with Park's business;

•competitive pressures among financial services organizations could increase significantly, including product and pricing pressures (which could in turn impact our credit spreads), changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Park's ability to attract, develop and retain qualified banking professionals;

•uncertainty regarding the nature, timing, cost and effect of changes in banking regulations or other regulatory or legislative requirements affecting the respective businesses of Park and our subsidiaries, including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry, specifically the reforms provided for in the CARES Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the Basel III regulatory capital reforms, as well as regulations already adopted and which may be adopted in the future by the relevant regulatory agencies, including the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve Board, to implement the provisions of the CARES Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the provisions of the American Rescue Plan Act of 2021, the provisions of the Dodd-Frank Act, and the Basel III regulatory capital reforms;

•Park's ability to meet heightened supervisory requirements and expectations;

•the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (the "FASB"), the SEC, the Public Company Accounting Oversight Board and other regulatory agencies, may adversely affect Park's reported financial condition or results of operations;

•Park's assumptions and estimates used in applying critical accounting policies and modeling, including under the CECL model, which may prove unreliable, inaccurate or not predictive of actual results;

•the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions;

•the impact of Park's ability to anticipate and respond to technological changes on Park's ability to respond to customer needs and meet competitive demands;

•operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Park and our subsidiaries are highly dependent;

•the ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Park's third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Park and/or result in Park incurring a financial loss;

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•a failure in or breach of Park's operational or security systems or infrastructure, or those of our third-party vendors and other service providers, resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems, including as a result of cyber attacks;

•the impact on Park's business and operating results of any costs associated with obtaining rights in intellectual property claimed by others and of the adequacy of Park's intellectual property protection in general;

•the existence or exacerbation of general geopolitical instability and uncertainty as well as the effect of trade policies (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, closing of border crossings and changes in the relationship of the U.S. and its global trading partners);

•the impact on financial markets and the economy of any changes in the credit ratings of the U.S. Treasury obligations and other U.S. government-backed debt, as well as issues surrounding the levels of U.S., European and Asian government debt and concerns regarding the growth rates and financial stability of certain sovereign governments, supranationals and financial institutions in Europe and Asia and the risk they may face difficulties servicing their sovereign debt;

•the effect of a fall in stock market prices on Park's asset and wealth management businesses;

•our litigation and regulatory compliance exposure, including the costs and effects of any adverse developments in legal proceedings or other claims, the costs and effects of unfavorable resolution of regulatory and other governmental examinations or other inquiries, and liabilities and business restrictions resulting from litigation and regulatory investigations;

•continued availability of earnings and excess capital sufficient for the lawful and prudent declaration of dividends;

•the impact on Park's business, personnel, facilities or systems of losses related to acts of fraud, scams and schemes of third parties;

•the impact of widespread natural and other disasters, pandemics (including the COVID pandemic), dislocations, regional or national protests and civil unrest (including any resulting branch closures or damages), military or terrorist activities or international hostilities (especially in light of the Russia-Ukraine conflict) on the economy and financial markets generally and on us or our counterparties specifically;

•a worsening of the U.S. economy due to financial, political, or other shocks;

•the effect of healthcare laws in the U.S. and potential changes for such laws, especially in light of the COVID pandemic, which may increase our healthcare and other costs and negatively impact our operations and financial results;

•risk and uncertainties associated with Park's entry into new geographic markets with our most recent acquisitions, including expected revenue synergies and cost savings from recent acquisitions not being fully realized or realized within the expected time frame;

•uncertainty surrounding the transition from the LIBOR to an alternate reference rate;

•a continuation of recent turmoil in the financial services industry, and the impact of responsive measures to mitigate and manage such turmoil, including potential increased supervisory and regulatory actions and costs;

•and other risk factors relating to the financial services industry as detailed from time to time in Park's reports filed with the SEC including those described in "Item 1A. Risk Factors" of Part I of Park's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and "Item 1A. Risk Factors" of Part II of this Quarterly Report on Form 10-Q.

Park does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions that may be made to update any forward-looking statement to reflect the events or circumstances after the date on which the forward-looking statement was made, or reflect the occurrence of unanticipated events, except to the extent required by applicable law.

Non-U.S. GAAP Financial Measures

This Management's Discussion and Analysis (or "MD&A") contains non-U.S. GAAP financial measures where management believes it to be helpful in understanding Park’s results of operations or financial position. Where non-U.S. GAAP financial measures are used, the comparable U.S. GAAP financial measure, as well as the reconciliation to the comparable U.S. GAAP financial measure, can be found herein.

Items Impacting Comparability of Period Results

From time to time, revenue, expenses and/or taxes are impacted by items judged by management of Park to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by management of Park at that time to be infrequent or short-term in nature. Most often, these items impacting comparability of period results are due to merger and acquisition activities and revenue and expenses related to former Vision Bank loan relationships. In other cases, they may result from management's decisions associated with significant corporate actions outside of the ordinary course of business.

Even though certain revenue and expense items are naturally subject to more volatility than others due to changes in market and economic environment conditions, as a general rule volatility alone does not result in the inclusion of an item as one impacting comparability of period results. For example, changes in the provision for / (recovery of) credit losses (aside from those related to former Vision Bank loan relationships), gains (losses) on equity securities, net, and asset valuation adjustments, reflect ordinary banking activities and are, therefore, typically excluded from consideration as items impacting comparability of period results.

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Management believes the disclosure of items impacting comparability of period results provides a better understanding of Park's performance and trends and allows management to ascertain which of such items, if any, to include or exclude from an analysis of Park's performance; i.e., within the context of determining how that performance differed from expectations, as well as how, if at all, to adjust estimates of future performance taking such items into account.

Items impacting comparability of the results of particular periods are not intended to be a complete list of items that may materially impact current or future period performance.

Non-U.S. GAAP Financial Measures

Park's management uses certain non-U.S. GAAP financial measures to evaluate Park's performance. Specifically, management reviews the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio, tangible book value per common share and pre-tax, pre-provision net income.

Management has included in the tables included within the "Items Impacting Comparability" section of this MD&A information relating to the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio, tangible book value per common share and pre-tax, pre-provision net income for the three months ended and at March 31, 2023 and March 31, 2022. For the purpose of calculating the annualized return on average tangible equity, a non-U.S.GAAP financial measure, net income for each period is divided by average tangible equity during the period. Average tangible equity equals average shareholders' equity during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating the annualized return on average tangible assets, a non-U.S. GAAP financial measure, net income for each period is divided by average tangible assets during the period. Average tangible assets equals average assets during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating the tangible equity to tangible assets ratio, a non-U.S. GAAP financial measure, tangible equity is divided by tangible assets. Tangible equity equals total shareholders' equity less goodwill and other intangible assets, in each case at period end. Tangible assets equal total assets less goodwill and other intangible assets, in each case at period end. For the purpose of calculating tangible book value per common share, a non-U.S. GAAP financial measure, tangible equity is divided by the number of common shares outstanding, in each case at period end. For the purpose of calculating pre-tax, pre-provision net income, a non-U.S. GAAP financial measure, income taxes and the provision for (recovery of) credit losses are added back to net income, in each case during the applicable period.

Management believes that the disclosure of the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio, tangible book value per common share and pre-tax, pre-provision net income presents additional information to the reader of the condensed consolidated financial statements, which, when read in conjunction with the condensed consolidated financial statements prepared in accordance with U.S. GAAP, assists in analyzing Park's operating performance, ensures comparability of operating performance from period to period, and facilitates comparisons with the performance of Park's peer financial holding companies and bank holding companies, while eliminating certain non-operational effects of acquisitions. In the tables included within the "Items Impacting Comparability" section of this MD&A, Park has provided a reconciliation of average tangible equity to average shareholders' equity, average tangible assets to average assets, tangible equity to total shareholders' equity, tangible assets to total assets, and pre-tax, pre-provision net income to net income solely for the purpose of complying with SEC Regulation G and not as an indication that the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio, tangible book value per common share and pre-tax, pre-provision net income are substitutes for the annualized return on average equity, the annualized return on average assets, the total shareholders' equity to total assets ratio, book value per common share and net income, respectively, as determined in accordance with U.S. GAAP.

FTE (fully taxable equivalent) Financial Measures

Interest income, yields, and ratios on a FTE basis are considered non-U.S. GAAP financial measures. Management believes net interest income on a FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a federal corporate income tax rate of 21 percent. In the tables included within the "Items Impacting Comparability" section of this MD&A, Park has provided a reconciliation of FTE interest income solely for the purpose of complying with SEC Regulation G and not as an indication that FTE interest income, yields and ratios are substitutes for interest income, yields and ratios, as determined in accordance with U.S. GAAP.

Paycheck Protection Program ("PPP") Loans

Park originated an aggregate of $764.7 million in loans as part of the PPP. For its assistance in making and retaining these loans, Park received an aggregate of $33.1 million in fees from the SBA. These loans are not typical of Park's loan portfolio in that they are part of a specific government program to support businesses during the COVID pandemic and are 100% guaranteed by SBA. As such, management considers growth in the loan portfolio excluding PPP loans, the total allowance for

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credit losses to total loans ratio (excluding PPP loans), and general reserve on collectively evaluated loans as a percentage of total collectively evaluated loans (excluding PPP loans) in addition to the related U.S. GAAP metrics which are not adjusted for PPP loans.

Critical Accounting Policies

Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2022 Form 10-K lists significant accounting policies used in the development and presentation of Park’s consolidated financial statements. The accounting and reporting policies of Park conform with U.S. GAAP and general practices within the financial services industry. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

Recent bank failures have called into question the stability of the financial services industry. While Park is well capitalized and has significant available liquidity, the effects of these failures and potential future failures may meaningfully impact significant estimates such as the allowance for credit losses, goodwill, and pension plan obligations and related expenses.

Allowance for Credit Losses: Park believes the determination of the allowance for credit losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for credit losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses over the life of an asset or an off-balance sheet credit exposure. Management’s determination of the adequacy of the allowance for credit losses is based on periodic evaluations of past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. However, this evaluation has subjective components requiring material estimates, including expected default probabilities, the expected LGD, the amounts and timing of expected future cash flows on individually evaluated loans, and estimated losses based on historical loss experience and forecasted economic conditions. All of these factors may be susceptible to significant change. To the extent that actual results differ from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods.

One of the most significant judgments impacting the ACL estimate is the economic forecast for Ohio unemployment, Ohio GDP, and Ohio HPI. Changes in the economic forecast could significantly affect the estimated credit losses which could potentially lead to materially different allowance levels from one reporting period to the next.

In calculating the ACL, management weighs several different scenarios, including a baseline (most likely) scenario and an adverse scenario. To create hypothetical sensitivity analyses, management calculated a quantitative allowance using a 100% weighting applied to a baseline scenario and a quantitative allowance using a 100% weighting applied to an adverse scenario. The adverse scenario assumes among other things that: (1) the military conflict between Russia and Ukraine persists longer than anticipated worsening supply-chain conditions and increasing shortages of many goods; (2) supply-chain shortages weaken manufacturing; (3) inflation remains elevated, though slightly below the baseline amid persistent shortages and concerns about a wage price spiral; (4) the Federal Reserve Board initially keeps the fed funds rate elevated, though a bit less than in the baseline because of weakening economy; (5) recent bank failures raise fears of further collapse in the banking industry, reducing consumer confidence and causing banks to tighten lending standards; and (6) the economy falls into recession in the second quarter of 2023. The adverse scenario forecasts Ohio unemployment for the next twelve months to range from 6.5% to 9.1%. Excluding consideration of general reserve adjustments, this sensitivity analysis would result in a hypothetical increase in Park's ACL of $27.7 million as of March 31, 2023 if only the adverse scenario was used. Excluding consideration of general reserve adjustments, a corresponding $27.7 million decrease in Park's ACL would occur in a hypothetical scenario if only the baseline (most likely) scenario was used.

Refer to the "Credit Metrics and Provision for (Recovery of) Credit Losses" section of this MD&A for additional discussion.

Goodwill: Management believes that the accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies. U.S. GAAP establishes standards for the impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in each business acquired. Park’s goodwill, as of March 31, 2023, relates to the value inherent in the financial services industry and that value is dependent upon the ability of Park’s national bank subsidiary, PNB, to provide quality, cost-effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base, the inability to deliver cost-effective services over sustained periods or significant credit problems could lead to impairment of goodwill that could, in turn, adversely impact earnings in future periods.

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U.S. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Park evaluates goodwill for impairment during the second quarter of each year, with financial data as of the immediately preceding March 31. Based on the qualitative analysis performed as of April 1, 2022, the Company determined that goodwill for Park's reporting unit, PNB, was not impaired. The fair value of the goodwill, which resides on the books of PNB, is evaluated for potential impairment by reviewing the past and projected operating results for PNB, deposit and loan totals for PNB and financial services industry comparable information.

Pension Plan: The determination of pension plan obligations and related expenses requires the use of assumptions to estimate the amount of benefits that employees will earn while working, as well as the present value of those benefits. Annual pension expense is principally based on four components: (1) the value of benefits earned by employees for working during the year (service cost), (2) the increase in the liability due to the passage of time (interest cost), and (3) other gains and losses, reduced by (4) the expected return on plan assets for our pension plan.

Significant assumptions used to measure our annual pension expense include:

•the interest rate used to determine the present value of liabilities (discount rate);

•certain employee-related factors, such as turnover, retirement age and mortality;

•the expected return on assets in our funded pension plan; and

•the rate of salary increases where benefits are based on earnings.

Our assumptions reflect our historical experience and management’s best judgment regarding future expectations. Due to the significant management judgment involved, our assumptions could have a material impact on the measurement of our pension plan expense and obligation.

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Comparison of Results of Operations

For the Three Months Ended March 31, 2023 and 2022

Summary Discussion of Results

Net income for the three months ended March 31, 2023 was $33.7 million, compared to $38.9 million for the first quarter of 2022. Diluted earnings per common share were $2.07 for the first quarter of 2023, compared to $2.38 for the first quarter of 2022. Weighted average diluted common shares outstanding were 16,324,823 for the first quarter of 2023, compared to 16,331,031 weighted average diluted common shares outstanding for the first quarter of 2022.

Liquidity and Capital

Park continues to maintain strong capital and liquidity. Funds are available from a number of sources, including the capital markets, the investment securities portfolio, the core deposit base, FHLB borrowings and the capability to securitize or package loans for sale. The most easily accessible forms of liquidity, Fed Funds Sold, off balance sheet deposits, unpledged investment securities and available FHLB borrowing capacity, totaled $2.74 billion at March 31, 2023.

Park's debt securities portfolio is classified as available-for-sale ("AFS") and these debt securities are available to be sold in the future in response to Park's liquidity needs, changes in market interest rates, and asset-liability management strategies, among other reasons. AFS debt securities are reported at fair value, with unrealized holding gains and losses excluded from earnings, but included in other comprehensive loss, net of applicable income taxes. The table below provides additional detail on Park's debt securities portfolio and capital position.

(Dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022		% change from 12/31/22		% change from 03/31/22
Net unrealized losses on debt securities	105,510		121,156		43,809		(12.91)	%	140.84	%
Net unrealized losses on debt securities as a percentage of period end total assets	1.07	%	1.23	%	0.46	%	(13.01)	%	132.61	%
Total shareholders' equity / Period end total assets	10.98	%	10.85	%	11.24	%	1.20	%	(2.31)	%
Tangible equity / Tangible assets (1)	9.46	%	9.33	%	9.67	%	1.39	%	(2.17)	%

(1) Tangible equity equals total shareholders' equity less goodwill and other intangible assets, in each case at period end. Tangible assets equal total assets less goodwill and other intangible assets, in each case at period end.

Park's deposits grew during the COVID pandemic and normalized throughout 2022. In order to manage the impact of this growth on its balance sheet, Park has utilized a program where certain deposit balances are transferred off balance sheet while maintaining the customer relationship. Park is able to increase or decrease the amount off balance sheet based on its balance sheet management strategies and liquidity needs. The balance of deposits transferred off balance sheet has declined as deposit

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balances have returned to normalized levels. The table below breaks out the change in deposit balances, by deposit type, for Park National Corporation.

(Dollars in thousands)	March 31, 2023			December 31, 2022			December 31, 2021			December 31, 2020			December 31, 2019
Retail Deposits
Non-interest bearing deposits	$	1,176,545		$	1,193,807		$	1,195,530		$	1,077,107		$	801,035
Transaction accounts	939,026			994,717			1,004,532			900,093			760,640
Savings	1,702,824			1,744,713			1,669,373			1,427,687			1,461,347
Certificates of deposit	445,552			455,157			546,793			620,965			725,017
Total retail deposits	$	4,263,947		$	4,388,394		$	4,416,228		$	4,025,852		$	3,748,039
$ change from prior period end	$	(124,447)		$	(27,834)		$	390,376		$	277,813
% change from prior period end	(2.8)		%	(0.6)		%	9.7		%	7.4		%
Commercial Deposits
Non-interest bearing deposits	$	1,745,697		$	1,880,469		$	1,870,889		$	1,649,992		$	1,158,900
Transaction accounts	1,231,790			993,388			498,344			481,386			868,102
Savings	966,712			873,176			954,200			1,171,521			863,458
Certificates of deposit	86,298			99,288			164,867			243,607			414,113
Total commercial deposits	$	4,030,497		$	3,846,321		$	3,488,300		$	3,546,506		$	3,304,573
$ change from prior period end	$	184,176		$	358,021		$	(58,206)		$	241,933
% change from prior period end	4.8		%	10.3		%	(1.6)		%	7.3		%
Total deposits	8,294,444			8,234,715			7,904,528			7,572,358			7,052,612
$ change from prior period end	$	59,729		$	330,187		$	332,170		$	519,746
% change from prior period end	0.7		%	4.2		%	4.4		%	7.4		%
Off balance sheet deposits	164,600			195,937			983,053			710,101			—
Total deposits including off balance sheet deposits	$	8,459,044		$	8,430,652		$	8,887,581		$	8,282,459		$	7,052,612
$ change from prior period end	$	28,392		$	(456,929)		$	605,122		$	1,229,847
% change from prior period end	0.3		%	(5.1)		%	7.3		%	17.4		%

During the three months ended March 31, 2023, total deposits including off balance sheet deposits increased by $28.4 million, or 0.3%. This increase consisted of a $184.2 million increase in total commercial deposits offset by a $124.4 million decrease in total retail deposits and a $31.3 million decrease in off balance sheet deposits. Of the $184.2 million increase in total commercial deposits, $182.9 million was a result of an increase in public fund deposits. This increase is consistent with historical seasonality. As of March 31, 2023, Park had approximately $1.5 billion of uninsured deposits, which was 18.6% of total deposits. Uninsured deposits of $1.5 billion included $288 million of deposits which were over $250,000 but were fully collateralized by Park's investment securities portfolio.

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Financial Results by Segment

The table below reflects the net income (loss) by segment for the first quarters (the three months ended March 31) of 2023 and 2022 and for the years ended December 31, 2022 and 2021. Park's segments include The Park National Bank ("PNB") and "All Other" which primarily consists of Park as the "Parent Company", Guardian Financial Services Company ("GFSC") and SE Property Holdings, LLC ("SEPH").

(In thousands)	Q1 2023		Q1 2022		2022		2021
PNB	$	36,269	$	41,468	$	143,243	$	159,461
All Other	(2,536)		(2,593)		5,108		(5,516)
Total Park	$	33,733	$	38,875	$	148,351	$	153,945

Highlights from the three-month periods ended March 31, 2023 and 2022 included:

•Net income for the three months ended March 31, 2023 of $33.7 million represented a $5.1 million, or 13.2%, decrease compared to $38.9 million for the three months ended March 31, 2022 and a $649,000, or 2.0%, increase compared to $33.1 million for the three months ended December 31, 2022.

•Pre-tax, pre-provision net income for the three months ended March 31, 2023 of $40.1 million represented a $1.9 million, or 4.5%, decrease compared to $42.0 million for the three months ended March 31, 2022 and a $3.3 million, or 7.5%, decrease compared to $43.3 million for the three months ended December 31, 2022.

•During the three months ended March 31, 2023, Park recorded interest income of $26,000 related to PPP loans, compared to $1.6 million for the three months ended March 31, 2022 and $78,000 for the three months ended December 31, 2022.

•PNB loans outstanding at March 31, 2023 increased 4.0%, compared to at March 31, 2022, and decreased 0.7% compared to at December 31, 2022.

•Park's loan portfolio reflected continued good credit quality with net loan recoveries as a percentage of average loans of 0.00% for the three months ended March 31, 2023, compared to net loan charge-offs as a percentage of average loans of 0.09% for the three months ended December 31, 2022, and net loan recoveries as a percentage of average loans of 0.02% for the three months ended March 31, 2022.

Net income for each of the three months ended March 31, 2023 and March 31, 2022 included several items of income and expense that impacted comparability of period results. These items are detailed in the "Items Impacting Comparability" section within this MD&A.

The following discussion provides additional information regarding the PNB segment, followed by additional information regarding All Other.

The Park National Bank (PNB)

The table below reflects PNB's net income for the first quarters (the three months ended March 31) of 2023 and 2022 and for the years ended December 31, 2022 and 2021.

(In thousands)	Q1 2023		Q1 2022		2022		2021
Net interest income	$	93,589	$	79,372	$	350,646	$	328,398
Provision for (recovery of) credit losses	915		(4,547)		5,834		(8,554)
Other income	24,262		31,247		115,211		126,802
Other expense	72,997		64,216		283,670		266,678
Income before income taxes	$	43,939	$	50,950	$	176,353	$	197,076
Income tax expense	7,670		9,482		33,110		37,615
Net income	$	36,269	$	41,468	$	143,243	$	159,461

Net interest income of $93.6 million for the three months ended March 31, 2023 represented a $14.2 million, or 17.9%, increase compared to $79.4 million for the three months ended March 31, 2022. The increase was a result of a $29.3 million increase in interest income, partially offset by a $15.1 million increase in interest expense.

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The $29.3 million increase in interest income was due to a $18.7 million increase in interest income on loans and a $10.6 million increase in investment income. The $18.7 million increase in interest income on loans was primarily the result of a $271.3 million increase in average loans, from $6.83 billion for the three months ended March 31, 2022 to $7.10 billion for the three months ended March 31, 2023, as well as an increase in the yield on loans, which increased 91 basis points to 5.21% for the three months ended March 31, 2023, compared to 4.30% for the three months ended March 31, 2022. The $10.6 million increase in investment income was partially the result of a $28.4 million increase in average investments, including money market instruments, from $2.12 billion for the three months ended March 31, 2022 to $2.15 billion for the three months ended March 31, 2023. The increase in investment income was also impacted by an increase in the yield on investments, which increased 198 basis points to 3.77% for the three months ended March 31, 2023, compared to 1.79% for the three months ended March 31, 2022.

The $15.1 million increase in interest expense was due to a $14.5 million increase in interest expense on deposits, as well as a $581,000 increase in interest expense on borrowings. The increase in interest expense on deposits was the result of a $306.8 million increase in average on-balance sheet interest bearing deposits from $5.17 billion for the three months ended March 31, 2022, to $5.48 billion for the three months ended March 31, 2023 as well as an increase in the cost of deposits of 107 basis points, from 0.08% for the three months ended March 31, 2022 to 1.15% for the three months ended March 31, 2023. The increase in on-balance sheet interest bearing deposits was due to an increase in transaction accounts, which was partially offset by decreases in both savings and time deposits. During the three months ended March 31, 2023 and 2022, Park made the decision to continue its participation in a program to transfer deposits off-balance sheet in order to manage growth of the balance sheet.

The provision for credit losses of $915,000 for the three months ended March 31, 2023 represented a difference of $5.5 million, compared to a recovery of credit losses of $4.5 million for the three months ended March 31, 2022. Refer to the “Credit Metrics and Provision for (Recovery of) Credit Losses” section for additional details regarding the level of the provision for (recovery of) credit losses recognized in each period presented above.

Other income of $24.3 million for the three months ended March 31, 2023 represented a decrease of $7.0 million, or 22.4%, compared to $31.2 million for the three months ended March 31, 2022. The $7.0 million decrease was primarily related to (i) a $2.5 million change in (loss) gain on equity securities, net, from a $2.2 million gain for the three months ended March 31, 2022 to a $307,000 loss for the three months ended March 31, 2023; (ii) a $2.3 million decrease in other service income, which was primarily due to declines in fee income from mortgage loan originations and mortgage servicing rights, partially offset increases in investor rate locks and mortgage loans held for sale; (iii) a $1.4 million decrease in other miscellaneous income, which was primarily due to decreases in the net gain on the sale of other assets and decreases in other fee income; and (iv) a $1.1 million decrease in other components of net periodic benefit income. These decreases were partially offset by a $330,000 increase in debit card fee income.

A summary of mortgage loan originations for the first quarters of 2023 and 2022 and the years ended December 31, 2022 and 2021 follows.

(In thousands)	Q1 2023			Q1 2022			2022			2021
Mortgage Loan Origination Volume
Sold	$	13,756		$	69,053		$	159,142		$	555,278
Portfolio	32,743			53,498			263,287			284,686
Construction	13,124			32,928			120,794			119,555
Service released	1,576			4,660			14,738			13,802
Total mortgage loan originations	$	61,199		$	160,139		$	557,961		$	973,321
Refinances as a % of Total Mortgage Loan Originations	24.7		%	41.7		%	29.4		%	54.2		%

Total mortgage loan originations decreased $98.9 million, or 61.8%, to $61.2 million for the three months ended March 31, 2023 compared to $160.1 million for the three months ended March 31, 2022.

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The table below reflects PNB's total other expense for the three months ended March 31, 2023 and 2022.

(Dollars in thousands)	Q1 2023		Q1 2022		$ change		% change
Other expense:
Salaries	$	33,833	$	29,320	$	4,513	15.4	%
Employee benefits	10,799		10,413		386		3.7	%
Occupancy expense	3,343		3,230		113		3.5	%
Furniture and equipment expense	3,245		2,936		309		10.5	%
Data processing fees	8,680		7,423		1,257		16.9	%
Professional fees and services	5,679		4,698		981		20.9	%
Marketing	1,296		1,315		(19)		(1.4)	%
Insurance	1,810		1,400		410		29.3	%
Communication	1,017		874		143		16.4	%
State tax expense	1,129		1,123		6		0.5	%
Amortization of intangible assets	327		402		(75)		(18.7)	%
Miscellaneous	1,839		1,082		757		70.0	%
Total other expense	$	72,997	$	64,216	$	8,781	13.7	%

Total other expense of $73.0 million for the three months ended March 31, 2023 represented an increase of $8.8 million, or 13.7%, compared to $64.2 million for the three months ended March 31, 2022. The increase in salaries expense was primarily related to increases in base salary expense, incentive compensation expense and share-based compensation expense, partially offset by a decrease in additional compensation expense. The increase in employee benefits expense was primarily related to increases in group insurance expense and payroll tax expense, partially offset by a decrease in retirement benefit expense. The increase in furniture and equipment expense was primarily related to increases in depreciation expense and maintenance and repairs on equipment expense. The increase in data processing fees was primarily related to increases in software data processing expense and debit card processing expense. The increase in professional fees and services expense was primarily due to increases in other fees, temporary wages, legal expense and directors' fees. The increase in insurance expense was due to an increase in FDIC insurance assessment expense. The increase in miscellaneous expense was due to increased expense for the allowance for unfunded lines of credit and increased training and travel-related expenses, which were partially offset by a decrease in operating lease depreciation expense.

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The table below provides certain balance sheet information and financial ratios for PNB as of or for the three months ended March 31, 2023 and 2022 and as of or for the year ended December 31, 2022.

(Dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022		% change from 12/31/22		% change from 03/31/22
Loans	7,093,498		7,141,362		6,820,090		(0.67)	%	4.01	%
Loans less PPP loans (1)	7,090,053		7,137,156		6,782,666		(0.66)	%	4.53	%
Allowance for credit losses	85,941		85,370		78,808		0.67	%	9.05	%
Net loans	7,007,557		7,055,992		6,741,282		(0.69)	%	3.95	%
Investment securities	1,774,137		1,796,613		1,817,493		(1.25)	%	(2.39)	%
Total assets	9,817,967		9,815,951		9,544,545		0.02	%	2.86	%
Total deposits	8,583,204		8,534,320		8,255,304		0.57	%	3.97	%
Average assets (2)	10,021,362		10,011,932		9,798,555		0.09	%	2.27	%
Efficiency ratio (3)	61.46	%	60.43	%	57.63	%	1.70	%	6.65	%
Return on average assets (4)	1.47	%	1.43	%	1.72	%	2.80	%	(14.53)	%

(1) Excludes $3.4 million, $4.2 million and $37.4 million of PPP loans at March 31, 2023, December 31, 2022 and March 31, 2022.

(2) Average assets for the three months ended March 31, 2023 and 2022 and for the year ended December 31, 2022.

(3) Efficiency ratio is calculated by dividing total other expense by the sum of fully taxable equivalent net interest income and other income. Fully taxable equivalent net interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustments were $926,000 for the three months ended March 31, 2023, $3.5 million for the year ended December 31 2022 and $819,000 for the three months ended March 31 2022.

(4) Annualized for the three months ended March 31, 2023 and 2022.

Loans outstanding at March 31, 2023 were $7.09 billion, compared to (i) $7.14 billion at December 31, 2022, a decrease of $47.9 million, and (ii) $6.82 billion at March 31, 2022, an increase of $273.4 million. Excluding $3.4 million, $4.2 million and $37.4 million of PPP loans at March 31, 2023, December 31, 2022 and March 31, 2022, respectively, loans outstanding were $7.09 billion at March 31, 2023, compared to (i) $7.14 billion at December 31, 2022, a decrease of $47.1 million, and (ii) $6.78 billion at March 31, 2022, an increase of $307.4 million. The table below breaks out the change in loans outstanding, by loan type.

(Dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022		$ change from 12/31/22		% change from 12/31/22		$ change from 3/31/22		% change from 3/31/22
Home equity	$	164,736	$	167,232	$	159,667	$	(2,496)	(1.5)	%	$	5,069	3.2	%
Installment	1,914,781		1,921,059		1,685,627		(6,278)		(0.3)	%	229,154		13.6	%
Real estate	1,210,045		1,195,037		1,126,666		15,008		1.3	%	83,379		7.4	%
Commercial (excluding PPP loans) (1)	3,800,284		3,850,477		3,807,310		(50,193)		(1.3)	%	(7,026)		(0.2)	%
PPP loans	3,445		4,206		37,424		(761)		(18.1)	%	(33,979)		(90.8)	%
Other	207		3,351		3,396		(3,144)		(93.8)	%	(3,189)		(93.9)	%
Total loans	$	7,093,498	$	7,141,362	$	6,820,090	(47,864)		(0.7)	%	273,408		4.0	%
Total loans (excluding PPP loans) (1)	$	7,090,053	$	7,137,156	$	6,782,666	$	(47,103)	(0.7)	%	$	307,387	4.5	%

(1) Excludes $3.4 million of PPP loans at March 31, 2023, $4.2 million of PPP loans at December 31, 2022, and $37.4 million of PPP loans at March 31, 2022.

PNB's allowance for credit losses was $85.9 million at March 31, 2023, compared to (i) $85.4 million at December 31, 2022, an increase of $571,000, or 0.7%, and (ii) $78.9 million at March 31, 2022, an increase of $7.1 million, or 9.1%. Net charge-offs were $727,000, or 0.04% of total average loans, for the three months ended March 31, 2023 and were $3.6 million, or 0.05% of total average loans, for the year ended December 31 2022. Net recoveries were $245,000, or 0.01% of total average loans, for the three months ended March 31, 2022. Refer to the “Credit Metrics and Provision for (Recovery of) Credit Losses” section for additional information regarding PNB's loan portfolio and the level of provision for (recovery of) credit losses recognized in each period presented.

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Total deposits at March 31, 2023 were $8.58 billion, compared to (i) $8.53 billion at December 31, 2022, an increase of $48.9 million, or 0.6%, and (ii) $8.26 billion at March 31, 2022, an increase of $327.9 million, or 4.0%. During the three months ended March 31, 2023 and 2022 and the year ended December 31, 2022, Park made the decision to continue participation in a program to transfer deposits off-balance sheet in order to manage growth of the balance sheet, as deposits increased significantly throughout the COVID pandemic. At March 31, 2023, December 31, 2022 and March 31, 2022, Park had $164.6 million, $195.9 million, and $1,149.2 million, respectively, in deposits which were off-balance sheet. Total deposits would have increased $17.5 million, or 0.2%, compared to at December 31, 2022 had the $164.6 million and $195.9 million in deposits remained on the balance sheet at the respective dates. Total deposits would have decreased $656.7 million, or 7.0%, compared to at March 31, 2022 had the $164.6 million and $1,149.2 million in deposits remained on the balance sheet at the respective dates. The table below breaks out the change in deposit balances, by deposit type.

(Dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022		$ change from 12/31/22		% change from 12/31/22		$ change from 3/31/22		% change from 3/31/22
Non-interest bearing deposits	$	3,211,327	$	3,374,269	$	3,315,210	$	(162,942)	(4.8)	%	$	(103,883)	(3.1)	%
Transaction accounts	2,170,814		1,988,106		1,587,856		182,708		9.2	%	582,958		36.7	%
Savings	2,669,212		2,617,500		2,657,694		51,712		2.0	%	11,518		0.4	%
Certificates of deposit	531,851		554,445		694,544		(22,594)		(4.1)	%	(162,693)		(23.4)	%
Total deposits	$	8,583,204	$	8,534,320	$	8,255,304	$	48,884	0.6	%	$	327,900	4.0	%
Off balance sheet deposits	164,600		195,937		1,149,187		(31,337)		(16.0)	%	(984,587)		(85.7)	%
Total deposits including off balance sheet deposits	$	8,747,804	$	8,730,257	$	9,404,491	$	17,547	0.2	%	$	(656,687)	(7.0)	%

All Other

The table below reflects All Other net (loss) income for the first quarters (the three months ended March 31) of 2023 and 2022 and for the years ended December 31, 2022, and 2021.

(In thousands)	Q1 2023		Q1 2022		2022		2021
Net interest (expense) income	$	(1,391)	$	(1,686)	$	(3,587)	$	1,495
Recovery of credit losses	(732)		(58)		(1,277)		(3,362)
Other income	125		409		20,724		3,142
Other expense	3,506		3,157		14,308		16,840
Net (loss) income before income tax benefit	$	(4,040)	$	(4,376)	$	4,106	$	(8,841)
Income tax benefit	(1,504)		(1,783)		(1,002)		(3,325)
Net (loss) income	$	(2,536)	$	(2,593)	$	5,108	$	(5,516)

The net interest (expense) income for All Other included, for all periods presented, interest income on subordinated debt investments in PNB, which was eliminated in the consolidated Park National Corporation totals, as well as interest income on GFSC loans and SEPH impaired loan relationships. The net interest (expense) income for All Other also included interest expense on $175.0 million aggregate principal amount of 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030 issued by Park in August 2020 (the "Park Subordinated Notes").

Net interest (expense) income reflected net interest expense of $1.4 million for the three months ended March 31, 2023, compared to net interest expense of $1.7 million for the three months ended March 31, 2022. The change was largely the result of an increase of $565,000 in loan interest income related to payment collections at SEPH, partially offset by a decrease of $96,000 in net interest income from GFSC and a decrease in interest expense on borrowings of $174,000.

Refer to the “Credit Metrics and Provision for (Recovery of) Credit Losses” section for additional information regarding the All Other loan portfolio and the level of recovery of credit losses recognized in each period presented.

All Other had other expense of $3.5 million for the three months ended March 31, 2023, compared to $3.2 million for the three months ended March 31, 2022. The increase was largely due to a $382,000 increase in professional fees and services expense which was partially offset by a $162,000 decrease in salaries expense.

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Park National Corporation

The table below reflects Park's consolidated net income for the first quarters (the three months ended March 31) of 2023 and 2022 and for the years ended December 31, 2022 and 2021.

(In thousands)	Q1 2023		Q1 2022		2022		2021
Net interest income	$	92,198	$	77,686	$	347,059	$	329,893
Provision for (recovery of) credit losses	183		(4,605)		4,557		(11,916)
Other income	24,387		31,656		135,935		129,944
Other expense	76,503		67,373		297,978		283,518
Income before income taxes	$	39,899	$	46,574	$	180,459	$	188,235
Income tax expense	6,166		7,699		32,108		34,290
Net income	$	33,733	$	38,875	$	148,351	$	153,945

Net Interest Income

Park’s principal source of earnings is net interest income, the difference between total interest income and total interest expense. Net interest income results from average balances outstanding for interest earning assets and interest bearing liabilities in conjunction with the average rates earned and paid on them.

Comparison for the First Quarters of 2023 and 2022

Net interest income increased by $14.5 million, or 18.7%, to $92.2 million for the first quarter of 2023, compared to $77.7 million for the first quarter of 2022. See the discussion under the table below.

 

	Three months ended  March 31, 2023						Three months ended  March 31, 2022
(Dollars in thousands)	Average balance		Interest		Tax equivalent  yield/cost		Average balance		Interest		Tax equivalent  yield/cost
Loans (1)	$	7,099,240	$	91,766	5.24	%	$	6,829,336	$	72,584	4.31	%
Taxable investments	1,452,398		12,979		3.62	%	1,397,975		6,130		1.78	%
Tax-exempt investments (2)	422,832		3,686		3.54	%	371,695		3,098		3.38	%
Money market instruments	292,948		3,396		4.70	%	360,103		153		0.17	%
Interest earning assets	$	9,267,418	$	111,827	4.89	%	$	8,959,109	$	81,965	3.71	%
Interest bearing deposits	$	5,476,661	15,559		1.15	%	$	5,170,296	1,071		0.08	%
Short-term borrowings	204,471		824		1.64	%	223,157		244		0.44	%
Long-term debt	188,727		2,320		4.99	%	188,267		2,145		4.62	%
Interest bearing liabilities	$	5,869,859	$	18,703	1.29	%	$	5,581,720	$	3,460	0.25	%
Excess interest earning assets	$	3,397,559					$	3,377,389
Tax equivalent net interest income			$	93,124					$	78,505
Net interest spread					3.60	%					3.46	%
Net interest margin					4.08	%					3.55	%

(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $152,000 for the three months ended March 31, 2023 and $168,000 for the same period of 2022.

(2) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $774,000 for the three months ended March 31, 2023 and $651,000 for the same period of 2022.

Average interest earning assets for the first quarter of 2023 increased by $308.3 million, or 3.4%, to $9,267 million for the first quarter of 2023, compared to $8,959 million for the first quarter of 2022. The average yield on interest earning assets increased by 118 basis points to 4.89% for the first quarter of 2023, compared to 3.71% for the first quarter of 2022.

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Interest income for the three months ended March 31, 2023 and 2022 included purchase accounting accretion of $200,000 and $477,000, respectively, related to the acquisitions of NewDominion and Carolina Alliance, as well as $574,000 and $42,000, respectively, of interest income related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB. Interest income for the three months ended March 31, 2023 and 2022 also included $26,000 and $1.6 million, respectively, of income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH-related income, and PPP income, the yield on loans was 5.20% and 4.22% for the three months ended March 31, 2023 and 2022, respectively, and the yield on earning assets was 4.86% and 3.64% for the three months ended March 31, 2023 and 2022, respectively.

Average interest bearing liabilities for the first quarter of 2023 increased by $288.1 million, or 5.2%, to $5,870 million, compared to $5,582 million for the first quarter of 2022. The average cost of interest bearing liabilities increased by 104 basis points to 1.29% for the first quarter of 2023, compared to 0.25% for the first quarter of 2022. During the three months ended March 31, 2023 and 2022, Park continued to participate in a OWS program in order to manage growth of the balance sheet. At March 31, 2023 and 2022, Park had $164.6 million and $1,149.2 million, respectively, in OWS insured cash sweep deposits which were off-balance sheet. Management from time to time has elected to move these funds both on and off the balance sheet throughout the quarter due to favorable interest rate conditions and other factors. When on the balance sheet, these deposits are included in the average interest bearing liabilities and related interest expense.

Removing the impacts of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance, the interest income related to payments on certain SEPH nonaccrual loan relationships and the interest income related to PPP loans, the net interest margin was 4.04% and 3.48% for the three months ended March 31, 2023 and 2022, respectively.

Yield on Loans: Average loan balances increased $269.9 million, or 4.0%, to $7,099 million for the first quarter of 2023, compared to $6,829 million for the first quarter of 2022. The average yield on the loan portfolio increased by 93 basis points to 5.24% for the first quarter of 2023, compared to 4.31% for the first quarter of 2022. Average loans for the first quarters of 2023 and 2022 included $3.8 million and $60.0 million, respectively, of PPP loans.

The table below shows the average balance and tax equivalent yield by type of loan for the three months ended March 31, 2023 and 2022.

	Three months ended  March 31, 2023				Three months ended  March 31, 2022
(Dollars in thousands)	Average balance		Tax equivalent  yield		Average balance		Tax equivalent  yield
Home equity loans	$	166,648	7.74	%	$	161,827	3.53	%
Installment loans	1,911,708		5.03	%	1,680,738		4.67	%
Real estate loans	1,197,827		4.12	%	1,130,635		3.69	%
Commercial loans (1)	3,818,741		5.59	%	3,853,302		4.36	%
Other	4,316		8.37	%	2,834		11.73	%
Total loans before allowance	$	7,099,240	5.24	%	$	6,829,336	4.31	%

(1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $152,000 for the three months ended March 31, 2023 and $168,000 for the same period of 2022.

Loan interest income for the three months ended March 31, 2023 and 2022 included the accretion of purchase accounting

adjustments related to the acquisitions of NewDominion and Carolina Alliance, interest income related to payments on certain SEPH nonaccrual loan relationships and interest income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH-related income, and PPP income, (a) the yield on home equity loans was 7.67%, the yield on installment loans was unchanged at 5.03%, the yield on real estate loans was unchanged at 4.12%, the yield on commercial loans was 5.51% and the yield on total loans before allowance was 5.20% for the three months ended March 31, 2023; and (b) the yield on home equity loans was 3.40%, the yield on installment loans was unchanged at 4.67%, the yield on real estate loans was 3.67%, the

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yield on commercial loans was 4.21% and the yield on total loans before allowance was 4.22% for the three months ended March 31, 2022.

Cost of Deposits: Average interest bearing deposit balances increased $306.4 million, or 5.9%, to $5,477 million for the first quarter of 2023, compared to $5,170 million for the first quarter of 2022. The average cost of funds on deposit balances increased by 107 basis points to 1.15% for the first quarter of 2023, compared to 0.08% for the first quarter of 2022.

The table below shows for the three months ended March 31, 2023 and 2022, the average balance and cost of funds by type of deposit.

	Three months ended  March 31, 2023				Three months ended  March 31, 2022
(Dollars in thousands)	Average balance		Cost of funds		Average balance		Cost of funds
Transaction accounts	$	2,156,473	1.15	%	$	1,639,828	0.02	%
Savings deposits and clubs	2,777,518		1.18	%	2,829,331		0.04	%
Time deposits	542,670		1.01	%	701,137		0.42	%
Total interest bearing deposits	$	5,476,661	1.15	%	$	5,170,296	0.08	%

Yield on Average Interest Earning Assets: The following table shows the tax equivalent yield on average interest earning assets for the three months ended March 31, 2023 and for the years ended December 31, 2022, 2021 and 2020.

	Loans (1) (3)		Investments (2)		Money Market Instruments		Total(3)
2020 - year	4.71	%	2.66	%	0.26	%	4.28	%
2021 - year	4.53	%	2.22	%	0.13	%	3.86	%
2022 - year	4.65	%	2.66	%	2.07	%	4.14	%
2023 - first three months	5.24	%	3.60	%	4.70	%	4.89	%

(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $152,000 for the three months ended March 31, 2023, and $627,000, $704,000, and $623,000 for the years ended December 31, 2022, 2021 and 2020, respectively.

(2) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $774,000 for the three months ended March 31, 2023, and $2.9 million, $2.2 million and $2.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

(3) Interest income for the three months ended March 31, 2023 and for the years ended December 31, 2022, 2021 and 2020 included $574,000, $3.7 million, $8.0 million, and $453,000, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB, as well as $200,000, $1.8 million, $3.3 million, and $4.4 million, respectively, of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Interest income for the three months ended March 31, 2023 and for the years ended December 31, 2022 2021, and 2020 included $26,000, $3.1 million, $18.0 million and $16.7 million, respectively, of income related to PPP loans. Excluding all of these sources of income described in the preceding sentences of this footnote, the yield on loans was 5.20%, 4.55%, 4.27%, and 4.63% for the three months ended March 31, 2023, and for the years ended December 31, 2022, 2021 and 2020, respectively, and the yield on total earning assets was 4.86%, 4.06%, 3.64%, and 4.20% for the three months ended March 31, 2023 and for the years ended December 31, 2022, 2021 and 2020, respectively.

Cost of Average Interest Bearing Liabilities: The following table shows the cost of funds on average interest bearing liabilities for the three months ended March 31, 2023 and for the years ended December 31, 2022, 2021 and 2020.

	Interest bearing deposits (1)		Short-term borrowings		Long-term debt		Total (1)
2020 - year	0.41	%	0.40	%	3.55	%	0.52	%
2021 - year	0.12	%	0.27	%	4.32	%	0.28	%
2022 - year	0.39	%	0.67	%	4.69	%	0.54	%
2023 - first three months	1.15	%	1.64	%	4.99	%	1.29	%

(1) Interest expense for the years ended December 31, 2022, 2021 and 2020 included $7,000, $46,000, and $226,000, respectively, of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Excluding this income, for the years ended December 31, 2022, 2021 and 2020, the cost of funds on interest bearing deposits was 0.39%, 0.12%, and 0.41%,, respectively, and the cost of total interest bearing liabilities was 0.54%, 0.28%, and 0.53%, respectively. There was no accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance for the three months ended March 31, 2023.

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Credit Metrics and Provision for (Recovery of) Credit Losses

The provision for (recovery of) credit losses is the amount added to/subtracted from the allowance for credit losses to ensure the allowance is sufficient to absorb estimated credit losses over the life of a loan. The amount of the provision for (recovery of) credit losses is determined by management based on relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets.

The adoption of ASU 2022-02 on January 1, 2023 resulted in a $383,000 increase to the allowance for credit losses. A cumulative effect adjustment resulting in a $303,000 decrease to retained earnings and an $80,000 increase to deferred tax assets was also recorded. Additionally, as a result of the adoption of this ASU and elimination of the concept of TDRs, total nonperforming loans decreased by $20.1 million during the three months ended March 31, 2023 and individually evaluated loans decreased by $11.5 million.

The table below provides additional information on the recovery of credit losses for the three-month periods ended March 31, 2023 and 2022.

	Three Months Ended March 31,
(Dollars in thousands)	2023			2022
Allowance for credit losses:
Beginning balance	$	85,379		$	83,197
Cumulative change in accounting principle; adoption of ASU 2022-02	383			—
Charge-offs	2,235			1,347
Recoveries	2,236			1,616
Net recoveries	(1)			(269)
Provision for (recovery of) credit losses	183			(4,605)
Ending balance	$	85,946		$	78,861
Net charge-offs (recoveries) as a % of average loans (annualized)	—		%	(0.02)		%

The following table provides additional information related to the allowance for credit losses for Park including information related to specific reserves and general reserves, at March 31, 2023, December 31, 2022, and March 31, 2022.

(Dollars in thousands)	3/31/2023			12/31/2022			3/31/2022
Total allowance for credit losses	$	85,946		$	85,379		$	78,861
Allowance on PCD loans	—			—			—
Specific reserves on individually evaluated loans	4,318			3,566			1,513
General reserves on collectively evaluated loans	$	81,628		$	81,813		$	77,348
Total loans	$	7,093,857		$	7,141,891		$	6,821,606
PCD loans	4,555			4,653			6,987
Individually evaluated loans (1)	59,384			78,341			63,209
Collectively evaluated loans	$	7,029,918		$	7,058,897		$	6,751,410
Allowance for credit losses as a % of period end loans	1.21		%	1.20		%	1.16		%
General reserve as a % of collectively evaluated loans	1.16		%	1.16		%	1.15		%

(1) After the adoption of ASU 2022-02 on January 1, 2023, loans individually evaluated for impairment include all internally classified commercial nonaccrual loans. Prior to the adoption of ASU 2022-02, loans individually evaluated for impairment included all internally classified commercial nonaccrual loans and accruing TDRs.

The allowance for credit losses of $85.9 million at March 31, 2023 represented a $567,000, or 0.7%, increase compared to $85.4 million at December 31, 2022, The increase was largely due to a $752,000 increase in specific reserves, offset by a

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decline of $185,000 in general reserves.

Generally, valuations for all nonperforming loans are updated at least annually, either through independent valuations by a licensed appraiser or a verification of value ("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. As new valuation information is received, management performs an evaluation and applies a discount for anticipated disposition costs to determine the net realizable value of the collateral, which is compared against the outstanding principal balance to determine if additional write-downs are necessary.

Nonperforming Assets: After the adoption of ASU 2022-02 on January 1, 2023, which eliminated the TDR classification, non-performing assets include: (1) loans whose interest is accounted for on a nonaccrual basis; (2) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue; and (3) OREO which results from taking possession of property that served as collateral for a defaulted loan. Prior to the adoption of ASU 2022-02 on January 1, 2023, nonperforming assets included: (1) loans whose interest is accounted for on a nonaccrual basis; (2) TDRs on accrual status; (3) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue; and (4) OREO which results from taking possession of property that served as collateral for a defaulted loan.

The following table compares Park’s nonperforming assets at March 31, 2023, December 31, 2022 and March 31, 2022.

(In thousands)	March 31, 2023			December 31, 2022			March 31, 2022
Nonaccrual loans	$	73,114		$	79,696		$	54,018
Accruing TDRs (for years 2022 and prior) (1)	N.A.			20,134			32,428
Loans past due 90 days or more	1,251			1,281			445
Total nonperforming loans	$	74,365		$	101,111		$	86,891
OREO	1,468			1,354			760
Total nonperforming assets	$	75,833		$	102,465		$	87,651
Percentage of nonaccrual loans to total loans	1.03		%	1.12		%	0.79		%
Percentage of nonperforming loans to total loans (1)	1.05		%	1.42		%	1.27		%
Percentage of nonperforming assets to total loans (1)	1.07		%	1.43		%	1.28		%
Percentage of nonperforming assets to total assets (1)	0.77		%	1.04		%	0.92		%

 (1) Effective January 1, 2023, Park adopted ASU 2022-02. Among other things, this ASU eliminated the concept of TDRs.

Included in the OREO totals above were $1.4 million of SEPH OREO at both March 31, 2023 and December 31, 2022, and $594,000 of SEPH OREO at March 31, 2022.

Park classifies loans as nonaccrual when a loan (1) is maintained on a cash basis because of deterioration in the financial condition of the borrower, (2) payment in full of principal or interest is not expected, or (3) principal or interest has been in default for a period of 90 days for commercial loans and 120 days for all other loans. As a result, loans may be classified as nonaccrual despite being current with their contractual terms. The following table details the delinquency status of nonaccrual loans at March 31, 2023, December 31, 2022 and March 31, 2022. Loans are classified as current if they are less than 30 days past due.

	March 31, 2023				December 31, 2022					March 31, 2022
(In thousands)	Balance		Percent of Total Loans		Balance		Percent of Total Loans			Balance		Percent of Total Loans
Nonaccrual loans - current	$	32,813	0.46	%	$	58,893	0.83	%	1	$	36,415	0.53	%
Nonaccrual loans - past due	40,301		0.57	%	20,803		0.29	%		17,603		0.26	%
Total nonaccrual loans	$	73,114	1.03	%	$	79,696	1.12	%		$	54,018	0.79	%

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Credit Quality Indicators: When determining the quarterly credit loss provision, Park reviews the grades of commercial loans. These loans are graded from 1 to 8. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded an 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher PD is applied to these loans. Commercial loans graded a 6 (substandard), also considered to be watch list credits, represent higher credit risk than those rated special mention and, as a result, a higher PD is applied to these loans. Commercial loans that are graded a 7 (doubtful) are shown as nonperforming and Park charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and included within the individually evaluated category. Any commercial loan graded an 8 (loss) is completely charged-off.

The following table highlights the credit trends within the commercial loan portfolio.

Commercial loans * (In thousands)	March 31, 2023		December 31, 2022		March 31, 2022
Pass-rated	$	3,664,298	$	3,709,065	$	3,696,217
Special mention	87,431		79,855		78,432
Substandard	2,176		1,965		75
Individually evaluated for impairment (1)	59,384		78,341		63,209
Accruing PCD	4,469		4,563		6,497
Total	$	3,817,758	$	3,873,789	$	3,844,430

(1) Prior to the adoption of ASU 2002-02 on January 1, 2023, accruing TDRs were also included in individually evaluated for impairment loans totals.

* Commercial loans include (1) Commercial, financial and agricultural loans, (2) Commercial real estate loans, (3) Commercial related loans in the construction real estate portfolio, (4) Commercial related loans in the residential real estate portfolio and (5) Leases.

Park's watch list includes all criticized and classified commercial loans, defined by Park as loans rated special mention or worse. Park had $89.6 million of collectively evaluated commercial loans included on the watch list at March 31, 2023, compared to $81.8 million at December 31, 2022, and $78.5 million at March 31, 2022. The existing conditions of these loans do not warrant classification as nonaccrual. However, these loans have shown some weakness and management performs additional analysis regarding each borrower's ability to comply with payment terms.

Individually Evaluated Loans: Loans that do not share risk characteristics are evaluated on an individual basis. Park has determined that any commercial loans which have been placed on nonaccrual status will be individually evaluated. Individual analysis will establish a specific reserve for loans in scope.  Specific reserves on individually evaluated commercial loans are typically based on management’s best estimate of the fair value of collateral securing these loans. The amount ultimately charged off for these loans may be different from the specific reserve as the ultimate liquidation of the collateral may be for an amount different from management’s estimate. Prior to the elimination of TDRs with the adoption of ASU 2022-02 on January 1, 2023, Park also included commercial accruing TDRs as individually evaluated loans.

Individually evaluated commercial loans were $59.4 million at March 31, 2023, a decrease of $19.0 million, compared to $78.3 million at December 31, 2022 and a decrease of $3.8 million, compared to $63.2 million at March 31, 2022. The $78.3 million of individually evaluated commercial loans at December 31, 2022 included $11.5 million of loans modified in a TDR which were on accrual status and performing in accordance with the restructured terms, down from $22.9 million at March 31, 2022.

At March 31, 2023, Park had taken partial charge-offs of $1.5 million related to the $59.4 million of individually evaluated commercial loans, compared to partial charge-offs of $1.8 million related to the $78.3 million of individually evaluated commercial loans at December 31, 2022.

Loans Acquired with Deteriorated Credit Quality: In conjunction with the NewDominion acquisition, Park acquired loans with a book value of $277.9 million as of the July 1, 2018 acquisition date. These loans were recorded at the initial fair value of $272.8 million. Loans acquired with deteriorated credit quality (ASC 310-30) with a book value of $5.1 million were recorded at the initial fair value of $4.9 million. In conjunction with the Carolina Alliance acquisition, Park acquired loans and leases with a book value of $589.7 million as of the April 1, 2019 acquisition date. These loans and leases were recorded at the initial fair value of $578.6 million. Loans and leases acquired with deteriorated credit quality (ASC 310-30) with a book value of $19.9 million were recorded at the initial fair value of $18.4 million.

Upon adoption of CECL on January 1, 2021, $52,000 of the credit discount on PCD loans was reclassified to the allowance for credit losses. PCD loans are individually evaluated on a quarterly basis to determine if a specific reserve is necessary. At March 31, 2023 and December 31, 2022, there was no allowance for credit losses on PCD loans. The carrying amount of loans

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acquired with deteriorated credit quality at March 31, 2023 and December 31, 2022 was $4.6 million and $4.7 million, respectively.

Allowance for Credit Losses: The allowance for credit losses is calculated on a quarterly basis. The methodology for calculating the ACL and assumptions made as of March 31, 2023 are detailed below.

Quantitative Considerations

The ACL is primarily calculated utilizing a DCF model. Key inputs and assumptions used in this model are discussed below:

•Forecast model - For each portfolio segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized Park's own FFIEC Call Report data for the commercial, financial and agricultural and residential real estate portfolio segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer portfolio segments. Park updated the LDA in the fourth quarter of 2022 with data through September 30, 2022. After considering the impact of the inclusion of periods impacted by COVID, as well as analysis of the ongoing applicability of the selected peer group, management decided it was appropriate to continue to utilize the LDA analysis from the fourth quarter of 2019 as the correlation of the LDA was higher.

•Probability of default – PD is the probability that an asset will be in default within a given time frame. Park has defined default to be when a charge-off has occurred, a loan is placed on nonaccrual, or a loan is greater than 90 days past due. Whenever possible, Park utilizes its own loan-level PDs for the reasonable and supportable forecast period. When loan-level data is not available reflecting the forecasted economic conditions, a forecast model is utilized to estimate PDs.

•Loss given default – LGD is the percentage of the asset not expected to be collected due to default. Whenever possible, Park utilizes its own loan-level LGDs for the reasonable and supportable forecast period. When it is not possible to use Park's own LGDs, the LGD is derived using a method referred to as Frye Jacobs.

•Prepayments and curtailments – Prepayments and curtailments are calculated based on Park’s own data utilizing a three-year average. This analysis is updated annually in the fourth quarter and was last updated in the fourth quarter of 2022.

•Forecast and reversion – Park has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.

•Economic forecast - Park utilizes a third party to provide economic forecasts under various scenarios, which are weighted in order to reflect model risk in the current economic environment. The scenario weighting is evaluated by management on a quarterly basis.

◦As of December 31, 2022, the "most likely" scenario forecasted Ohio unemployment between 4.14% and 4.36% during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2022, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued high level of inflation, historically low consumer confidence, rising interest rates, geopolitical conflict (including the conflict between Russia and Ukraine), and workforce and supply chain challenges continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2022.

◦As of March 31, 2023 the "most likely" scenario forecasted Ohio unemployment between 4.15% and 4.51% during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2023, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued high level of inflation, historically low consumer confidence, rising interest rates, financial system stress related to recent bank failures, geopolitical conflict, and workforce challenges continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at March 31, 2023.

Qualitative Considerations

Park reviews various internal and external factors to consider the need for any qualitative adjustments to the quantitative model. Factors considered include the following:

•The nature and volume of Park’s financial assets; the existence, growth, and effect of any concentrations of credit and the volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets. Specifically, management considers:

◦Trends (e.g., growth, reduction) in specific categories of the loan portfolio, as well as adjustments to the types of loans offered by Park.

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◦Level of and trend in loan delinquencies, troubled loans, commercial watch list loans and nonperforming loans.

◦Level of and trend in new nonaccrual loans.

◦Level of and trend in loan charge-offs and recoveries.

•Park's lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, write-offs, and recoveries.

•The quality of Park’s credit review function.

•The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff.

•The effect of other external factors such as the regulatory, legal and technological environments; competition; geopolitical conflict; and events such as natural disasters or pandemics.

•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in the markets in which Park operates that affect the collectibility of financial assets.

•Where the U.S. economy is within a given credit cycle.

•The extent that there is government assistance (stimulus).

As of March 31, 2023 and December 31, 2022, Park had $3.4 million and $4.2 million, respectively, of PPP loans which were included in the commercial, financial and agricultural portfolio segment. These loans are guaranteed by the SBA and thus have not been reserved for using the same methodology as the rest of Park’s loan portfolio. A 10 basis point reserve at both March 31, 2023 and December 31, 2022 was calculated for these loans to reflect minimal credit risk.

Other Income

Other income decreased by $7.3 million to $24.4 million for the quarter ended March 31, 2023, compared to $31.7 million for the first quarter of 2022.

The decrease for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to decreases in income from fiduciary activities, other service income, other components of net periodic pension benefit income, miscellaneous income, and a change in (loss) gain on equity securities, net, partially offset by increases in service charges on deposit accounts and debit card fee income.

The following table provides a summary of the changes in the components of other income:

	Three months ended March 31,
(In thousands)	2023		2022		Change
Income from fiduciary activities	$	8,615	$	8,797	$	(182)
Service charges on deposit accounts	2,241		2,074		167
Other service income	2,697		4,819		(2,122)
Debit card fee income	6,457		6,126		331
Bank owned life insurance income	1,185		1,175		10
ATM fees	533		532		1
Loss on sale of OREO, net	(9)		—		(9)
OREO valuation markup	15		30		(15)
(Loss) gain on equity securities, net	(405)		2,353		(2,758)
Other components of net periodic pension benefit income	1,893		3,027		(1,134)
Miscellaneous	1,165		2,723		(1,558)
Total other income	$	24,387	$	31,656	$	(7,269)

Other service income decreased by $2.1 million, or 44.0%, to $2.7 million for the three months ended March 31, 2023, compared to $4.8 million for the same period of 2022. The primary reasons for the decrease for the three months ended March 31, 2023 compared to the same period of 2022 were a decrease in fee income related to mortgage loan originations to be sold in the secondary market of $1.6 million and a decrease in mortgage servicing rights income of $731,000. Mortgage origination volume decreased by $98.9 million, or 61.8%, to $61.2 million for the three months ended March 31, 2023 from $160.1 million for the three months ended March 31, 2022.

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(Loss) gain on equity securities, net, changed by $2.8 million, to a net loss of $405,000 for the three months ended March 31, 2023, compared to a net gain of $2.4 million for the same period in 2022. The $2.8 million change for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was related to $2.8 million change in the gain (loss) on equity securities held at NAV which went from a net gain of $2.4 million for the three months ended March 31, 2022 to a net loss of $377,000 for the the three months ended March 31, 2023.

Other components of net periodic pension benefit income decreased $1.1 million to $1.9 million for the three months ended March 31, 2023 compared to $3.0 million for the same period in 2022. The decrease was largely due to a decrease in the expected return on plan assets and an increase in interest cost.

Miscellaneous income decreased $1.6 million, or 57.2%, to $1.2 million for the three months ended March 31, 2023 compared to $2.7 million for the same period of 2022. The decrease for the three-month period ended March 31, 2023 compared to the same period of 2022 was primarily a result of decreases in brokerage income of $212,000 and operating lease income of $191,000, as well as a decrease of $434,000 in wire transfer and ACH fees as a result of the reclassification of these fees to service charges on deposit accounts. Also contributing to the decline in miscellaneous income was a decrease in gains on sales of assets. During the first quarter of 2022, a branch location was sold, resulting in a gain of $731,000. There were no comparable sales during the first quarter of 2023.

Other Expense

Other expense increased by $9.1 million to $76.5 million for the three months ended March 31, 2023 compared to $67.3 million for the same period of 2022.

The following table is a summary of the changes in the components of other expense:

	Three months ended March 31,
(In thousands)	2023		2022		Change
Salaries	$	34,871	$	30,521	$	4,350
Employee benefits	10,816		10,499		317
Occupancy expense	3,353		3,214		139
Furniture and equipment expense	3,246		2,937		309
Data processing fees	8,750		7,504		1,246
Professional fees and services	7,221		5,858		1,363
Marketing	1,319		1,317		2
Insurance	1,814		1,405		409
Communication	1,037		890		147
State tax expense	1,278		1,192		86
Amortization of intangible assets	327		402		(75)
Miscellaneous	2,471		1,634		837
Total other expense	$	76,503	$	67,373	$	9,130

Salaries increased by $4.4 million, or 14.3%, to $34.9 million for the three months ended March 31, 2023, compared to $30.5 million for the same period in 2022. The increase for the three months ended March 31, 2023 compared to the same period of 2022 was due to an increase of $3.5 million in base salary expense as full-time equivalent employees increased from 1,679 as of March 31, 2022 to 1,766 as of March 31, 2023. Also contributing to the increase in the first quarter of 2023 compared to the same period in 2022 was an increase in long term incentive expense of $356,000, and an increase in officer incentive compensation of $875,000, partially offset by a decrease in additional compensation expense of $449,000.

Employee benefits increased $317,000, or 3.0%, to $10.8 million for the three months ended March 31, 2023, compared to $10.5 million for the same period in 2022. The $317,000 increase for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to an increase in group insurance costs of $337,000 and increased payroll tax expense of $646,000, partially offset by decreased pension plan expense of $878,000.

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Data processing expense increased $1.2 million, or 16.6%, to $8.8 million for the three months ended March 31, 2023 compared to $7.5 million for the same period in 2022. The increase for the three-month period ended March 31, 2023 compared to the same period in 2022 related to a $938,000 increase in software expenses and a $262,000 increase in debit card processing costs.

Professional fees and services expense increased $1.4 million, or 23.3%, to $7.2 million for the three months ended March 31, 2023 compared to $5.8 million for the same period in 2022. The increase for the three-month period ended March 31, 2023 compared to the same period in 2022 related to a $314,000 increase in director fees, a $347,000 increase in management consulting fees, and a $198,000 increase in legal expenses, as well as smaller increases in credit services expense, temporary wages, and other fees, partially offset by decreases in filing fees, appraisal costs, recruiting expenses, and supervisory examination costs.

Insurance expense increased $409,000, or 29.1%, to $1.8 million for the three months ended March 31, 2023 compared to $1.4 million for the same period in 2022. The increase for the three-month period ended March 31, 2023 compared to the period ended March 31, 2022 related to an increase in FDIC assessments.

The subcategory "miscellaneous" other expense includes expenses for supplies, travel and other miscellaneous expense. The subcategory miscellaneous other expense increased $837,000, or 51.2%, to $2.5 million for the three-month period ended March 31, 2023, compared to the same period in 2022. The $837,000 increase in expense for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily related to an increase in travel expense of $328,000, and an increase of $626,000 in the provision for the allowance for unfunded credit losses, partially offset by a $186,000 decrease in operating lease depreciation.

Items Impacting Comparability

From time to time, revenue, expenses, and/or taxes are impacted by items judged by management of Park to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by management of Park at that time to be infrequent or short-term in nature. Most often, these items impacting comparability of period results relate to merger and acquisition activities and revenue and expenses related to former Vision Bank loan relationships. In other cases, they may result from management's decisions associated with significant corporate actions outside of the ordinary course of business.

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The following table details those items which management believes impact the comparability of current and prior period amounts.

	THREE MONTHS ENDED
(in thousands)	March 31, 2023			March 31, 2022			Affected Line Item
Net interest income	$	92,198		$	77,686
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions	200			477			Interest and fees on loans
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions	—			3			Interest on deposits
less interest income on former Vision Bank relationships	574			42			Interest and fees on loans
Net interest income - adjusted	$	91,424		$	77,164
Provision for (recovery of) credit losses	$	183		$	(4,605)
less recoveries on former Vision Bank relationships	(723)			(1)			Provision for (recovery of) credit losses
Provision for (recovery of) credit losses - adjusted	$	906		$	(4,604)
Total other income	$	24,387		$	31,656
less other service income related to former Vision Bank relationships	135			—			Other service income
Total other income - adjusted	$	24,252		$	31,656
Total other expense	$	76,503		$	67,373
less direct expenses related to collection of payments on former Vision Bank loan relationships	100			—			Professional fees and services
less core deposit intangible amortization related to NewDominion and Carolina Alliance acquisitions	327			402			Amortization of intangible assets
Total other expense - adjusted	$	76,076		$	66,971
Tax effect of adjustments to net income identified above (7)	$	(253)		$	(25)
Net income - reported	$	33,733		$	38,875
Net income - adjusted (6)	$	32,781		$	38,779
Diluted EPS	$	2.07		$	2.38
Diluted EPS, adjusted (6)	$	2.01		$	2.37
Annualized return on average assets (1)(2)	1.36		%	1.60		%
Annualized return on average assets, adjusted (1)(2)(6)	1.32		%	1.60		%
Annualized return on average tangible assets (1)(2)(4)	1.38		%	1.63		%
Annualized return on average tangible assets, adjusted (1)(2)(4)(6)	1.34		%	1.63		%
Annualized return on average shareholders' equity (1)(2)	12.54		%	14.26		%
Annualized return on average shareholders' equity, adjusted (1)(2)(6)	12.19		%	14.23		%
Annualized return on average tangible equity (1)(2)(3)	14.78		%	16.80		%
Annualized return on average tangible equity, adjusted (1)(2)(3)(6)	14.36		%	16.76		%
Efficiency ratio (5)	65.10		%	61.16		%
Efficiency ratio, adjusted (5)(6)	65.24		%	61.08		%
Annualized net interest margin (5)	4.08		%	3.55		%
Annualized net interest margin, adjusted (5)(6)	4.04		%	3.53		%

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Financial Reconciliations
(1) Reported measure uses net income.
(2) Averages are for the three months ended March 31, 2023 and March 31, 2022, as appropriate.
(3) Net income for each period divided by average tangible equity during the period. Average tangible equity equals average shareholders' equity during the applicable period less average goodwill and other intangible assets during the applicable period.
RECONCILIATION OF AVERAGE SHAREHOLDERS' EQUITY TO AVERAGE TANGIBLE EQUITY:
	THREE MONTHS ENDED
	March 31, 2023		March 31, 2022
AVERAGE SHAREHOLDERS' EQUITY	$	1,090,952	$	1,105,540
Less: Average goodwill and other intangible assets	165,457		166,918
AVERAGE TANGIBLE EQUITY	$	925,495	$	938,622
(4) Net income for each period divided by average tangible assets during the period. Average tangible assets equals average assets less average goodwill and other intangible assets, in each case during the applicable period.
RECONCILIATION OF AVERAGE ASSETS TO AVERAGE TANGIBLE ASSETS
	THREE MONTHS ENDED
	March 31, 2023		March 31, 2022
AVERAGE ASSETS	$	10,058,880	$	9,825,382
Less: Average goodwill and other intangible assets	165,457		166,918
AVERAGE TANGIBLE ASSETS	$	9,893,423	$	9,658,464
(5) Efficiency ratio is calculated by dividing total other expense by the sum of fully taxable equivalent net interest income and other income. Fully taxable equivalent net interest income reconciliation to net interest income is shown below assuming a 21% federal corporate income tax rate. Additionally, net interest margin is calculated on a fully taxable equivalent basis by dividing fully taxable equivalent net interest income by average interest earning assets, in each case during the applicable period.
RECONCILIATION OF FULLY TAXABLE EQUIVALENT NET INTEREST INCOME TO NET INTEREST INCOME
	THREE MONTHS ENDED
	March 31, 2023		March 31, 2022
Interest income	$	110,901	$	81,146
FTE adjustment	926		819
FTE interest income	$	111,827	$	81,965
Interest expense	18,703		3,460
FTE net interest income	$	93,124	$	78,505
(6) Adjustments to net income for each period presented are detailed in the non-GAAP reconciliations of net interest income, provision for (recovery of) credit losses, total other income, and total other expense, as well as the disclosure of the "Tax effect of adjustments to net income identified above."
(7) The tax effect of adjustments to net income was calculated assuming a 21% federal corporate income tax rate.
(8) Pre-tax, pre-provision ("PTPP") net income is calculated as net income, plus income taxes, plus the provision for (recovery of) credit losses, in each case during the applicable period. PTPP net income is a common industry metric utilized in capital analysis and review. PTPP is used to assess the operating performance of Park while excluding the impact of the provision for (recovery of) credit losses.
RECONCILIATION OF PRE-TAX, PRE-PROVISION NET INCOME
	THREE MONTHS ENDED
	March 31, 2023		March 31, 2022
Net income	$	33,733	$	38,875
Plus: Income taxes	6,166		7,699
Plus: Provision for (recovery of) credit losses	183		(4,605)
Pre-tax, pre-provision net income	$	40,082	$	41,969

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Income Tax

Income tax expense was $6.2 million for the first quarter of 2023 and consisted of federal income tax expense of $6.4 million and state income tax benefits of $234,000, as the result of a refund. This compares to income tax expense of $7.7 million for the first quarter of 2022 which consisted of federal income tax expense of $7.4 million and state income tax expense of $305,000. The effective income tax rate for the first quarter of 2023 was 15.5%, compared to 16.5% for the same period in 2022.

The difference between the statutory federal corporate income tax rate of 21% and Park's effective income tax rate reflects permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, qualified affordable housing and historical tax credits, bank owned life insurance income, and dividends paid on the common shares held within Park's KSOP, offset by the impact of state income taxes. Park expects permanent federal income tax differences for the 2023 year will be approximately $6.7 million.

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Comparison of Financial Condition

At March 31, 2023 and December 31, 2022

Changes in Financial Condition

Total assets increased by $2.0 million during the first three months of 2023 to $9,857 million at March 31, 2023, compared to $9,855 million at December 31, 2022. This increase was primarily due to the following:

•Cash and cash equivalents increased by $72.2 million, or 38.0%, to $261.9 million at March 31, 2023, compared to $189.7 million at December 31, 2022. Money market instruments increased by $82.8 million and cash and due from banks decreased by $10.6 million.

•Total investment securities decreased by $20.4 million, or 1.1%, to $1,800 million at March 31, 2023, compared to $1,821 million at December 31, 2022.

•Loans decreased by $48.0 million, or 0.7%, to $7,094 million at March 31, 2023, compared to $7,142 million at December 31, 2022.

Total liabilities decreased by $10.9 million, or 0.1%, during the first three months of 2023 to $8,775 million at March 31, 2023, compared to $8,786 million at December 31, 2022. This decrease was primarily due to the following:

•Short-term borrowings decreased by $55.3 million, or 24.3%, to $172.1 million at March 31, 2023, compared to $227.3 million at December 31, 2022 due to a decrease in securities sold under agreements to repurchase.

•Other liabilities decreased by $11.7 million, or 14.9%, to $67.2 million at March 31, 2023, compared to $78.9 million at December 31, 2022. This was primarily related to a decrease in accrued expenses payable.

•Total deposits increased by $59.7 million, or 0.7%, to $8,294 million at March 31, 2023, compared to $8,235 million at December 31, 2022. During 2020, Park made the decision to participate in an OWS program in order to manage the balance sheet. At March 31, 2023 and December 31, 2022, Park had $164.6 million and $195.9 million, respectively, in off-balance sheet deposits.

Total shareholders’ equity increased by $12.9 million, or 1.2%, to $1,082 million at March 31, 2023, from $1,069 million at December 31, 2022. This increase was primarily due to the following:

•Accumulated other comprehensive loss, net of taxes changed by $12.4 million, from a negative $102.4 million at December 31, 2022, to a negative $90.0 million at March 31, 2023, and is largely comprised of unrealized net holding losses on debt securities AFS, net of taxes, of $83.4 million at March 31, 2023 compared to unrealized net holding losses on debt securities AFS, net of of taxes of $95.7 million at December 31, 2022.

•Retained earnings increased by $15.3 million during the period primarily as a result of net income of $33.7 million, partially offset by cash dividends on common shares of $17.3 million.

•Treasury shares increased by $11.7 million during the period as a result of the repurchase of 124,000 treasury shares, partially offset by the issuance of treasury shares under share-based compensation awards (net of common shares withheld to pay employee income taxes).

Increases or decreases in the investment securities portfolio, short-term borrowings and long-term debt are greatly dependent upon the growth in loans and deposits. The primary objective of management is to grow loan and deposit totals. To the extent that management is unable to grow loan totals at a desired growth rate, additional investment securities may be acquired. Likewise, both short-term borrowings and long-term debt are utilized to fund the growth in earning assets if the growth in deposits and cash flow from operations are not sufficient to do so.

Liquidity

Cash provided by operating activities was $24.4 million and $28.3 million for the three months ended March 31, 2023 and 2022, respectively. Net income was the primary source of cash from operating activities for each of the three-month periods ended March 31, 2023 and 2022.

Cash provided by investing activities was $78.7 million and cash used in investing activities was $40.0 million for the three months ended March 31, 2023 and 2022, respectively. Proceeds from the sale, repayment, or maturity of investment securities provide cash and purchases of investment securities use cash. Net investment securities transactions provided cash of $34.8 million for the three months ended March 31, 2023 and used cash of $76.0 million for the three months ended March 31, 2022. Another major use or source of cash in investing activities is the net increase or decrease in the loan portfolio. Cash provided by

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the net decrease in the loan portfolio was $50.2 million for the three months ended March 31, 2023 and $52.5 million for the three months ended March 31, 2022.

Cash used in financing activities was $30.9 million and cash provided by financing activities was $39.4 million for the three months ended March 31, 2023 and 2022, respectively. A major source of cash for financing activities is the net change in deposits. Deposits (net of off-balance sheet deposits) increased and provided $59.7 million and $91.8 million of cash for the three months ended March 31, 2023 and 2022, respectively. Another major source/use of cash from financing activities is borrowings in the form of short-term borrowings, long-term debt and subordinated notes. For the three months ended March 31, 2023, net short-term borrowings decreased and used $55.3 million in cash. For the three months ended March 31, 2022, net short-term borrowings decreased and used $32.9 million in cash. For the three months ended March 31, 2023, cash declined by $15.3 million due to the repurchase of common shares to be held as treasury shares; while there were no repurchases of common shares during the three months ended March 31, 2022. Finally, cash declined by $17.4 million and $17.1 million for the three months ended March 31, 2023 and 2022, respectively, from the payment of dividends.

Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as the operating cash needs of the Corporation, are met. Funds are available from a number of sources, including the capital markets, the investment securities portfolio, the core deposit base, FHLB borrowings and the capability to securitize or package loans for sale. The most easily accessible forms of liquidity, Fed Funds Sold, off balance sheet deposits, unpledged investment securities and available FHLB borrowing capacity, totaled $2.74 billion at March 31, 2023. The Corporation’s loan to asset ratio was 71.97% at March 31, 2023, compared to 72.47% at December 31, 2022 and 71.23% at March 31, 2022. Cash and cash equivalents were $261.9 million at March 31, 2023, compared to $189.7 million at December 31, 2022 and $246.9 million at March 31, 2022. Management believes that the present funding sources provide more than adequate liquidity for the Corporation to meet its cash flow needs.

Capital Resources

Total shareholders’ equity at March 31, 2023 was $1,082.2 million, or 11.0% of total assets, compared to $1,069.2 million, or 10.9% of total assets, at December 31, 2022 and $1,076.4 million, or 11.2% of total assets, at March 31, 2022.

Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies. Park has elected not to include the net unrealized gain or loss on debt securities AFS in computing regulatory capital. Park has adopted the Basel III regulatory capital framework as approved by the federal banking agencies. Under the Basel III regulatory capital framework, in order to avoid limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers, Park must hold a capital conservation buffer of 2.5% above the adequately capitalized risk-based capital ratios. The amounts shown below as the adequately capitalized ratio plus capital conservation buffer include the 2.50% buffer. The Federal Reserve Board has also adopted capital requirements Park must maintain to be deemed "well capitalized" and remain a financial holding company.

Park and PNB met each of the well capitalized ratio guidelines applicable to them at March 31, 2023. The following table indicates the capital ratios for PNB and Park at March 31, 2023 and December 31, 2022.

	At March 31, 2023
	Leverage		Tier 1 Risk-Based		Common Equity Tier 1		Total Risk-Based
The Park National Bank	8.61	%	10.89	%	10.89	%	12.31	%
Park National Corporation	10.17	%	12.91	%	12.72	%	16.26	%
Adequately capitalized ratio	4.00	%	6.00	%	4.50	%	8.00	%
Adequately capitalized ratio plus capital conservation buffer	4.00	%	8.50	%	7.00	%	10.50	%
Well capitalized ratio (PNB)	5.00	%	8.00	%	6.50	%	10.00	%
Well capitalized ratio (Park)	N/A		6.00	%	N/A		10.00	%

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	At December 31, 2022
	Leverage		Tier 1 Risk-Based		Common Equity Tier 1		Total Risk-Based
The Park National Bank	8.34	%	10.69	%	10.69	%	12.15	%
Park National Corporation	9.90	%	12.76	%	12.57	%	16.07	%
Adequately capitalized ratio	4.00	%	6.00	%	4.50	%	8.00	%
Adequately capitalized ratio plus capital conservation buffer	4.00	%	8.50	%	7.00	%	10.50	%
Well capitalized ratio (PNB)	5.00	%	8.00	%	6.50	%	10.00	%
Well capitalized ratio (Park)	N/A		6.00	%	N/A		10.00	%

Contractual Obligations and Commitments

In the ordinary course of operations, Park enters into certain contractual obligations. Such obligations include the funding of operations through debt issuances as well as leases for premises. See page 79 of Park’s 2022 Form 10-K (Table 39) for disclosure concerning contractual obligations and commitments at December 31, 2022. There were no significant changes in contractual obligations and commitments during the first three months of 2023.

Financial Instruments with Off-Balance Sheet Risk

PNB is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements.

The exposure to credit loss (for PNB) in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. PNB uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.

The total amounts of off-balance sheet financial instruments with credit risk were as follows:

(In thousands)	March 31, 2023		December 31, 2022
Loan commitments	$	1,450,247	$	1,416,699
Standby letters of credit	$	32,292	$	30,468

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management reviews interest rate sensitivity on a quarterly basis by modeling the consolidated financial statements under various interest rate scenarios. The primary reason for these efforts is to guard Park from adverse impacts of unforeseen changes in interest rates. With the rise in interest rates experienced throughout 2022 and continuing into 2023, Park is now more exposed to an adverse impact to earnings in a down rate environment. Management actively monitors changes in the sensitivity position and has ample tools to adjust exposure as needed. As a result, management expects further changes in interest rates to have a modest impact on net income.

On page 78 (Table 38) of Park’s 2022 Form 10-K, management reported that Park’s twelve-month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $1,087 million or 11.9% of total interest earning assets at December 31, 2022. At March 31, 2023, Park’s twelve-month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $860.3 million or 9.44% of total interest earning assets.

Management supplements the interest rate sensitivity gap analysis with periodic simulations of balance sheet sensitivity under various interest rate and what-if scenarios to better forecast and manage the net interest margin. Management uses a 50 basis

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point change in market interest rates per quarter for a total of 200 basis points per year in evaluating the impact of changing interest rates on net interest income and net income over a twelve-month horizon.

On page 79 of Park’s 2022 Form 10-K, management reported that at December 31, 2022, the earnings simulation model projected that net income would increase by 3.7% using a rising interest rate scenario and decrease by 5.4% using a declining interest rate scenario over the next year. At March 31, 2023, the earnings simulation model projected that net income would increase by 2.6% using a rising interest rate scenario and would decrease by 3.2% in a declining interest rate scenario. At March 31, 2023, management continues to believe that it has the tools necessary to mitigate gradual changes in interest rates (50 basis points per quarter for a total of 200 basis points per year) such that the overall impact to net income will be modest.

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

With the participation of the Chairman of the Board and Chief Executive Officer (the principal executive officer) and the Chief Financial Officer, Secretary and Treasurer (the principal financial officer) of Park, Park’s management has evaluated the effectiveness of Park’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2023 (the end of the quarterly period covered by this Quarterly Report on Form 10-Q). Based on that evaluation, Park’s Chairman of the Board and Chief Executive Officer and Park’s Chief Financial Officer, Secretary and Treasurer have concluded that:

•information required to be disclosed by Park in this Quarterly Report on Form 10-Q and the other reports that Park files or submits under the Exchange Act would be accumulated and communicated to Park’s management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure;

•information required to be disclosed by Park in this Quarterly Report on Form 10-Q and the other reports that Park files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

•Park’s disclosure controls and procedures were effective as of March 31, 2023 (the end of the quarterly period covered by this Quarterly Report on Form 10-Q).

Changes in Internal Control Over Financial Reporting

There were no changes in Park's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Park's fiscal quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, Park's internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.       Legal Proceedings

    We are routinely engaged in various litigation and other legal matters. These include defending against claims of improper loan, deposit account, and other banking practices, as well as trust and investment, intellectual property, contract, and other legal matters, and we have a number of unresolved lawsuits and open matters pending resolution. In addition, we are parties to litigation involving the collection of delinquent accounts, challenges to security interests in collateral, foreclosure lawsuits, and similar matters which are part of, or incidental to, our ordinary course of business. While the ultimate liability with respect to these matters and claims cannot be determined at this time, we believe that losses, damages, or liabilities, if any, and other amounts relating to pending matters are not likely to be material to our consolidated financial position or results of operations. Reserves are established for these various litigation and other legal matters, when appropriate under FASB ASC Topic 450, Contingencies, based in part upon the advice of legal counsel.

Item 1A.     Risk Factors

There are certain risks and uncertainties in our business that could cause Park's actual results to differ materially from those anticipated. In “ITEM 1A. RISK FACTORS” of Part I of Park’s 2022 Form 10-K, we included a detailed discussion of our risk factors. In the first quarter of 2023, we identified one additional risk factor and updated an existing risk factor, described below. All of these risk factors should be read carefully in connection with evaluating Park's business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described in Park's 2022 Form 10-K or in this Quarterly Report on Form 10-Q could materially adversely affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

The impact of larger or similar-sized financial institutions encountering problems may adversely affect Park's business, earnings and financial condition.

Park is exposed to the risk that when a peer financial institution experiences financial difficulties, there could be an adverse impact on the regional banking industry and the business environment in which Park operates. The recent bank failures of Silicon Valley Bank in California, Signature Bank in New York, and First Republic Bank in California during the first and second quarters of 2023 have caused a degree of panic and uncertainty in the investor community and among bank customers generally. While Park does not believe that the circumstances of these three banks' failures are indicators of broader issues with the banking system, the failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational ramification for the financial services industry, including Park. Park will continue to monitor the ongoing events concerning these three banks as well as any future potential bank failures and volatility within the financial services industry generally, together with any responsive measures taken by the banking regulators to mitigate or manage potential turmoil in the financial services industry.

We may become subject to additional requirements and restrictions imposed by the DOJ.

On February 28, 2023, Park National Bank reached an agreement with the DOJ to increase the efforts of Park National Bank to promote home lending in the Columbus, Ohio market. The agreement, which is reflected in the consent order filed on February 28, 2023, in the U.S. District Court for the Southern District of Ohio, Western Division (the “DOJ Consent Order”) and approved on March 2, 2023 by that Court, serves to voluntarily resolve all claims of the U.S. alleging that Park National Bank’s mortgage lending practices within the Columbus, Ohio Metropolitan Statistical Area violated the Fair Housing Act and the Equal Credit Opportunity Act.

In accordance with the terms of the DOJ Consent Order, Park National Bank will invest a minimum of $7.75 million over five years in a loan subsidy fund to increase credit opportunities for home mortgage loans, home improvement loans, home refinance loans and home equity loans and lines of credit for consumers applying for loans in majority-minority census tracts ("MMCTs") in Fairfield, Franklin, Hocking, Licking, Morrow and Perry counties in Ohio (the “Columbus Lending Area”). Park National Bank will also devote a minimum of $500,000 over five years toward one or more community development partnership programs that provide services to residents of MMCTs in the Columbus Lending Area related to credit, financial education, homeownership and foreclosure prevention; and at least $750,000 over five years toward advertising, community outreach, consumer financial education and credit counseling in the Columbus Lending Area. Park National Bank will also establish one new mortgage loan production office and one new full-service branch in MMCTs in the Columbus Lending Area and hire four lenders, one of whom will be Spanish-speaking, focused on serving these communities. In addition, Park National

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Bank will continue to maintain, throughout the term of the DOJ Consent Order, Park National Bank’s full-time Director of Community Home Lending and Development position, who will oversee Park National Bank’s lending in MMCTs in the Columbus Lending Area.

Park is committed to investing at least $9.0 million over five years and will record the related expenses incurred in the

period in which the associated activities occur.

Although Park and Park National Bank are committed to full compliance with the DOJ Consent Order, achieving such compliance will require significant management attention from Park and may cause Park to incur unanticipated costs and expenses. Actions taken to achieve compliance with the DOJ Consent Order may affect Park’s financial performance and may require us to reallocate resources away from existing businesses or to undertake significant changes to our businesses, operations, products and services, and risk management practices. In addition, Park and Park National Bank could be subject to other enforcement actions relating to the alleged violations resolved by the DOJ Consent Order

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds

(a)Not applicable

(b)Not applicable

(c)The following table provides information concerning purchases of Park’s common shares ("Common Shares") made by or on behalf of Park or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Exchange Act, during the three months ended March 31, 2023, as well as the maximum number of Common Shares that may be purchased under Park’s previously announced stock repurchase authorizations to fund the 2017 Long-Term Incentive Plan for Employees (the "2017 Employees LTIP") and the 2017 Long-Term Incentive Plan for Non-Employee Directors (the "2017 Non-Employee Directors LTIP") and Park's previously announced 2017 and 2019 stock repurchase authorizations:

Period	Total number of Common Shares purchased	Average price paid per Common Share		Total number of Common Shares purchased as part of publicly announced plans or programs	Maximum number of Common Shares that may yet be purchased under the plans or programs (1)
January 1 through January 31, 2023	—	$	—	—	1,195,088
February 1 through February 28, 2023	—	—		—	1,195,088
March 1 through March 31, 2023	124,000	123.44		124,000	1,071,088
Total	124,000	$	123.44	124,000	1,071,088

(1)The number shown represents, as of the end of each period, the maximum number of Common Shares that may yet be purchased as part of Park’s publicly announced stock repurchase authorizations to fund the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP, both of which became effective on April 24, 2017; Park's publicly announced stock repurchase authorization covering 500,000 Common Shares which was announced on January 23, 2017; and Park's stock repurchase authorization covering 500,000 Common Shares which was announced on January 28, 2019 and as to which approval from the Federal Reserve was obtained in the form of correspondence from the Federal Reserve Bank of Cleveland dated April 19, 2019.

    At the 2017 Annual Meeting of Shareholders held on April 24, 2017, Park's shareholders approved the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP. The Common Shares to be issued and delivered under the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP may consist of either Common Shares currently held or Common Shares subsequently acquired by Park as treasury shares. No newly-issued Common Shares will be delivered under the 2017 Employees LTIP or the 2017 Non-Employee Directors LTIP. On April 24, 2017, Park's Board of Directors authorized the purchase, from time to time, of up to 750,000 Park Common Shares and 150,000 Park Common Shares, respectively, to be held as treasury shares for subsequent issuance and delivery under the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP.

    On January 23, 2017, Park announced that on that same day, the Park Board of Directors authorized Park to purchase, from time to time, up to an aggregate of 500,000 Park Common Shares. On January 28, 2019, Park announced that on that same

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day, the Park Board of Directors authorized Park to repurchase, from time to time following receipt of any required approval from the Federal Reserve, up to 500,000 Park Common Shares in addition to the 500,000 Park Common Shares which had been authorized for repurchase by the Park Board of Directors on January 23, 2017 and remained available for repurchase as of January 28, 2019. The required approval was received by Park in the form of correspondence from the Federal Reserve Bank of Cleveland dated April 19, 2019.

    Purchases may be made through NYSE American, in the over-the-counter market or in privately negotiated transactions, in each case in compliance with the Ohio General Corporation Law, applicable federal and state securities laws, the rules applicable to issuers having securities listed on NYSE American, regulations promulgated by the Federal Reserve Board and all other applicable laws and regulations, each as in effect at the time of each such purchase. Purchases will be made upon such terms and conditions and at such times and in such amounts as any one or more of the authorized officers of Park deem to be appropriate, subject to market conditions, regulatory requirements, any contractual obligations of Park and Park's subsidiaries and other factors, and in the best interest of Park and Park's shareholders. The January 23, 2017 stock repurchase authorization and the January 28, 2019 stock repurchase authorization are distinct from the stock repurchase authorizations to fund the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP.

Item 3.      Defaults Upon Senior Securities

(a), (b) Not applicable.

Item 4.      Mine Safety Disclosures

Not applicable.

Item 5.      Other Information

(a), (b), (c) Not applicable.

Item 6.      Exhibits

 

3.1(a)	Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on March 24, 1992 (Incorporated herein by reference to Exhibit 3(a) to Park National Corporation’s Form 8-B, filed on May 20, 1992 (File No. 0-18772) (“Park’s Form 8-B”)) P
3.1(b)	Certificate of Amendment to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on May 6, 1993 (Incorporated herein by reference to Exhibit 3(b) to Park National Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772)) P
3.1(c)	Certificate of Amendment to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on April 16, 1996 (Incorporated herein by reference to Exhibit 3(a) to Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996 (File No. 1-13006))
3.1(d)	Certificate of Amendment by Shareholders to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on April 22, 1997 (Incorporated herein by reference to Exhibit 3(a)(1) to Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 1-13006) (“Park’s June 30, 1997 Form 10-Q”))
3.1(e)	Certificate of Amendment by Shareholders as filed with the Ohio Secretary of State on December 18, 2008 in order to evidence the adoption by the shareholders of Park National Corporation on December 18, 2008 of an amendment to Article FOURTH of Park National Corporation’s Articles of Incorporation to authorize Park National Corporation to issue up to 200,000 preferred shares, without par value (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed December 19, 2008 (File No. 1-13006))

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3.1(f)	Certificate of Amendment by Directors to Articles as filed with the Ohio Secretary of State on December 19, 2008, evidencing the adoption of an amendment by the Board of Directors of Park National Corporation to Article FOURTH of Park National Corporation's Articles of Incorporation to establish the express terms of Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value, of Park National Corporation (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed December 23, 2008 (File No. 1-13006))
3.1(g)	Certificate of Amendment by Shareholders as filed with the Ohio Secretary of State on April 18, 2011 in order to evidence the adoption by Park National Corporation’s shareholders of an amendment to Article SIXTH of Park National Corporation’s Articles of Incorporation in order to provide that shareholders do not have preemptive rights (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed April 19, 2011 (File No. 1-13006))
3.1(h)	Certificate of Amendment as filed with the Ohio Secretary of State on April 26, 2022 in order to evidence the adoption by Park National Corporation's shareholders of an amendment to Park National Corporation's Articles of Incorporation to add a new Article NINTH to eliminate cumulative voting rights in the election of directors (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation's Current Report on Form 8-K dated and filed April 27, 2022 (File No. 1-13006) ("Park's April 27, 2022 Form 8-K"))
3.1(i)	Articles of Incorporation of Park National Corporation [This document represents the Articles of Incorporation of Park National Corporation in compiled form incorporating all amendments. This compiled document has not been filed with the Ohio Secretary of State.] (Incorporated herein by reference to Exhibit 3.1(i) to Park National Corporation's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (File No. 1-13006))
3.2(a)	Regulations of Park National Corporation (Incorporated herein by reference to Exhibit 3(b) to Park’s Form 8-B) P
3.2(b)	Certified Resolution regarding Adoption of Amendment to Subsection 2.02(A) of the Regulations of Park National Corporation by Shareholders on April 21, 1997 (Incorporated herein by reference to Exhibit 3(b)(1) to Park’s June 30, 1997 Form 10-Q)
3.2(c)	Certificate Regarding Adoption of Amendments to Sections 1.04 and 1.11 of Park National Corporation’s Regulations by the Shareholders on April 17, 2006 (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed April 18, 2006 (File No. 1-13006))
3.2(d)	Certificate Regarding Adoption by the Shareholders of Park National Corporation on April 21, 2008 of Amendment to Regulations to Add New Section 5.10 to Article Five (Incorporated herein by reference to Exhibit 3.2(d) to Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 (File No. 1-13006))
3.2(e)	Certificate Regarding Adoption by the Shareholders of Park National Corporation on April 25, 2022 of Amendments to Section 1.10 and Section 2.04 of Park National Corporation's Regulations to eliminate the textual references to the right of Park National Corporation's shareholders to have cumulative voting apply in the election of directors (Incorporated herein by reference to Exhibit 3.2 to Park's April 27, 2022 Form-8-K)
3.2(f)	Certificate Regarding Adoption by the Shareholders of Park National Corporation on April 24, 2023 of an Amendment to Section 6.01of Park National Corporation's Regulations to grant the Board of Directors the power to make limited future amendments to Park National Corporation's Regulations to the extent permitted by the Ohio General Corporation Law (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation's Current Report on Form 8-K dated and filed April 25, 2023 (File No. 1-13006))

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3.2(g)	Regulations of Park National Corporation [This document represents the Regulations of Park National Corporation in compiled form incorporating all amendments, including the amendment adopted by the shareholders of Park National Corporation on April 24, 2023] (Filed herewith)
10.1	Summary of Base Salaries for Executive Officers of Park National Corporation (Incorporated herein by reference to Exhibit 10.1 to Park National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (File No. 1-13006)("Park's 2022 Form 10-K"))
10.2	Summary of Certain Compensation for Directors of Park National Corporation (Incorporated herein by reference to Exhibit 10.17 to Park's 2022 Form-10-K)
10.3	Park National Corporation 2017 Long-Term Incentive Plan for Employees Performance-Based Restricted Stock Unit Award Agreement used to evidence awards of performance-based restricted stock units to employees of Park National Corporation and of its subsidiaries granted effective as of January 18, 2023 and to be used to evidence awards of performance-based restricted stock units to employees of Park National Corporation and of its subsidiaries to be granted after January 18, 2023 (Filed herewith)
31.1	Rule 13a – 14(a) / 15d – 14(a) Certifications (Principal Executive Officer) (Filed herewith)
31.2	Rule 13a – 14(a) / 15d – 14(a) Certifications (Principal Financial Officer) (Filed herewith)
32.1	Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Principal Executive Officer) (Furnished herewith)
32.2	Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Principal Financial Officer) (Furnished herewith)
101	The following information from Park National Corporation's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 formatted in Inline XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Condensed Balance Sheets as of March 31, 2023 and December 31, 2022 (unaudited); (ii) the Consolidated Condensed Statements of Income for the three months ended March 31, 2023 and 2022 (unaudited); (iii) the Consolidated Condensed Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022 (unaudited); (iv) the Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2023 and 2022 (unaudited); (v) the Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (unaudited); and (vi) the Notes to Unaudited Consolidated Condensed Financial Statements (electronically submitted herewith). *
104	Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document with applicable taxonomy extension information contained in Exhibit 101)

______________________________________

* The instance document does not appear in the interactive data file because its XBRL tags are imbedded within the Inline XBRL document.

P Park National Corporation filed this exhibit with the SEC in paper form originally and this exhibit has not been filed with the SEC in electronic format.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	PARK NATIONAL CORPORATION
May 1, 2023	/s/ David L. Trautman
	David L. Trautman
	Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer and Duly Authorized Officer)
May 1, 2023	/s/ Brady T. Burt
	Brady T. Burt
	Chief Financial Officer, Secretary and Treasurer
	(Principal Financial Officer and Duly Authorized Officer)

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