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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-26 · 604 added, 720 removed, 834 unchanged (61% of the section changed)

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Management's discussion and analysis addresses the financial condition and results of operations for Park National Corporation and our subsidiaries (unless the context otherwise requires, collectively, "Park" or the "Corporation").

This discussion should be read in conjunction with the consolidated financial statements and related notes and the five-year summary of selected financial data included elsewhere in this Annual Report on Form 10-K.

This discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

Management’s discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance.

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

• the ever-changing effects of the novel coronavirus (COVID-19) pandemic - - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 - - on economies (local, national and international) and markets, and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social or other activities), the development, availability and effectiveness of vaccines, and the implementation of fiscal stimulus packages;

• the ever-changing effects of the novel coronavirus (COVID-19) pandemic - - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants thereof - - on economies (local, national and international), supply chains and markets, on the labor market, including the potential for a sustained reduction in labor force participation, and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social or other activities), the availability, effectiveness and acceptance of vaccines, and the implementation of fiscal stimulus packages;

• the impact of future governmental and regulatory actions upon our participation in and execution of government programs related to the COVID-19 pandemic;

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• factors that can impact the performance of our loan portfolio, including 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 and interest rate policies of the Federal Reserve Board) as well as disruption in the liquidity and functioning of U.S.

• the effect of monetary and other fiscal policies (including the impact of money supply, 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, as a result of the COVID-19 pandemic and government policies implemented in response thereto, 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 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 behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic and reactions thereto), legislative and regulatory initiatives (including those undertaken in response to the COVID-19 pandemic), or other factors may be different than anticipated;

• changes in unemployment levels in the states in which Park and our subsidiaries do business may be different than anticipated due to the continuing impact of the COVID-19 pandemic;

• changes in customers', suppliers', and other counterparties' performance and creditworthiness may be different than anticipated due to the continuing impact of the COVID-19 pandemic;

• changes in customers', suppliers', and other counterparties' performance and creditworthiness, and Park's expectations regarding future loan losses and our allowance for credit losses, may be different than anticipated due to the continuing impact of and the various responses to the COVID-19 pandemic;

• 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 more of 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 our 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 Coronavirus Aid, Relief and Economic Security (CARES) Act and the follow-up legislation in the Consolidated Appropriations Act, 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 Dodd-Frank Act, and the Basel III regulatory capital reforms;

• 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, including the extent to which the new current expected credit loss ("CECL") accounting standard issued by the FASB in June 2016 and in accordance with the CARES Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the adoption of which can be deferred by Park until the earlier of:

(1) the first day of the fiscal year that begins after the date on which the national emergency concerning the COVID-19 outbreak terminates;

or (2) January 1, 2022, 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, when adopted by Park, which may prove unreliable, inaccurate or not predictive of actual results;

• significant changes in the tax laws, which 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;

• 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 Coronavirus Aid, Relief and Economic Security (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 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 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;

• 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;

• 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 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 and changes in the relationship of the 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);

• uncertainty regarding the impact of changes to the U.S.

presidential administration and Congress on the regulatory landscape, capital markets, and the response to and management of the COVID-19 pandemic;

• the impact on financial markets and the economy of any changes in the credit ratings of the U.S.

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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 uncertainty surrounding the actions to be taken to implement the referendum by United Kingdom voters to exit the European Union;

• 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 and the costs and effects of unfavorable resolution of regulatory and other governmental examinations or other inquiries;

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• 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-19 pandemic), dislocations, regional or national protests and civil unrest (including any resulting branch closures or damages), military or terrorist activities or international hostilities on the economy and financial markets generally and on us or our counterparties specifically;

activities or international hostilities on the economy and financial markets generally and on us or our counterparties specifically;

• any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially affect our business, including our customers' willingness to conduct banking transactions and their ability to pay on existing obligations;

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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 loan losses (aside from those related to former Vision Bank loan relationships), gains (losses) on equity securities, and asset valuation writedowns, reflect ordinary banking activities and are, therefore, typically excluded from consideration as items impacting comparability of period results.

For example, changes in the provision for credit losses (aside from those related to former Vision Bank loan relationships), gains (losses) on equity securities, and asset valuation writedowns, reflect ordinary banking activities and are, therefore, typically excluded from consideration as items impacting comparability of period results.

Management believes the disclosure of items impacting comparability of period results provides a better understanding of our performance and trends and allows management to ascertain which of such items, if any, to include or exclude from an analysis of our performance;

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GAAP financial measures.

Management believes net interest income on a FTE basis provides a clearer picture of the interest margin for comparison purposes.

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.

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Paycheck Protection Program ("PPP") Loans

Park originated $543.1 million in loans as part of the PPP.

Through December 31, 2021, Park had originated $768.5 million in loans as part of the PPP.

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-19 pandemic and are 100% guaranteed by the Small Business Administration ("SBA").

As such, management considers growth in the loan portfolio excluding PPP loans, the total allowance for loan losses on originated loans to total originated loans ratio (excluding PPP loans), and general reserve as a % of total originated loans (excluding acquisitions) less impaired commercial loans (excluding PPP loans) in addition to the related U.S.

As such, management considers growth in the loan portfolio excluding PPP loans, the total allowance for 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.

COVID-19 Considerations

Banking has been identified by federal and state governmental authorities to be an essential service and Park is fully

committed to continue serving our customers and communities through the COVID-19 public health crisis.

For those in our communities experiencing a financial hardship, Park has offered various methods of support including loan modifications, payment deferral programs, participation in the PPP, planned participation in additional PPP loans authorized under the Consolidated Appropriations Act, 2021, and various other case by case accommodations.

Park has implemented various physical distancing guidelines to help protect associates, such as allowing associates to work from home, where practical, while maintaining customer service via our online banking services, mobile app, and ATMs, by keeping drive-thru lanes open to serve customers, maintaining selective open branch offices, and offering other banking services by appointment when necessary.

During 2020, Park provided calamity pay and special one-time bonuses to certain associates.

The cost of the calamity pay and special bonuses amounted to $3.6 million for the year ended December 31, 2020, and is included within salaries expense.

Banking has been identified by federal and state governmental authorities to be an essential service and Park is fully committed to continue serving our customers and communities through the COVID-19 public health crisis.

For those in our communities experiencing a financial hardship, Park has offered various methods of support including loan modifications, payment deferral programs, participation in the CARES Act PPP, participation in additional PPP loans authorized under the Consolidated Appropriations Act, 2021, and various other case by case accommodations.

Throughout the pandemic, Park has implemented various physical distancing guidelines to help protect associates, such as allowing associates to work from home, where practical, while maintaining customer service via our online banking services, mobile app, and ATMs, by keeping drive-thru lanes open to serve customers, maintaining selective branch office openings, and offering other banking services by appointment when necessary.

As of December 31, 2021, all branches had returned to normal operations.

During 2021 and 2020, Park provided calamity pay and special one-time bonuses to certain associates related to the COVID-19 pandemic.

The cost of the calamity pay and special bonuses amounted to $2.1 million and $3.6 million for the years ended December 31, 2021 and 2020, respectively, and is included within salaries expense.

Paycheck Protection Program

Through December 31, 2020, Park had approved and funded 4,439 loans totaling $543.1 million under the PPP.

These PPP loans had an average principal balance of $122,000.

Of the $543.1 million in PPP loans, 21 loans totaling $68.2 million had a principal balance that was greater than $2 million.

For its assistance in making and retaining the 4,439 loans, Park has received an aggregate of $20.2 million in fees from the SBA, of which $13.7 million were recognized within loan interest income during the year ended December 31, 2020.

During 2020, Park approved and funded 4,439 loans totaling $543.1 million under the PPP's first round of loans.

These first round PPP loans had an average principal balance of $122,000.

Of the $543.1 million in first round PPP loans, 21 loans totaling $68.2 million had a principal balance that was greater than $2 million.

For its assistance in making and retaining the 4,439 loans, Park has received an aggregate of $20.2 million in fees from the SBA, of which $6.4 million and $13.7 million were recognized within loan interest income during the year ended December 31, 2021 and the year ended December 31, 2020, respectively.

Park funded the PPP loans with excess on-balance sheet liquidity.

At December 31, 2020, the remaining balance of PPP loans was $337.1 million.

As of January 31, 2021, Park has submitted approximately 2,656 repayment requests on behalf of borrowers under the PPP to the SBA and has received $260.4 million in payments from the SBA.

During 2021, Park plans to offer additional PPP loans as authorized under the Consolidated Appropriations Act, 2021, signed into law on December 27, 2020.

As of February 22, 2021, 1,795 applications had been submitted to the SBA related to these additional PPP loans.

At December 31, 2021, the remaining balance of the first round PPP loans funded in 2020 was $4.8 million.

During 2021, Park offered additional PPP loans as authorized under the Consolidated Appropriations Act, 2021.

Through December 31, 2021, Park approved and funded 3,262 loans totaling $221.6 million under the second round of PPP loans.

These additional second round PPP loans had an average principal balance of $68,000.

None of the $221.6 million in additional second round PPP loans had a principal balance that was greater than $2 million.

For its assistance in making and retaining the 3,262 second round of PPP loans, Park has received an aggregate of $12.9 million in fees from the SBA, of which $9.9 million was recognized within loan interest income during the year ended December 31, 2021.

Park funded the second round PPP loans with excess on-balance sheet liquidity.

At December 31, 2021, the remaining balance of second round PPP loans funded in 2021 was $72.3 million.

As of February 21, 2022, Park had submitted 6,953 repayment requests on behalf of borrowers under the PPP to the SBA and has received $707.9 million in payments from the SBA.

Loan Modifications

During the year ended December 31, 2020, Park modified 5,005 consumer loans, with an aggregate balance of $103.5 million, and modified 1,399 commercial loans, with an aggregate balance of $563.7 million, in each case related to a hardship caused by the COVID-19 pandemic and responses thereto.

Park worked with borrowers and provided modifications in the form of either interest only deferral or principal and interest deferral, in each case, for initial periods of up to 90 days.

During the two years ended December 31, 2021, Park modified a total of 5,138 consumer loans, with an aggregate balance of $72.2 million, and modified a total of 1,406 commercial loans, with an aggregate balance of $488.1 million, in each case related to a hardship caused by the COVID-19 pandemic and responses thereto.

Park has worked with borrowers and provided modifications in the form of either interest only deferral or principal and interest deferral, in each case, for initial periods of up to 90 days.

As necessary, Park made available a second 90-day interest only deferral or principal and interest deferral bringing the total potential deferral period to six months.

Modifications are structured in a manner to best address each individual customer's current situation.

A majority of these modifications are excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators.

Modified loans will be considered current and will continue to accrue interest during the deferral period.

Detail of COVID-19 modifications within Park's loan portfolios during the year ended December 31, 2020 follows:

Table 1 - COVID-19 Modifications

(Dollars in thousands) December 31, 2020 Total Balance December 31, 2020 Balance Modified Percent Modified

Commercial $ 4,116,124 $ 563,707 13.7 %

Home equity 182,131 3,512 1.9 %

Installment 1,650,620 44,582 2.7 %

Real estate 1,213,820 53,713 4.4 %

Guardian Financial Service Company ("GFSC") 11,545 1,740 15.1 %

Other 3,545 — — %

Total Loans $ 7,177,785 $ 667,254 9.3 %

Of the $667.3 million of COVID-19 modifications during the year ended December 31, 2020, $10.1 million were

greater than 30 days past due in accordance with the modified terms at December 31, 2020.

Detail of COVID-19 modifications on selected commercial loan portfolios during the year ended December 31, 2020 follows:

Table 2 - Commercial COVID-19 Modifications

(Dollars in thousands) December 31, 2020 Total Balance December 31, 2020 Balance Modified Percent Modified

Non-bank consumer finance companies $ 281,902 $ — — %

Hotel and accommodations 213,912 158,691 74.2 %

Restaurants and food service 47,967 10,654 22.2 %

Arts and recreation 43,738 13,304 30.4 %

Healthcare and social assistance 251,582 35,869 14.3 %

Strip shopping centers 248,736 70,186 28.2 %

Other real estate rental and leasing 1,189,978 158,229 13.3 %

PPP loans 337,090 — — %

Other commercial loans 1,501,219 116,774 7.8 %

Total commercial loans $ 4,116,124 $ 563,707 13.7 %

Many of the initial interest only deferrals or principal and interest deferrals were for an initial period of three months.

Park has received requests for additional deferrals.

Loans which have had multiple COVID-19 modifications through December 31, 2020 are detailed below.

Table 3 - Multiple COVID-19 Modifications

(Dollars in thousands) December 31, 2020 Balance - Multiple Modifications Weighted Average Risk Grade (1)

Hotel and accommodations $ 61,602 4.95

Restaurants and food service 1,162 4.24

Arts and recreation 3,974 4.51

Strip shopping centers 1,884 4.00

Other real estate rental and leasing 6,166 5.87

Other commercial loans 18,436 5.16

Total commercial loans $ 93,224 5.00

Home equity $ 254 N.A.

Installment 6,338 N.A.

Real estate 15,489 N.A.

GFSC 974 N.A.

Total loans $ 116,279 N.A.

(1) - Credit Quality Indicators:

When determining the quarterly and annual loan 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 (1 through 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 loan loss reserve percentage is allocated to these loans.

Commercial loans graded a 6 (substandard), also considered watch list credits, are considered to represent higher credit risk and, as a result, a higher loan loss reserve percentage is allocated to these loans.

Generally, commercial loans that are graded a 6 are considered for partial charge-off or have been charged down to the net realizable value of the underlying collateral.

Commercial loans 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.

Any commercial loan graded an 8 (loss) is completely charged off.

Park considers a loan out of deferral when the first regular payment is due and that payment is subsequently made.

The table below details the status of loans with COVID-19 deferrals as of December 31, 2020.

Table 4 - Status of COVID-19 Modifications

(Dollars in thousands) December 31, 2020 Balance - Out of Deferral December 31, 2020 Balance - In Deferral Loans in Deferral as a Percent of Total Deferred Loans in Deferral as a Percent of Total Loans

Hotel and accommodations $ 129,485 $ 29,206 18.4 % 13.7 %

Restaurants and food service 10,582 72 0.7 % 0.2 %

Arts and recreation 12,550 754 5.7 % 1.7 %

Healthcare and social assistance 35,691 178 0.5 % 0.1 %

Strip shopping centers 70,186 — — % — %

Other real estate rental and leasing 153,089 5,140 3.2 % 0.4 %

Other commercial loans 105,311 11,463 9.8 % 0.8 %

Total commercial loans $ 516,894 $ 46,813 8.3 % 1.1 %

Home equity $ 3,430 $ 82 2.3 % — %

Installment 43,204 1,378 3.1 % 0.1 %

Real estate 49,809 3,904 7.3 % 0.3 %

GFSC 1,654 86 4.7 % 0.7 %

Total loans $ 614,991 $ 52,263 7.8 % 0.7 %

Modifications were structured in a manner to best address each individual customer's then current situation.

A majority of these modifications were excluded from the troubled debt restructuring ("TDR") classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators.

The modified loans are considered current and continue to accrue interest during the deferral period.

Of the $560.3 million of COVID-19 modifications during the two years ended December 31, 2021, $30.9 million, or 0.45% of total loans, remained in deferral as of December 31, 2021 and $7.1 million were greater than or equal to 30 days past due in accordance with the modified terms at December 31, 2021.

Financial Results by segment

The following table reflects the net income (loss) by segment for the years ended December 31, 2021, 2020 and 2019.

Park's segments include The Park National Bank ("PNB"), Guardian Financial Services Company ("GFSC") and "All Other" which primarily consists of Park as the "Parent Company" and SE Property Holdings, LLC ("SEPH").

Park's segments include PNB and "All Other" which primarily consists of Park as the "Parent Company", GFSC and SEPH.

SEPH is a non-bank subsidiary of Park, holding former Vision Bank OREO property and non-performing loans.

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PNB $ 159,461 $ 123,730 $ 113,600

GFSC 1,139 762 521

All Other (5,516) 4,193 (10,900)

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These items are detailed in the "ANALYSIS OF EARNINGS - Items Impacting Comparability" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion provides additional information regarding Park's two operating segments, followed by additional information regarding All Other, which consists of the Parent Company and SEPH.

The following discussion provides additional information regarding the PNB segment, followed by additional information regarding All Other, which consists of the Parent Company, GFSC and SEPH.

The Park National Bank (PNB)

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Net interest income $ 328,398 $ 326,375 $ 293,130

Provision for loan losses 30,813 8,356 7,569

(Recovery of) provision for credit losses (1)

(8,554) 30,813 8,356

Other income 126,802 124,231 92,392

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Net income $ 159,461 $ 123,730 $ 113,600

(1) Park adopted ASU 2016-13 effective January 1, 2021.

The allowance for credit losses as of December 31, 2021 and the related (recovery of) provision for credit losses for the year ended December 31, 2021 were calculated utilizing this new guidance.

Net interest income of $328.4 million for the year ended December 31, 2021 represented a $2.0 million, or 0.6%, increase compared to $326.4 million for the year ended December 31, 2020.

The increase was a result of a $35.0 million decrease in interest expense, partially offset by a $1.8 million decrease in interest income.

The $1.8 million decrease in interest income was primarily due to a $10.2 million decrease in investment income, partially offset by an $8.4 million increase in interest income on loans.

The decrease in investment income was partially the result of a $213.1 million decrease in average investments from $1.35 billion for the year ended December 31, 2019 to $1.14 billion for the year ended December 31, 2020.

The decrease in investment income was also the result of a decrease in the average yield on investments, which decreased 10 basis points to 2.66% for the year ended December 31, 2020, compared to 2.76% for the year ended December 31, 2019.

The increase in interest income on loans was partially the result of a $786.0 million increase in average loans from $6.19 billion for the year ended December 31, 2019, to $6.97 billion for the year ended December 31, 2020.

The increase in average loans was impacted by the addition of average PPP loans of approximately $352.6 million which also resulted in interest and fee income of $16.7 million for the year ended December 31, 2020.

The increase in average loans was partially offset by the decrease in the average yield on loans, which decreased 46 basis points to 4.66% for the year ended December 31, 2020, compared to 5.12% for the year ended December 31, 2019.

Excluding the impact of PPP loan interest and fee income, the average yield on loans was 4.66%, a decrease of 46 basis points, for the year ended December 31, 2020, compared to 5.12% for the year ended December 31, 2019.

Interest income was impacted by the acquisition of CAB Financial Corporation, the parent of Carolina Alliance Bank ("Carolina Alliance") on April 1, 2019.

The Carolina Alliance Division contributed an aggregate of $30.6 million to interest income at PNB during the year ended December 31, 2020, compared to $25.0 million for the year ended December 31, 2019.

The increase was a result of an $18.7 million decrease in interest expense, partially offset by a $16.7 million decrease in interest income.

The $16.7 million decrease in interest income was primarily due to a $312,000 decrease in investment income and a $16.3 million decrease in interest income on loans.

The decrease in investment income was primarily the result of a decrease in the yield on investments, which decreased 43 basis points to 2.23% for the year ended December 31, 2021, compared to 2.66% for the year ended December 31, 2020, partially offset by a $200.5 million increase in average investments.

The decrease in interest income on loans was primarily the result of a decrease in the yield on loans, which decreased 25 basis points to 4.41% for the year ended December 31, 2021, compared to 4.66% for the year ended December 31, 2020.

The decrease in yield on loans was partially offset by a $35.5 million increase in average loans from $6.97 billion for the year ended December 31, 2020 to $7.01 billion for the year ended December 31, 2021.

The increase in average loans was impacted by the addition of average PPP loans of approximately $257.4 million and $352.6 million for the years ended December 31, 2021 and 2020, respectively, and also resulted in interest and fee income of $18.0 million and $16.7 million for the year ended December 31, 2021 and 2020, respectively.

Excluding the impact of PPP loans, the yield on loans was 4.31% for the year ended December 31, 2021, a decrease of 35 basis points compared to 4.66% for the year ended December 31, 2020.

The $18.7 million decrease in interest expense was primarily due to a $15.0 million decrease in interest expense on deposits as well as a $3.7 million decrease in interest expense on borrowings.

The decrease in interest expense on deposits was the result of a decrease in the average cost of deposits of 60 basis points from 1.01% for the year ended December 31, 2019 to 0.41% for the year ended December 31, 2020.

This was partially offset by a $209.1 million increase in average interest-bearing deposits from $5.03 billion for the year ended December 31, 2019, to $5.24 billion for the year ended December 31, 2020.

The decrease in interest expense on deposits was partially the result of a decrease in the cost of deposits of 29 basis points, from 0.41% for the year ended December 31, 2020 to 0.12% for the year ended December 31, 2021.

The decrease in the interest expense on deposits was partially offset by a $13.0 million increase in average on-balance sheet interest bearing deposits from $5.24 billion for the year ended December 31, 2020, to $5.25 billion for the year ended December 31, 2021.

The increase in on-balance sheet interest bearing deposits was due to an increase in savings deposits, which was partially offset by declines in both higher-cost time deposits and transaction accounts.

During the years ended December 31, 2021 and 2020, Park made the decision to participate in two programs to transfer deposits off balance sheet in order to manage growth of the balance sheet.

This decision also minimized the increase in interest bearing deposits.

The decrease in interest expense on borrowings was partially the result of a $91.2 million decrease in average borrowings from $403.9 million for the year ended December 31, 2020, to $312.7 million for the year ended December 31, 2021.

The average cost of borrowings also decreased by 69 basis points, from 2.10% for the year ended December 31, 2019 to 1.41% for the year ended December 31, 2020.

Interest expense was impacted by the acquisition of Carolina Alliance.

The Carolina Alliance Division contributed an aggregate of $2.8 million to interest expense at PNB during the year ended December 31, 2020 and $4.1 million during the year ended December 31, 2019.

The provision for loan losses of $30.8 million for the year ended December 31, 2020 represented an increase of $22.5 million, compared to $8.4 million for the year ended December 31, 2019.

Refer to the “CREDIT EXPERIENCE - Provision for Loan Losses" section for additional details regarding the level of the provision for loan losses recognized in each period presented above.

The cost of borrowings also decreased by 76 basis points, from 1.41% for the year ended December 31, 2020 to 0.65% for the year ended December 31, 2021.

The recovery of credit losses of $8.6 million for the year ended December 31, 2021 represented a difference of $39.4 million, compared to a provision for credit losses of $30.8 million for the year ended December 31, 2020.

Refer to the “CREDIT METRICS AND (RECOVERY OF) PROVISION FOR CREDIT LOSSES" section for additional details regarding the level of the (recovery of) provision for credit losses recognized in each period presented above.

Other income of $126.8 million for the year ended December 31, 2021 represented an increase of $2.6 million, or 2.1%, compared to $124.2 million for the year ended December 31, 2020.

The $31.8 million increase was primarily related to a $21.6 million increase in other service income, which was primarily due to an increase in fee income from mortgage loan originations and investor rate locks;

a $3.7 million increase in gain on sale of debt securities;

a $3.2 million increase in other components of net periodic benefit income;

a $1.9 million increase in debit card fee income;

a $1.6 million increase in income

from partnership investments;

a $1.1 million increase in income from fiduciary activities;

and a $946,000 increase in gain (loss) on sale of OREO, net.

These increases were partially offset by a $2.4 million decrease in service charges on deposits.

Other income was impacted by the acquisition of Carolina Alliance.

The Carolina Alliance Division contributed an aggregate of $8.8 million to other income at PNB during the year ended December 31, 2020 and $3.8 million during the year ended December 31, 2019.

The $2.6 million increase was primarily related to (i) a $5.6 million increase in income from fiduciary activities;

(ii) a $3.7 million increase in debit card fee income;

(iii) a $2.9 million increase in miscellaneous income, primarily related to refunds of a consumer insurance product, an increase in income

from printed check sales and an increase in gain on sale of assets;

and (iv) a $1.4 million increase in gain (loss) on equity securities, net.

These increases were partially offset by a $3.3 million decrease in gain on sale of debt securities and a $7.7 million decrease in other service income.

The decline in other service income was primarily due to declines in investor rate locks, mortgage loans held for sale and fee income from mortgage loan originations, partially offset by an increase in the valuation of mortgage servicing rights.

A summary of mortgage loan originations for the years ended December 31, 2021 and 2020 follows.

Of total mortgage loan originations shown below for 2020, refinances comprised 48.1% in the first quarter of 2020, 67.8% in the second quarter of 2020, 68.5% in the third quarter of 2020, 71.4% in the fourth quarter of 2020 and 66.7% for the year ended December 31, 2020.

Of total mortgage loan originations shown below for 2019, refinances comprised 32.5% in the first quarter of 2019, 29.7% in the second quarter of 2019, 41.3% in the third quarter of 2019, 47.6% in the fourth quarter of 2019 and 39.8% for the year ended December 31, 2019.

Table 3 - PNB Mortgage Loan Originations

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Total mortgage loan originations $ 303,982 $ 256,538 $ 223,498 $ 189,303 $ 973,321

Refinances as a % of Total Mortgage Loan Originations 71.1 % 50.0 % 44.8 % 44.2 % 54.2 %

Q1 2020 Q2 2020 Q3 2020 Q4 2020 YTD 2020

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Total mortgage loan originations $ 177,951 $ 348,806 $ 459,817 $ 457,693 $ 1,444,267

Refinances as a % of Total Mortgage Loan Originations 48.1 % 67.8 % 68.5 % 71.4 % 66.7 %

Total mortgage loan originations decreased $470.9 million, or 32.6%, to $973.3 million for the year ended December 31, 2021 compared to $1,444.3 million for the year ended December 31, 2020.

The table below reflects PNB's other expense for the years ended December 31, 2021 and 2020.

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Total other expense $ 266,678 $ 268,938 $ (2,260) (0.8) %

Other expense of $268.9 million for the year ended December 31, 2020 represented an increase of $31.5 million, or 13.3%, compared to $237.4 million for the year ended December 31, 2019.

The increase in salaries expense was primarily related to increases in base salary expense, severance related expenses, additional compensation incentives, including COVID-19 special one-time bonuses, vacation accruals and officer incentive compensation expense.

The increase in employee benefits expense was primarily related to increased pension plan expense and defined contribution plan expense, partially offset by a decrease in group insurance costs.

The increase in occupancy expense was primarily the result of increased depreciation on premises and a write-down in the right-of-use lease asset related to branches that closed September 30, 2020.

The increase in furniture and equipment expense was primarily related to increased expenses related to repairs and maintenance on equipment, which also included software maintenance and costs, as well as increased depreciation on furniture and equipment.

The increase in data processing fees was related to increased mortgage processing costs, debit card processing costs and other data processing and software costs.

The increase in professional fees and services was primarily related to increased title, appraisal and credit costs, increases in management and consulting fees and increases in other fees, partially offset by a $205,000 decrease in temporary wage expense.

The increase in insurance expense was primarily due to a $2.2 million assessment credit which had been utilized for the FDIC expense for the year ended December 31, 2019 (and not repeated in 2020), as well as an increase in the assessment base for the year ended December 31, 2020, compared to the same period of 2019.

The decrease in communications expense was primarily related to a change in statement mailing and production costs, which resulted in lower direct postage expense, but is more than offset by an increase in supply expense which is included in miscellaneous expense.

The increase in the FHLB prepayment penalty was due to a $10.5 prepayment penalty on FHLB borrowings of $150 million repaid during the year ended December 31, 2020.

The increase in foundation contributions expense was due to a $3.0 million contribution during the year ended December 31, 2020 compared to $1.5 million during the year ended December 31, 2019.

The decrease in miscellaneous expense was primarily related to a decrease in training and travel related expenses as well as decreased non loan related losses.

Other expense was impacted by the acquisition of Carolina Alliance.

Of the $268.9 million of total other expense for the year ended December 31, 2020, the Carolina Alliance Division's total other expense was $19.4 million.

Of the $237.4 million of total other expense for the year ended December 31, 2019, the Carolina Alliance Division's total other expense was $16.5 million.

The table below reflects PNB's other expense less the impact of the Carolina Alliance Division for the years ended December 31, 2020 and 2019.

Table 9 - PNB less Carolina Alliance Other Expense Information

(In thousands) December 31, 2020 December 31, 2019 $ change % change

Other expense:

Salaries $ 113,571 $ 102,003 $ 11,568 11.3 %

Employee benefits 33,823 34,665 (842) (2.4) %

Occupancy expense 12,000 11,294 706 6.3 %

Furniture and equipment expense 17,923 16,351 1,572 9.6 %

Data processing fees 11,304 9,586 1,718 17.9 %

Professional fees and services 23,427 20,784 2,643 12.7 %

Marketing 5,633 5,365 268 5.0 %

Insurance 5,166 2,262 2,904 128.4 %

Communication 3,853 5,037 (1,184) (23.5) %

State tax expense 3,290 3,012 278 9.2 %

Amortization of intangible assets 1,149 1,234 (85) (6.9) %

FHLB prepayment penalty 10,529 612 9,917 N.M.

Foundation contributions 2,960 1,500 1,460 97.3 %

Miscellaneous 4,951 7,270 (2,319) (31.9) %

Total other expense $ 249,579 $ 220,975 $ 28,604 12.9 %

Other expense of $266.7 million for the year ended December 31, 2021 represented a decrease of $2.3 million, or 0.8%, compared to $268.9 million for the year ended December 31, 2020.

The decrease in salaries expense was primarily related to decreases in base salary expense, additional compensation expense and vacation accrual, partially offset by increases in officer incentive expense and share-based compensation expense.

The increase in employee benefits expense was primarily related to increased pension plan expense, payroll tax expense and group insurance costs.

The decrease in occupancy expense was primarily related to decreased lease expense.

The decrease in furniture and equipment expense was primarily related to a change in the classification under which software and related maintenance costs were expensed, which are now classified under data processing fees.

The impact of this decrease in furniture and equipment expense was partially offset by an increase in depreciation expense on equipment.

The increase in data processing fees was related to increased debit card processing costs and other data processing and software costs, partially due to the previously mentioned change in classification from furniture and equipment expense and a change in expensing software costs from other fees within professional fees and services to data processing fees.

The decrease in professional fees and services was primarily related to decreased legal expenses, title, appraisal and credit costs and decreases in other fees (due to the change to expensing software costs under data processing fees), partially offset by increases in management and consulting expenses.

The decrease in the FHLB prepayment penalty was due to a $10.5 million prepayment penalty on FHLB borrowings of $150 million repaid during the year ended December 31, 2020;

there was no similar prepayment during the year ended December 31, 2021.

The increase in foundation contributions was due to a $4.0 million contribution to Park's charitable foundation during the year ended December 31, 2021, compared to a $3.0 million contribution made during the year ended December 31, 2020.

The table below provides certain balance sheet information and financial ratios for PNB as of or for the years ended December 31, 2021 and 2020.

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Loans $ 6,868,935 $ 7,165,840 (4.14) %

Allowance for loan losses 84,321 54,692 54.17 %

Loans less PPP loans (1)

6,794,515 6,834,269 (0.58) %

Allowance for credit losses (2)

83,111 84,321 (1.43) %

Net loans 6,785,824 7,081,519 (4.18) %

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Return on average assets 1.62 % 1.35 % 20.00 %

(1) Average assets for the years ended December 31, 2020 and 2019.

(1) Excludes $74.4 million of PPP loans at December 31, 2021 and $331.6 million of PPP loans at December 31, 2020.

(2) Park adopted ASU 2016-13 effective January 1, 2021.

The allowance for credit losses as of December 31, 2021 and the related (recovery of) provision for credit losses for the year ended December 31, 2021 were calculated utilizing this new guidance.

(3) Average assets for the year ended December 31, 2021 and 2020.

(4) Calculated utilizing fully taxable equivalent net interest income which includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate.

The taxable equivalent adjustments were $2.9 million for the year ended December 31, 2020, and $3.0 million for the year ended December 31, 2019.

Loans outstanding at December 31, 2020 were $7.17 billion, compared to $6.48 billion at December 31, 2019, an increase of $684.2 million, or 10.6%.

Excluding the $337.1 million of PPP loans remaining at December 31, 2020, loans

outstanding were $6.83 billion at December 31, 2020, compared to $6.48 billion at December 31, 2019, an increase of $347.1 million, or 5.4%.

The taxable equivalent adjustments were $2.9 million for both the year ended December 31, 2021 and the year ended December 31, 2020.

Loans outstanding at December 31, 2021 were $6.87 billion, compared to $7.17 billion at December 31, 2020, a decrease of $296.9 million, or 4.1%.

Excluding $74.4 million and $331.6 million of PPP loans at December 31, 2021 and December 31, 2020, respectively, loans outstanding were $6.79 billion at December 31, 2021, compared to $6.83 billion at December 31, 2020, a decrease of $39.8 million, or 0.6%.

The table below breaks out the change in loans outstanding, by loan type.

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Real estate 1,142,991 1,213,820 (70,829) (5.8) %

Commercial (excluding PPP) 3,778,634 3,545,467 233,167 6.6 %

Commercial (excluding PPP loans) (1)(2)

3,797,673 3,784,153 13,520 0.4 %

PPP loans 74,420 331,571 (257,151) N.M.

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Total loans $ 6,868,935 $ 7,165,840 $ (296,905) (4.1) %

PNB's allowance for loan losses increased by $29.6 million, or 54.2%, to $84.3 million at December 31, 2020, compared to $54.7 million at December 31, 2019.

Net charge-offs were $1.2 million, or 0.02% of total average loans, for the year ended December 31, 2020 and were $2.7 million, or 0.04% of total average loans, for the year ended December 31, 2019.

Refer to the “CREDIT EXPERIENCE - Provision for Loan Losses" section for additional information regarding PNB's loan portfolio and the level of provision for loan losses recognized in each period presented.

Total loans (excluding PPP loans) $ 6,794,515 $ 6,834,269 $ (39,754) (0.6) %

(1) Excludes $74.4 million of PPP loans at December 31, 2021 and $331.6 million of PPP loans at December 31, 2020.

(2) Commercial (excluding PPP loans) decreased by $58.8 million, or 1.6% (2.1% annualized), from December 31, 2020 to September 30, 2021 and grew by $72.3 million, or 1.9% (7.7% annualized), from September 30, 2021 to December 31, 2021.

PNB's allowance for credit losses decreased by $1.2 million, or 1.4%, to $83.1 million at December 31, 2021, compared to $84.3 million at December 31, 2020.

This decrease included the impact of a $6.7 million increase to the allowance for credit losses as the result of the adoption of ASU 2016-13.

Net recoveries were $640,000, or 0.01% of total average loans, for the year ended December 31, 2021 and net charge-offs were $1.2 million, or 0.02% of total average loans, for the year ended December 31, 2020.

Refer to the “CREDIT METRICS AND (RECOVERY OF) PROVISION FOR CREDIT LOSSES" section for additional information regarding PNB's loan portfolio and the level of provision for credit losses recognized in each period presented.

Total deposits at December 31, 2021 were $8.16 billion, compared to $7.82 billion at December 31, 2020, an increase of $336.7 million, or 4.3%.

During the year ended December 31, 2020, Park made the decision to participate in a one-way sell (OWS) program in order to manage the balance sheet.

At December 31, 2020, Park had $710.1 million in OWS insured cash sweep deposits which were off-balance sheet.

Total deposits would have increased $1.4 billion, or 19.7%, compared to December 31, 2019 had the $710.1 million remained on the balance sheet.

During the years ended December 31, 2021 and 2020, Park made the decision to participate in two programs to transfer deposits off balance sheet in order to manage growth of the balance sheet, as deposits increased significantly throughout the COVID-19 pandemic.

At December 31, 2021 and December 31, 2020, Park had $983.1 million and $710.1 million, respectively, in deposits which were off-balance sheet.

Total deposits would have increased $609.7 million, or 7.1%, compared to December 31, 2020 had the $983.1 million and $710.1 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.

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Savings 2,622,771 2,596,926 25,845 1.0 %

Certificates of deposits 864,573 1,139,131 (274,558) (24.1) %

Certificates of deposit 711,660 864,573 (152,913) (17.7) %

Total deposits $ 8,157,720 $ 7,820,983 $ 336,737 4.3 %

Guardian Financial Services Company ("GFSC")

The table below summarizes GFSC's net income for the years ended December 31, 2020, 2019, and 2018.

Table 13 - GFSC Summary Income Statement

Off balance sheet deposits 983,053 710,101 272,952 38.4 %

Total deposits including off balance sheet deposits $ 9,140,773 $ 8,531,084 $ 609,689 7.1 %

The table below summarizes the All Other net (loss) income for the years ended December 31, 2021, 2020, and 2019.

Table 8 - All Other Income Statement

(In thousands) 2021 2020 2019

Net interest income $ 1,495 $ 1,255 $ 4,607

Provision for loan losses 196 754 1,328

Recovery of credit losses (1)

(3,362) (18,759) (2,185)

Other income 3,142 1,433 4,801

Other expense 16,840 17,657 26,555

Income before income taxes $ 1,442 $ 951 $ 662

Income tax expense 303 189 141

Net income $ 1,139 $ 762 $ 521

The table below provides certain balance sheet information and financial ratios for GFSC as of or for the years ended December 31, 2019 and 2018.

Table 14 - GFSC Balance Sheet Information

(In thousands) December 31, 2020 December 31, 2019 % change from 12/31/19

Net (loss) income before income tax benefit $ (8,841) $ 3,790 $ (14,962)

Income tax benefit (3,325) (403) (4,062)

Net (loss) income $ (5,516) $ 4,193 $ (10,900)

(1) Park adopted ASU 2016-13 effective January 1, 2021.

The allowance for credit losses as of December 31, 2021 and the related recovery of credit losses for the year ended December 31, 2021 were calculated utilizing this new guidance.

The net interest income for All Other included, for all periods presented, interest income on subordinated debt investments in PNB, which were eliminated in the consolidated Park National Corporation totals, as well as interest income on GFSC loans and SEPH nonaccrual loan relationships.

The net interest income for All Other included for the years ended December 31, 2021 and 2020, 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 income reflected net interest income of $1.5 million for the year ended December 31, 2021, compared to net interest income of $1.3 million for the year ended December 31, 2020.

The change was largely the result of an increase of $7.4 million in loan interest income related to payment collections at SEPH, offset by a decrease of $2.6 million in net interest income from GFSC, and by an increase in interest expense on borrowings of $4.4 million, mainly related to the Park Subordinated Notes.

SEPH had net recoveries of $2.7 million for the year ended December 31, 2021, compared to net recoveries of $19.0 million for the year ended December 31, 2020, and GFSC had net recoveries of $28,000 for the year ended December 31, 2021, compared to net charge-offs of $829,000 for the year ended December 31, 2020.

All Other had other income of $3.1 million for the year ended December 31, 2021, compared to $1.4 million for the year ended December 31, 2020.

The change was largely due to an $878,000 increase in income related to partnership

investments, which went from a $21,000 loss for the year ended December 31, 2020 to an $857,000 gain for the year ended December 31, 2021, and a $410,000 difference in gain (loss) on equity securities, net, which went from a $226,000 loss for the year ended December 31, 2020 to a $184,000 gain for the year ended December 31, 2021.

All Other had other expense of $16.8 million for the year ended December 31, 2021, compared to $17.7 million for the year ended December 31, 2020.

The decrease was largely due to a $625,000 decrease in expense at GFSC, as well as a $605,000 decrease in merger-related expenses associated with the Carolina Alliance acquisition.

The table below provides certain balance sheet information for All Other as of or for the years ended December 31, 2021 and 2020.

Table 9 - All Other

(Dollars in thousands) December 31, 2021 December 31, 2020 % change from 12/31/20

Loans $ 2,187 $ 11,945 (81.69) %

Allowance for loan losses 1,354 1,987 (31.86) %

Allowance for credit losses (1)

86 1,354 (93.65) %

Net loans 2,101 10,591 (80.16) %

2 unchanged sentences

32,692 43,492 (24.83) %

Return on average assets 5.45 % 2.62 % 108.02 %

(1) Average assets for the years ended December 31, 2020 and 2019.

The table below summarizes the All Other net income (loss) for the years ended December 31, 2020, 2019, and 2018.

Table 15 - All Other Income Statement

(In thousands) 2020 2019 2018

Net interest (expense) income $ (2,530) $ (406) $ 3,303

Recovery of loan losses (18,955) (2,939) (952)

Other income 1,178 4,631 11,933

Other expense 15,255 23,077 18,667

Net income (loss) before income tax benefit $ 2,348 $ (15,913) $ (2,479)

Income tax benefit (706) (4,251) (2,873)

Net income (loss) $ 3,054 $ (11,662) $ 394

The net interest (expense) income for All Other included, for all periods presented, interest income on subordinated debt investments in PNB, which were eliminated in the consolidated Park National Corporation totals, as well as interest income on SEPH impaired loan relationships.

The net interest (expense) income for All Other included for year ended December 31, 2020, interest expense on $175.0 million aggregate principal amount of 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030 issued in August 2020.

Net interest (expense) income reflected net interest expense of $2.5 million for the year ended December 31, 2020, compared to net interest expense of $406,000 for the year ended December 31, 2019.

The change was largely the result of an increase in borrowing interest expense, partially offset by an increase in loan interest income related to payment collections at SEPH.

SEPH had net recoveries of $19.0 million for the year ended December 31, 2020, compared to net recoveries of $2.9 million for the year ended December 31, 2019.

All Other had other income of $1.2 million for the year ended December 31, 2020, compared to other income of $4.6 million for the year ended December 31, 2019.

The change was largely due to a $4.0 million decrease in income related to partnership investments, which went from a $3.9 million gain for the year ended December 31, 2019 to a $21,000 loss for the year ended December 31, 2020, and a $486,000 decrease in gain (loss) on equity securities, net, which went from a $261,000 gain for the year ended December 31, 2019 to a $226,000 loss for the year ended December 31, 2020.

All Other had other expense of $15.3 million for the year ended December 31, 2020, compared to $23.1 million for the year ended December 31, 2019.

The decrease was largely due to an $8.2 million decrease in merger related expenses related to the NewDominion and Carolina Alliance acquisitions.

(1) Park adopted ASU 2016-13 effective January 1, 2021.

The allowance for credit losses as of December 31, 2021 and the related recovery of credit losses for the year ended December 31, 2021 were calculated utilizing this new guidance.

(2) Average assets for the years ended December 31, 2021 and 2020, respectively.

Park National Corporation

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Net interest income $ 329,893 $ 327,630 $ 297,737

Provision for loan losses 12,054 6,171 7,945

(Recovery of) provision for credit losses (11,916) 12,054 6,171

Other income 129,944 125,664 97,193

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Cash dividends declared on Park's common shares were $4.52 in 2021, $4.28 in 2020 and $4.24 in 2019.

The quarterly cash dividend on Park's common shares was $1.23 per share for the first quarter of 2021, $1.03 per share for the second and third quarter of 2021, and $1.23 per share for the fourth quarter of 2021.

The first and fourth quarters of 2021 included a one-time special cash dividend of $0.20 per share.

This was the fourth year in a row that Park has declared a special cash dividend ($0.20 twice in 2021, $0.20 in both 2020 and 2019, and $0.25 in 2018), which began in 2018 when the corporate federal income tax rate was reduced from 35% to 21% and has continued each year that the tax rates have remained at the lower level.

The quarterly cash dividend on Park's common shares was $1.22 per share for the first quarter of 2020, and $1.02 per share for the second, third, and fourth quarter of 2020.

The first quarter of 2020 included a one-time special cash dividend of $0.20 per share.

This is the third year in a row that Park has declared a special cash dividend ($0.20 in both 2020 and 2019, and $0.25 in 2018), which began in 2018 when the corporate federal income tax rate was reduced from 35% to 21% and has continued each year that the tax rates have remained at the lower level.

The quarterly cash dividend on Park's common shares was $1.21 per share for the first quarter of 2019, and $1.01 per share for the second, third, and fourth quarter of 2019.

The first quarter of 2019 included a one-time special cash dividend of $0.20 per share.

The quarterly cash dividend on Park's common shares was $0.94 per share for the first quarter of 2018, $1.21 per share for the second quarter of 2018, and $0.96 per share for the third and fourth quarter of 2018.

The second quarter of 2018 included a one-time special cash dividend of $0.25 per share.

Please see the discussion of limitations on Park's ability to pay dividends in the section captioned "Supervision and Regulation of Park and its Subsidiaries – Limits on Dividends and Other Payments" in "ITEM 1.

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The COVID-19 pandemic has caused significant unprecedented disruption around the world that has affected daily living and negatively impacted the global economy.

The effects of the COVID-19 pandemic may meaningfully impact significant estimates such as the allowance for loan losses, goodwill, and pension plan obligations and related expenses.

ALLL - The determination of the ALLL involves a higher degree of judgment and complexity than Park's other significant accounting policies.

The ALLL is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb probable, incurred credit losses in the loan portfolio.

Management’s determination of the adequacy of the ALLL is based on periodic evaluations of the loan portfolio and of current economic conditions.

However, this evaluation is inherently subjective as it requires material estimates, including expected default probabilities, the loss given default, the amounts and timing of expected future cash flows on impaired loans, and estimated losses based on historical loss experience and current economic conditions.

The effects of the COVID-19 pandemic 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 loss given default, 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 loan loss provisions may be required that would adversely impact earnings for future periods.

Fair Value - In accordance with U.S.

GAAP, management utilizes the fair value hierarchy, which has the objective of maximizing the use of observable market inputs.

The accounting guidance also requires disclosures regarding the inputs used to calculate fair value.

These inputs are classified as Level 1, Level 2, and Level 3.

Level 3 inputs are those with significant

unobservable inputs that reflect a company’s own assumptions about the market for a particular instrument.

Some of the inputs could be based on internal models and/or cash flow analyses.

The large majority of Park’s financial assets valued using Level 2 inputs consist of AFS debt securities.

The fair value of these AFS debt securities is obtained largely by the use of matrix pricing, which is a mathematical technique widely used in the financial services industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

Goodwill and other intangible assets - The accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies.

GAAP establishes standards for the impairment assessment of goodwill and other intangible assets.

Goodwill and other intangible assets represents the excess of the purchase price over net identifiable tangible and intangible assets acquired in a purchase business combination.

Park’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of PNB, Park’s national bank subsidiary, to provide quality, cost-effective banking services in a competitive marketplace.

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 forecasts 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 a hypothetical sensitivity analysis, management calculated a quantitative allowance using a 100% weighting applied to an adverse scenario.

This scenario considers among other things that, (1) new cases, hospitalizations and deaths from COVID rise again, causing some state and local governments to impose restrictions, those that are not vaccinated continue to refuse the vaccines, and worries about the Omicron variant rises;

(2) as a result of the unknown Omicron variant, consumers’ uncertainty about the safety of hotels, stores, restaurants and flights rise again and, therefore, spending on travel, retail and hotels decline;

and (3) disagreements in the U.S.

Congress prevent any additional fiscal support.

The adverse scenario forecasts unemployment for the next twelve months to range from 6.6% to 9.4%.

Excluding consideration of general reserve adjustments, this sensitivity analysis would result in a hypothetical increase in Park's ACL of $20.7 million as of December 31, 2021.

Refer to the “CREDIT METRICS AND (RECOVERY OF) PROVISION FOR CREDIT LOSSES” section within this "ITEM 7:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for additional discussion.

Management believes that the accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies.

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 December 31, 2021, relates to the value inherent in the banking 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 can lead to impairment of goodwill that could adversely impact earnings in future periods.

Goodwill and indefinite-lived intangible assets are not amortized to expense, but are subject to impairment tests annually, or more frequently, if events or changes in circumstances indicate that the asset might be impaired, by assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If after assessing these events or circumstances, it is concluded that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing additional analysis is unnecessary.

If the carrying amount of the goodwill exceeds the fair value, an impairment charge must be recorded in an amount equal to the excess, not to exceed the total goodwill allocated to the reporting unit.

At December 31, 2020, on a consolidated basis, Park had $159.6 million of goodwill and $9.3 million of other intangibles, all of which are recorded at PNB.

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.

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.

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 March 31.

Based on the qualitative analysis performed as of April 1, 2021, the Company

determined that goodwill for Park's reporting unit, PNB, was not impaired.

Management continues to monitor economic factors, including economic conditions as a result of the COVID-19 pandemic and responses thereto, to evaluate goodwill impairment.

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 banking 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:

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 plan;

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

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

The most significant of these assumption are the discount rate and the expected return on assets.

The discount rate utilized for the December 31, 2021 calculation was 3.23% and the expected return on plan assets was 6.92%.

Presented below is the estimated impact on Park's projected benefit obligation ("PBO") and 2022 pension expense assuming changes in the significant assumptions.

Table 11-Pension Sensitivity

Discount Rate Expected Return on Plan Assets

(In thousands) - 25 BPS +25 BPS - 50 BPS +50 BPS

Change in PBO $ 5,560 $ (5,260) N.A.

Change in Pension Expense 110 (110) $ 1,290 $ (1,290)

Our assumptions reflect our historical experience and management’s best judgment regarding future expectations.

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Park’s subsidiaries compete for deposits and loans with other banks, savings associations, credit unions and other types of financial institutions.

At December 31, 2020, Park operated 101 financial service offices (including those of PNB, Scope Leasing, Inc.

("Scope Aircraft Finance"), and GFSC) and a network of 117 automated teller machines in 26 Ohio counties, one Kentucky county, three North Carolina counties and four South Carolina counties.

SEPH also operated one office, located in Newark, Ohio.

At December 31, 2021, Park operated 96 financial service offices (including those of PNB and Scope Leasing, Inc.

("Scope Aircraft Finance")) and a network of 116 automated teller machines in 26 Ohio counties, three North Carolina counties, four South Carolina counties and one Kentucky county.

SEPH and Guardian each operated one administrative office, located in Newark, Ohio.

SOURCE OF FUNDS

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Average total deposits were $8,187 million in 2021, compared to $7,633 million in 2020, and $6,905 million in 2019.

Table 17 provides a summary of deposit balances as of December 31, 2020 and 2019, along with the change over the past year.

The table below provides a summary of deposit balances as of December 31, 2021 and 2020, along with the change over the past year.

Table 12 - Year-End Deposits

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Total $ 7,904,528 $ 7,572,358 $ 332,170

During the year ended December 31, 2020, Park made the decision to participate in a one-way sell (OWS) program in order to manage the balance sheet.

At December 31, 2020, Park had $710.1 million in OWS insured cash sweep deposits which were off-balance sheet.

Total deposits would have increased $1.2 billion, or 17.4%, compared to December 31, 2019 had the $710.1 million remained on the balance sheet.

Off balance sheet deposits 983,053 710,101 272,952

Total deposits including off balance sheet deposits $ 8,887,581 $ 8,282,459 $ 605,122

During the years ended December 31, 2021 and 2020, Park made the decision to participate in two programs in order to manage growth of the balance sheet, as deposits increased significantly throughout the COVID-19 pandemic.

At December 31, 2021 and December 31, 2020, Park had $983.1 million and $710.1 million, respectively, in off balance sheet deposits.

Total deposits would have increased $605.1 million, or 7.3%, compared to December 31, 2020 had the $983.1 million and $710.1 million in deposits remained on the balance sheet.

The average interest rate paid on interest bearing deposits was 0.12% in 2021, compared to 0.41% in 2020 and 1.01% in 2019.

The average cost of interest bearing deposits for each quarter of 2021 was 0.09% for the fourth quarter, 0.11% for the third quarter, 0.13% for the second quarter and 0.16% for the first quarter.

Maturities of time deposits in amounts of $100,000 or more as of December 31, 2020 and 2019 were:

Table 18 - Maturities of Time Deposits $100,000 or more

As of December 31, 2021 and 2020, approximately $1.7 billion and $1.8 billion, respectively, of our deposit portfolio was uninsured.

The uninsured amounts are estimates based on the methodologies used for the Corporation's regulatory reporting requirements.

The following table provides a summary of the portion of the Corporation's time deposits, by account, that are in excess of the FDIC insurance limit of $250,000, by remaining time until maturity, as of December 31, 2021:

Table 13 - Maturities of Time Deposits in Excess of FDIC Insurance Limit

December 31 (In thousands) 2021

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Long-Term Debt:

Long-term debt primarily consists of borrowings from the Federal Home Loan Bank and a term note with another financial institution.

Long-term debt primarily consists of borrowings from the Federal Home Loan Bank.

In addition, Park had a term note with another financial institution which was paid off on August 2, 2021.

The average balance of long-term debt and the average cost of long-term debt include the subordinated notes discussed in the following section.

In 2020, the average balance of long-term debt was $216 million, compared to $341 million in 2019 and $424 million in 2018.

The average interest rate paid on long-term debt was 3.55% in 2020, compared to 2.77% in 2019, and 2.38% for 2018.

In 2021, the average balance of long-term debit was $206 million, compared to $216 million in 2020 and $341 million in 2019.

The average interest rate paid on long-term debt was 4.32% in 2021, compared to 3.55% in 2020 and 2.77% in 2019.

Average total debt (long-term and short-term) was $493 million in 2021, compared to $495 million in 2020 and $557 million in 2019.

Average total debt decreased by $62 million, or 11.1%, in 2020 compared to 2019, and decreased by $85 million, or 13.2%, in 2019 compared to 2018.

Average total debt decreased by $2 million, or 0.3%, in 2021 compared to 2020, and decreased by $62 million, or 11.1%, in 2020

compared to 2019.

Average long-term debt was 42% of average total debt in 2021, compared to 44% of average total debt in 2020 and 61% of average total debt in 2019.

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Park assumed, with the 2007 acquisition of Vision's parent holding company, $15.5 million of floating rate junior subordinated notes.

The $15.5 million of junior subordinated notes were purchased by Vision Bancshares

Trust I ("Trust I") following the issuance of Trust I's $15.0 million of floating rate preferred securities.

The $15.5 million of junior subordinated notes were purchased by Vision Bancshares Trust I ("Trust I") following the issuance of Trust I's $15.0 million of floating rate preferred securities.

The interest rate on these junior subordinated notes adjusts every quarter at 148 basis points above the three-month LIBOR interest rate.

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provided, however, that if the Benchmark rate is less than zero, then the Benchmark rate will be deemed to be zero.

The Company may, at its option, beginning with the interest payment date of September 1, 2025 and on any interest payment date thereafter, redeem the Subordinated Notes, in whole or in part, from time to time, subject to obtaining the prior approval of the holders of the Company’s senior indebtedness and of the Federal Reserve Board to the extent the approval of the Federal Reserve Board is then required under the capital adequacy rules of the Federal Reserve Board, at a redemption price equal to 100% of the principal amount of the Subordinated Notes being redeemed, plus accrued and unpaid interest thereon to but excluding the date of redemption.

The Company may, at its option, beginning with the interest payment date of September 1, 2025 and on any interest payment date thereafter, redeem the Subordinated Notes, in whole or in part, from time to time, subject to obtaining the prior approval of the Federal Reserve Board to the extent the approval of the Federal Reserve Board is then required under the capital adequacy rules of the Federal Reserve Board, at a redemption price equal to 100% of the principal amount of the Subordinated Notes being redeemed, plus accrued and unpaid interest thereon to but excluding the date of redemption.

The Subordinated Notes qualify as Tier 2 capital for Park under the Federal Reserve Board's capital adequacy rules.

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GAAP, Park reflects any unrealized holding gain or loss on AFS debt securities, any unrealized net holding gain or loss on cash flow hedging derivatives and any change in the funded status of Park's pension plan, net of income taxes, as accumulated other comprehensive income (loss) which is part of Park’s shareholders’ equity.

The unrealized net holding gain, net of income taxes, on AFS debt securities was $40.7 million at year-end 2020, compared to $17.5 million at year-end 2019, and to the unrealized net holding loss, net of income taxes, of $20.1 million at year-end 2018.

The unrealized net holding loss, net of income taxes, on cash flow hedging derivatives was $698,000 at year-end 2020, compared to $454,000 at year-end 2019.

There were no cash flow hedging derivatives at year-end 2018.

The unrealized net holding gain, net of income taxes, on AFS debt securities was $21.2 million at year-end 2021, compared to $40.7 million at year-end 2020 and $17.5 million at year-end 2019.

The unrealized net holding loss, net of income taxes, on cash flow hedging derivatives was $206,000 at year-end 2021, compared to $698,000 at year-end 2020 and $454,000 at year-end 2019.

In accordance with U.S.

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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K for information on the accounting for Park’s pension plan.

Pertaining to the funding status of the pension plan, Park recognized a net comprehensive loss of $7.7 million in 2020, a net comprehensive gain of $3.0 million in 2019, and a net comprehensive loss of $3.0 million in 2018.

Pertaining to the funding status of the pension plan, Park recognized a net comprehensive gain of $28.6 million in 2021, compared to a net comprehensive loss of $7.7 million in 2020 and a net comprehensive gain of $3.0 million in 2019.

The net comprehensive gain in 2021 was due to greater than expected investment returns on pension plan assets as well as a net decrease in the benefit obligation due to assumption changes.

The net comprehensive loss in 2020 was due to changes in actuarial assumptions which were partially offset by increased investment returns on pension plan assets.

The net comprehensive gain in 2019 was due to changes in actuarial assumptions being more than offset by increased investment returns on pension plan assets.

The net comprehensive loss in 2018 was due to changes in actuarial assumptions being more than offset by lower than projected returns on pension plan assets during 2018.

At year-end 2020, the balance in accumulated other comprehensive loss pertaining to the pension plan was $34.4 million, compared to $26.7 million at December 31, 2019, and $29.7 million at December 31, 2018.

At year-end 2021, the balance in accumulated other comprehensive loss pertaining to the pension plan was an unrealized loss of $5.8 million, compared to $34.4 million at December 31, 2020 and $26.7 million at December 31, 2019.

INVESTMENT OF FUNDS

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The average yield on average loan balances for each quarter of 2021 was 4.58% for the fourth quarter, 4.47% for the third quarter, 4.60% for the second quarter and 4.48% for the first quarter.

Loan interest income for 2020, 2019, and 2018 included $453,000, $256,000, and $3.4 million, respectively, related to payments received on certain SEPH impaired loan relationships, some of which are participated with PNB.

In addition, loan interest income included $3.3 million, $4.4 million and $5.2 million, respectively, of the accretion of loan purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance.

Loan interest income for 2020 included interest and fee income related to PPP loans of $16.7 million.

Excluding this income, the average yield on loans was 4.63%, 5.09%, and 4.89%, for the years ended December 31, 2020, 2019, and 2018.

Excluding this income, the average yield on loans was 4.48% for the fourth quarter of 2020, 4.54% for the third quarter of 2020, 4.58% for the second quarter of 2020, and 4.92% for the first quarter of 2020.

Loan interest income for 2021 and 2020 included interest and fee income related to PPP loans of $18.0 million and $16.7 million, respectively.

Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 4.27%, 4.63% and 5.09%, for the years ended December 31, 2021, 2020, and 2019.

Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 4.20% for the fourth quarter of 2021, 4.25% for the third quarter of 2021, 4.29% for the second quarter of 2021, and 4.34% for the first quarter of 2021.

At December 31, 2021, loan balances were $6,871 million, compared to $7,178 million at year-end 2020, a decrease of $307 million, or 4.3%.

Excluding $74.4 million and $331.6 million of PPP loans at December 31, 2021 and 2020, respectively, loans outstanding at December 31, 2021 were $6,797 million, a decrease of $49 million, or 0.7%, compared to $6,846 million at December 31, 2020.

At December 31, 2020, loan balances were $7,178 million, compared to $6,501 million at year-end 2019, an increase of $676 million, or 10.4%.

Excluding $331.6 million of PPP loans at December 31, 2020, loans outstanding at December 31, 2020 were $6,846 million, compared to $6,501 million at December 31, 2019, an increase of $345 million, or 5.3%.

Table 19 reports year-end loan balances by type of loan for the past five years.

The table below reports year-end loan balances by type of loan for the past three years.

Table 14 - Loans by Type

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Total loans $ 6,871,122 $ 7,177,785 $ 6,501,404

PPP loans (1)

74,420 331,571 —

Total loans less PPP loans $ 6,796,702 $ 6,846,214 $ 6,501,404

(1) PPP loans are included in Commercial, financial and agricultural above.

On a combined basis, year-end commercial, financial and agricultural loans, construction real estate loans and commercial real estate loans decreased by $258 million, or 7.0%, in 2021.

The decrease in 2021 was due to a decrease in commercial, financial and agricultural loans of $290.4 million, a decrease in construction real estate loans of $21.6 million, and an increase in commercial real estate loans of $53.6 million.

Included within commercial, financial and agricultural loans were $74.4 million of PPP loans.

On a combined basis, year-end commercial, financial and agricultural loans, construction real estate loans and commercial real estate loans increased by $554 million, or 17.7%, in 2020.

The increase in 2020 was due to an increase in commercial real estate loans of $138.8 million, an increase in construction real estate loans of $11.7 million and an increase in commercial, financial and agricultural loans of $403.9 million.

Included within commercial, financial and agricultural loans are $337.1 million of PPP loans.

On a combined basis, year-end commercial, financial and agricultural loans, construction real estate loans and commercial real estate loans increased by $522 million, or 20.0%, in 2019.

The increase in 2019 was due to an increase in commercial real estate loans of $326.4 million, an increase in commercial, financial and agricultural loans of $112.3 million and an increase in construction real estate loans of $83.4 million.

Included within commercial, financial and agricultural loans were $331.6 million of PPP loans.

Excluding $74.4 million and $331.6 million of PPP loans at December 31, 2021 and 2020, respectively, commercial, financial and agricultural loans decreased $33 million, or 2.6% in 2021 and increased $72 million, or 6.1% in 2020.

Consumer loans increased by $30.0 million, or 1.8%, in 2021 and increased $207.3 million, or 14.3%, in 2020.

The increase in consumer loans in each of 2021 and 2020 was primarily due to an increase in automobile lending in Ohio.

Residential real estate loans decreased by $79.7 million, or 4.2%, in 2020 and increased by $99.1 million, or 5.5%, in 2019.

Residential real estate loans decreased by $74.3 million, or 4.1%, in 2021 and decreased by $79.7 million, or 4.2%, in 2020.

The decrease in 2021 was due to a decrease in mortgage loans secured by residential real estate of $62.7 million, a decrease in home equity loans secured by residential real estate of $16.4 million and a decrease in installment loans secured by residential real estate of $2.8 million, partially offset by an increase in commercial loans secured by residential real estate of $7.6 million.

Leases decreased by $5.6 million to $24.4 million in 2020 and increased by $27.8 million in 2019 to $30.1 million at December 31, 2019 compared to $2.3 million as of December 31, 2018.

The increase in 2019 was primarily due to the acquisition of Carolina Alliance.

Table 20 summarizes the distribution of maturities for all selected loan segments.

Table 20 - Selected Loan Maturity Distribution

Leases decreased by $3.9 million to $20.5 million in 2021 and decreased $5.6 million to $24.4 million in 2020.

The table below summarizes the distribution of maturities for loan segments as of December 31, 2021:

Table 15 - Loan Maturity Distribution

One Year or Less (1)

Over One Through Five Years Over

Over One Through Five Years Over Five Through Fifteen Years Over

December 31, 2021

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Construction real estate 80,560 86,056 58,565 96,605 321,786

Residential real estate 66,352 155,785 846,938 669,632 1,738,707

Commercial real estate 106,511 322,930 755,864 616,487 1,801,792

Total $ 438,105 $ 1,469,451 $ 1,773,043 $ 3,680,599

Total of these selected loans due

after one year with:

Fixed interest rate $ 634,380 $ 397,200 $ 1,031,580

Floating interest rate 835,071 1,375,843 2,210,914

Consumer 24,832 752,373 911,568 906 1,689,679

Leases 4,406 14,873 1,253 — 20,532

Total loans and leases $ 614,267 $ 2,017,029 $ 2,758,396 $ 1,481,430 $ 6,871,122

(1) Nonaccrual loans of $72.7 million are included within the one year or less classification above.

(2) Purchase accounting discounts of $5.6 million are included within the one year or less classification above.

The table below summarizes the composition of the loan portfolio by fixed and adjustable rate as of December 31, 2021 that are contractually due after December 31, 2022:

Table 16 - Amounts Due After One Year

(In thousands) Fixed Adjustable Total

Commercial, financial and agricultural $ 470,929 $ 496,091 $ 967,020

Construction real estate 55,356 185,870 241,226

Residential real estate 663,284 1,009,071 1,672,355

Commercial real estate 493,857 1,201,424 1,695,281

Consumer 1,641,927 22,920 1,664,847

Leases 16,126 — 16,126

Total loans and leases $ 3,341,479 $ 2,915,376 $ 6,256,855

Investment Securities:

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The debt securities that are classified as AFS are free to be sold in future periods in carrying out Park’s investment strategies.

Beginning in 2021, Park began investing in the AAA and AA rated tranches of Collateralized Loan Obligations ("CLOs").

CLOs had a fair value as of December 31, 2021 of $498.7 million.

Management closely monitors the credit status of these securities.

At December 31, 2021 the market value over collateralization was greater than 120% for each CLO.

Prior to September 1, 2019, Park classified certain types of U.S.

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On September 1, 2019, Park adopted the portion of ASU 2019-04 which allowed for a one-time reclassification of securities from HTM to AFS.

On this date, Park transferred HTM securities with a fair value of $373.9 million to the AFS classification.

On that date, Park transferred HTM securities with a fair value of $373.9 million to the AFS classification.

The transfer occurred at fair value and had a related unrealized gain, net of taxes, of $19.1 million recorded in other comprehensive income.

At year-end 2018, Park’s HTM securities portfolio was $352 million.

All of the CMOs, mortgage-backed securities, and callable notes in Park’s investment portfolio were issued by U.S.

Government sponsored entities.

Average taxable debt investment securities were $1,060 million in 2021, compared to $858 million in 2020 and $1,052 million in 2019.

The average yield on taxable debt investment securities was 2.31% in 2020, compared to 2.49% in 2019 and compared to 2.47% in 2018.

The average yield on taxable debt investment securities was 1.84% in 2021, compared to 2.31% in 2020 and 2.49% in 2019.

Average tax-exempt debt investment securities were $288 million in 2021, compared to $289 million in 2020 and $309 million in 2019.

The average tax-equivalent yield on tax-exempt debt investment securities was 3.69% in 2020, compared to 3.67% in both 2019 and 2018.

The average tax-equivalent yield on tax-exempt debt investment securities was 3.65% in 2021, compared to 3.69% in 2020 and 3.67% in 2019.

Total debt securities (at amortized cost) were $1,727 million at December 31, 2021, compared to $1,008 million at December 31, 2020 and $1,187 million at December 31, 2019.

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Proceeds from repayments, redemptions and maturities of debt securities were $232 million in 2021, compared to $224 million in 2020 and $196 million in 2019.

There were no sales of AFS debt securities in 2021.

During 2020, Park sold certain AFS debt securities with a book value of $112.5 million at a gross loss of $64,000, and sold certain AFS debt securities with a book value of $196.4 million at a gross gain of $3.4 million.

During 2019, Park sold certain AFS debt investment securities with a book value of $62.4 million at a gross loss of $692,000, and sold certain AFS debt investment securities with a book value of $29.1 million at a gross gain of $271,000.

During 2018, Park sold certain AFS debt investment securities with a book value of $245.0 million at a gross loss of $2.6 million, sold certain AFS debt securities with a book value of $2.0 million at a gross gain of $60,000, and sold certain HTM debt securities with a book value of $7.4

million at a gross gain of $0.3 million.

These HTM securities had been paid down by 96.3% of the principal outstanding at acquisition.

For the years ended December 31, 2021, 2020, and 2019, the average tax-equivalent yield on the total investment portfolio was 2.22%, 2.66% and 2.76%, respectively.

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Government sponsored entities' asset-backed securities were approximately 47.1% of the total investment portfolio at year-end 2021, 66.9% of the total investment portfolio at year-end 2020 and 69.5% of the total investment portfolio at year-end 2019.

Other investment securities (as shown on Park's Consolidated Balance Sheets) consist of stock investments in the FHLB, the FRB and equity securities.

Other investment securities (as shown on Park's Consolidated Balance Sheets) consist of stock investments in the FHLB, the FRB and equity securities which includes equity investments in limited partnerships which provide mezzanine funding.

Total other investment securities were $61 million at December 31, 2021, compared to $65 million at December 31, 2020 and $70 million at December 31, 2019.

Management purchased equity securities totaling $3.6 million in 2020, compared to $100,000 in 2019 and $2.6 million in 2018.

Management purchased equity securities totaling $3.6 million in 2020, compared to $100,000 in 2019.

There were no equity security purchases in 2021.

Management purchased $6.4 million of FRB stock in 2019.

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These gains on equity securities were made up of gains (losses) on equity investments carried at fair value as well as gains (losses) on equity investments carried at NAV.

For the years ended December 31, 2020, 2019 and 2018, $(239,000), $345,000 and $(287,000), respectively, of unrealized (losses) gains on equity investments carried at fair value were recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income.

An additional $3.5 million gain recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income for the year ended December 31, 2018 related to Park's 8.55% investment in NewDominion Bank which merged with Park National Bank on July 1, 2018.

For the years ended December 31, 2021, 2020 and 2019, $552,000, $(239,000) and $345,000, respectively, of gains (losses) on equity investments carried at fair value were recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income.

For the years ended December 31, 2021, 2020 and 2019, $4.5 million, $2.4 million and $4.8 million, respectively, of gains on equity investments carried at NAV were recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income.

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At year-end 2021, management estimated that the average maturity of the investment portfolio would decrease to 4.1 years with a 100 basis point decrease in long-term interest rates and to 3.8 years with a 200 basis point decrease in long-term interest rates.

Table 21 sets forth the carrying value of investment securities, as well as the percentage held within each category at year-end 2020, 2019 and 2018:

The table below sets forth the carrying value of investment securities, as well as the percentage held within each category at year-end 2021, 2020 and 2019:

Table 17 - Investment Securities

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Government asset-backed securities 854,463 752,109 889,210

Federal Home Loan Bank stock 22,090 30,060 43,388

Federal Reserve Bank stock 14,653 14,653 8,225

Collateralized loan obligations 498,674 — —

FHLB stock 13,413 22,090 30,060

FRB stock 14,653 14,653 14,653

Equities 33,202 28,722 25,093

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Government asset-backed securities 47.1 % 66.9 % 69.5 %

Federal Home Loan Bank stock 2.0 % 2.3 % 3.0 %

Federal Reserve Bank stock 1.2 % 1.2 % 0.6 %

Collateralized loan obligations 27.5 % — % — %

FHLB stock 0.7 % 2.0 % 2.3 %

FRB stock 0.8 % 1.2 % 1.2 %

Equities 1.8 % 2.6 % 2.0 %

Total 100.0 % 100.0 % 100.0 %

The carrying value of investments in debt securities at December 31, 2021, is shown in the following table by contractual maturity, except for asset-backed securities and collateralized loan obligations, which are shown as a single total, due to the unpredictability of the timing in 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.

Table 18 - Investment Maturity Distribution

Over Five Through Ten Years Over

December 31, 2021

(In thousands)

Corporate debt securities $ 11,412 $ — $ 11,412

Obligations of states and political subdivisions 213,154 176,437 389,591

Total $ 224,566 $ 176,437 $ 401,003

Government sponsored entities' asset-backed securities $ 854,463

Collateralized loan obligations 498,674

ANALYSIS OF EARNINGS

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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.

(See Table 22 for three years of history on the average balances of the balance sheet categories as well as the average rates earned on interest earning assets and the average rates paid on interest bearing liabilities.)

(See the table below for three years of history on the average balances of the balance sheet categories as well as the average rates earned on interest earning assets and the average rates paid on interest bearing liabilities.)

Table 19 - Distribution of Assets, Liabilities and Shareholders' Equity

10 unchanged sentences

Total interest earning assets 9,028,340 348,764 3.86 % 8,418,528 360,586 4.28 % 7,738,936 363,456 4.70 %

Table 22 - Distribution of Assets, Liabilities and Shareholders' Equity-continued

December 31, 2020 2019 2018

(In thousands) Daily

Average Interest Average

Non-interest earning assets:

Allowance for loan losses (71,221) (54,516) (50,151)

Allowance for credit losses (87,233) (71,221) (54,516)

Cash and due from banks 139,678 127,214 130,372

8 unchanged sentences

Total interest bearing deposits 5,249,467 6,306 0.12 % 5,238,147 21,328 0.41 % 5,029,854 50,842 1.01 %

Federal funds purchased 68 — 0.10 % 1,872 2 0.12 % 79 2 2.78 %

Repurchase agreements 261,967 95 0.04 % 250,265 472 0.19 % 168,450 1,105 0.66 %

Short-term borrowings 25,025 672 2.69 % 26,750 636 2.38 % 47,371 1,369 2.89 %

2 unchanged sentences

Total interest bearing liabilities 5,742,410 15,960 0.28 % 5,732,679 30,090 0.52 % 5,586,418 62,763 1.12 %

Table 19 - Distribution of Assets, Liabilities and Shareholders' Equity-continued

December 31, 2021 2020 2019

(In thousands) Daily

Average Interest Average

Non-interest bearing liabilities:

18 unchanged sentences

For 2019, the acquisition of Carolina Alliance added average interest earning assets of $432.7 million.

For 2018, the acquisition of NewDominion added average interest earning assets of $146.7 million.

Interest income for 2020, 2019, and 2018 included $453,000, $256,000 and $3.4 million, respectively, related to payments received on certain SEPH impaired loan relationships, some of which are participated with PNB as well as $4.4

million, $5.2 million and $1.1 million of purchase accounting accretion for 2020, 2019 and 2018, respectively.

Interest income for 2020 included $16.7 million of income related to PPP loans.

Excluding this income, the average yield on loans was 4.63%, 5.09%, and 4.89%, for the years ended December 31, 2020, 2019 and 2018, respectively, the average yield on earning assets was 4.20%, 4.62%, and 4.40%, for the years ended December 31, 2020, 2019 and 2018, respectively, and the net interest margin was 3.82%, 3.80% and 3.77%, for the years ended December 31, 2020, 2019 and 2018, respectively.

Average interest bearing liabilities for 2020 increased by $146 million, or 2.6%, to $5,733 million for 2020, compared to $5,586 million for 2019.

Interest income for 2021, 2020, and 2019 included $8.0 million, $453,000 and $256,000, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB as well as $3.3 million, $4.4 million and $5.2 million of purchase accounting accretion for 2021, 2020 and 2019, respectively.

Interest income for 2021 and 2020 included $18.0 million and $16.7 million, respectively, of income related to PPP loans.

Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 4.27%, 4.63% and 5.09%, for the years ended December 31, 2021, 2020 and 2019, respectively, the average yield on earning assets was 3.64%, 4.20% and 4.62%, for the years ended December 31, 2021, 2020 and 2019, respectively, and the net interest margin was 3.46%, 3.82% and 3.80%, for the years ended December 31, 2021, 2020 and 2019, respectively.

Average interest bearing liabilities for 2021 increased by $10 million, or 0.2%, to $5,742 million, compared to $5,733 million for 2020.

Average interest bearing liabilities for 2020 increased by $146 million, or 2.6%, to $5,733 million for 2020, compared to $5,586 million for 2019.

1 unchanged sentence

For 2019, the acquisition of Carolina Alliance added average interest bearing liabilities of $368.8 million.

For 2018, the acquisition of NewDominion added average interest bearing liabilities of $89.7 million.

The table below shows for the years ended December 31, 2021, 2020, and 2019, the average balance and tax equivalent yield by type of loan.

10 unchanged sentences

Other 2,793 12.07 % 3,873 10.71 % 4,661 11.70 %

Total loans and leases before allowance

$ 6,990,458 4.71 % $ 6,208,496 5.19 % $ 5,460,664 4.98 %

Total loans and leases before allowance for credit losses $ 7,014,517 4.53 % $ 6,990,458 4.71 % $ 6,208,496 5.19 %

(1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate in 2021, 2020 and 2019.

The taxable equivalent adjustments were $704,000 in 2021, $623,000 in 2020 and $576,000 in 2019.

Loan interest income for 2020, 2019, and 2018 included $453,000, $256,000 and $3.4 million, respectively, related to payments received on certain SEPH impaired loan relationships, some of which are participated with PNB as well as $4.4 million, $5.2 million and $1.1 million of purchase accounting accretion for 2020, 2019 and 2018, respectively.

The amount of interest related to SEPH impaired loan relationships and purchase accounting accretion included in home equity loan interest income for 2020, 2019 and 2018 was $395,000, $443,000 and $202,000, respectively.

Loan interest income for 2021, 2020, and 2019 included $8.0 million, $453,000 and $256,000, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB as well as $3.3 million, $4.4 million and $5.2 million of purchase accounting accretion for 2021, 2020 and 2019, respectively.

Below is a summary of the impact of these items on the tax equivalent yield of loans.

• The amount of interest related to SEPH nonaccrual loan relationships and purchase accounting accretion included in home equity loan interest income for 2021, 2020 and 2019 was $479,000, $395,000 and $443,000, respectively.

Excluding the impact of these items, the average tax equivalent yield on home equity loans was 3.41%, 3.83% and 5.37%, respectively.

The amount of interest related to SEPH impaired loan relationships and purchase accounting accretion included in real estate loan interest income for 2020, 2019 and 2018 was $391,000, $617,000 and $545,000.

• The amount of interest related to SEPH nonaccrual loan relationships and purchase accounting accretion included in real estate loan interest income for 2021, 2020 and 2019 was $243,000, $391,000 and $617,000.

Excluding the impact of these items, the average tax equivalent yield on real estate loans was 3.71%, 4.08% and 4.30%, respectively.

The amount of interest related to PPP income, SEPH impaired loan relationships and purchase accounting accretion included in commercial loan interest income for 2020, 2019, and 2018 was $19.9 million, $4.3 million and $3.8 million, respectively.

• The amount of interest related to PPP income, SEPH nonaccrual loan relationships and purchase accounting accretion included in commercial loan interest income for 2021, 2020, and 2019 was $28.5 million, $19.9 million and $4.3 million, respectively.

Excluding the impact of these items, the average tax equivalent yield on commercial loans was 4.24%, 4.66% and 5.26%, for 2021, 2020, and 2019, respectively.

Excluding the impact of interest related to PPP income, SEPH impaired loan relationships and purchase accounting accretion, the average tax equivalent yield on total loans and leases was 4.64%, 5.09% and 4.89%, for 2020, 2019, and 2018, respectively.

• Excluding the impact of interest related to PPP income, SEPH nonaccrual loan relationships and purchase accounting accretion, the average tax equivalent yield on total loans and leases was 4.27%, 4.63% and 5.09%, for 2021, 2020, and 2019, respectively.

The table below shows for the years ended December 31, 2021, 2020, and 2019, the average balance and cost of funds by type of deposit.

11 unchanged sentences

$ 5,249,467 0.12 % $ 5,238,147 0.41 % $ 5,029,854 1.01 %

(1) Time deposit interest expense for 2020, 2019 and 2018 benefited from $226,000, $593,000 and $287,000, respectively, of purchase accounting accretion related to the acquisition of NewDominion for all of 2020 and 2019 and for the third and four quarters of 2018 and Carolina Alliance for all of 2020 and the second, third and fourth quarters of 2019.

(1) Time deposit interest expense for 2021, 2020 and 2019 benefited from $46,000, $226,000 and $593,000, respectively, of purchase accounting accretion related to the acquisition of NewDominion for all of 2021, 2020 and 2019 and Carolina Alliance for all of 2021 and 2020 and the second, third and fourth quarters of 2019.

Excluding the impact of this accretion, the average cost of funds on time deposits for 2021, 2020 and 2019 was 0.61%, 1.25% and 1.62%, respectively, and the average cost of funds on total interest bearing deposits for 2021, 2020 and 2019 was 0.12%, 0.41% and 1.02%, respectively.

9 unchanged sentences

2021 $ 9,028,340 $ 329,893 $ 332,804 3.69 %

(1) Net interest income for the first, second, third and fourth quarters of 2020 included $77,000, $266,000, $8,000 and $102,000, respectively, related to payments received on certain SEPH impaired loan relationships, some of which are participated with PNB.

Net interest income for the first, second, third, and fourth quarters of 2020 included $1.4 million, $1.3 million, $1.1 million and $919,000 of purchase accounting accretion related to the acquisition of NewDominion and Carolina Alliance.

Net interest income for the second, third, and fourth quarters of 2020 included $3.6 million, $5.1 million and $7.9 million, respectively, related to PPP loans.

(1) Net interest income for the first, second, third and fourth quarters of 2021 included $105,000, $2.8 million, $414,000 and $4.6 million, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB.

Net interest income for the first, second, third, and fourth quarters of 2021 included $1.1 million, $806,000, $807,000 and $559,000 of purchase accounting accretion related to the acquisition of NewDominion and Carolina Alliance.

Net interest income for the first, second, third, and fourth quarters of 2021 included $5.2 million, $5.7 million, $4.6 million and $2.5 million, respectively, related to PPP loans.

Excluding the impact of these loan payments and accretion, the tax equivalent net interest margin was 3.61%, 3.47%, 3.35%, and 3.42%, for the first, second, third, and fourth quarters of 2021, respectively, and 3.46% for the year ended December 31, 2021.

30 unchanged sentences

ATM fees 2,379 1,773 1,828

Gain (loss) on the sale of OREO, net 1,207 (222) 4,235

Net gain (loss) on the sale of debt securities 3,286 (421) (2,271)

Gain on equity securities, net 2,182 5,118 4,616

Other components of net periodic benefit income 7,952 4,732 6,820

Gain on the sale of non-performing loans — — 2,826

Miscellaneous 7,386 7,248 6,745

Total other income $ 125,664 $ 97,193 $ 101,101

Other income was impacted by the acquisitions of NewDominion and Carolina Alliance.

The NewDominion Division and the Carolina Alliance Division contributed an aggregate of $9.5 million and $4.6 million to other income at Park during the years ended December 31, 2020 and December 31, 2019, respectively.

Table 28 - Other Income breakout

Change from 2019 to 2020 Change from 2018 to 2019

(In thousands) Park less ND and CABF ND and CABF Total Park less ND and CABF ND and CABF Total

Income from fiduciary activities $ 1,061 $ 44 $ 1,105 $ 1,475 $ — $ 1,475

Service charges on deposit accounts (2,444) 54 (2,390) (876) 250 (626)

Other service income 17,868 4,243 22,111 (45) 1,279 1,234

Debit card fee income 1,711 199 1,910 2,368 565 2,933

Bank owned life insurance income 147 85 232 (2,618) 360 (2,258)

ATM fees (101) 46 (55) (118) (32) (150)

Gain (loss) on the sale of OREO, net 1,400 29 1,429 (4,457) — (4,457)

(Loss) gain on the sale of OREO, net (4) 1,207 (222)

Net gain (loss) on the sale of debt securities — 3,286 (421)

1 unchanged sentence

Other components of net periodic benefit income 8,152 7,952 4,732

Gain on the sale of non-performing loans — — — (2,826) — (2,826)

Miscellaneous 10,551 7,386 7,248

1 unchanged sentence

Income from fiduciary activities increased by $5.6 million, or 19.3%, to $34.4 million in 2021, compared to $28.9 million in 2020.

The $27.8 million in 2019 was an increase of $1.5 million, or 5.6%, compared to $26.3 million in 2018.

The increases in fiduciary fee income in 2020 and 2019 were primarily due to improvements in the equity markets and also due to an increase in the total account balances serviced by PNB’s Trust Department.

The $28.9 million was an increase of $1.1 million, or 4.0%, compared to $27.8 million in 2019.

The increases in fiduciary fee income in 2021 and 2020 were primarily due to improvements in equity market values and also due to an increase in the total account balances serviced by PNB’s Trust Department.

PNB charges fiduciary fees largely based on the market value of the trust assets.

The average market value of the trust assets managed by PNB was $7.45 billion in 2021, compared to $6.17 billion in 2020 and $5.85 billion in 2019.

Service charges on deposit accounts decreased by $2.4 million, or 22.1%, to $8.4 million in 2020, compared to $10.8 million in 2019.

The $10.8 million in 2019 was a decrease of $626,000, or 5.5%, compared to $11.5 million in 2018.

The declines in 2020 and 2019 were related to declines in service charges on deposits, largely as a result of a decline in other non-sufficient funds (NSF) fee income and service charges on demand deposit accounts.

Other service income increased $22.1 million, or 142.7%, to $37.6 million in 2020, compared to $15.5 million in 2019.

The $15.5 million in 2019 was an increase of $1.2 million, or 8.6%, compared to $14.3 million in 2018.

The increase in 2020 compared to 2019 was primarily related to increase in other service income related to mortgage loan originations, including a $17.2 million increase in fee income related to a $686.5 million increase in mortgage loan originations to be sold in the secondary market, a $1.7 million increase in income related to investor rate locks and loans held for sale, and a $2.3 million increase in mortgage servicing rights income.

Sold mortgage origination volume increased by $747.9 million for the year ended December 31, 2020, compared to the year ended December 31, 2019.

The increase in 2019 compared to 2018 was related to increases in other service income due to the acquisitions of NewDominion and Carolina Alliance which increased sold mortgage loan originations.

Debit card fee income, which is generated from debit card transactions, increased $1.9 million, or 9.4%, to $22.2 million, compared to $20.3 million in 2019.

The $20.3 million in 2019 was an increase of $2.9 million, or 16.9%, compared to $17.3 million in 2018.

The increases in 2020 and 2019 were attributable to continued increases in the volume of debit card transactions, which increased 4.4% in 2020 from 2019 and increased 7.4% in 2019 from 2018.

In addition, the increase in 2020 and 2019 was attributable to changes in our point of sale network.

Park continues to focus on deposit offerings that incent our customers to use their debit card.

Bank owned life insurance income decreased by $2.3 million, or 33.1%, to $4.6 million in 2019, compared to $6.8 million in 2018.

The decrease in 2019 from 2018 of $2.3 million was primarily related to income from death benefits paid on

Park recorded $223,000 of income from death benefits paid on policies in 2019, compared to $2.7 million of income from death benefits paid on policies during 2018.

Gain (loss) on the sale of OREO, net, reflected income of $1.2 million in 2020, an increase of $1.4 million, compared to a loss of $222,000 in 2019, and the loss of $222,000 in 2019 reflected a decrease of $4.5 million, compared to a gain of $4.2 million in 2018.

The increase in 2020 was primarily due to a $1.2 million gain on the sale of two OREO properties during 2020, one of which was participated to PNB from SEPH.

The decrease in 2019 was primarily due to a $4.1 million gain in 2018 on the sale of one OREO property, which was partially participated to PNB from SEPH.

Service charges on deposit accounts increased $387,000, or 4.6%, to $8.8 million in 2021, compared to $8.4 million in 2020 and decreased by $2.4 million, or 22.1%, in 2020 compared to $10.8 million in 2019.

The increase in 2021 was related to an increase in other non-sufficient funds (NSF) fee income and service charges on demand deposit accounts.

The decline in 2020 was related to declines in service charges on deposits, largely as a result of a decline in other NSF fee income and service charges on demand deposit accounts.

Other service income decreased $7.8 million, or 20.7%, to $29.8 million in 2021, compared to $37.6 million in 2020, and increased $22.1 million, or 142.7%, in 2020 compared to $15.5 million in 2019.

The decrease in 2021 compared to 2020 was primarily related to a decrease in other service income related to mortgage loan originations, including a $6.4 million decrease in fee income related to a $457.3 million decrease in mortgage loan originations to be sold in the secondary market and a $3.7 million decrease in income related to investor rate locks and loans held for sale, partially offset by a $1.2 million increase in mortgage investor fees and a $927,000 increase in mortgage servicing rights income.

The increase in 2020 compared to 2019 was primarily related to an increase in other service income related to mortgage loan originations, including a $17.2 million increase in fee income related to a $686.5 million increase in mortgage loan originations to be sold in the secondary market, a $1.7 million increase in income related to investor rate locks and loans held for sale, and a $2.3 million increase in mortgage servicing rights income.

Debit card fee income, which is generated from debit card transactions, increased $3.7 million, or 16.7%, to $25.9 million in 2021, compared to $22.2 million in 2020, and increased $1.9 million, or 9.4%, in 2020 compared to $20.3 million in 2019.

The increases in 2021 and 2020 were attributable to continued increases in the volume of debit card transactions, which increased 10.0% in 2021 from 2020, and increased 4.4% in 2020 from 2019, and increases in total sale dollars of debit card transactions, which increased 17.1% in 2021 from 2020, and increased 12.5% in 2020 from 2019.

In addition, the increase in 2020 was attributable to changes in our point of sale network.

Park continues to focus on deposit offerings that provide incentives for our customers to use their debit card.

(Loss) gain on the sale of OREO, net, reflected a loss of $4,000 in 2021, a decrease of $1.2 million, compared to income of $1.2 million in 2020, and the income of $1.2 million in 2020 reflected an increase of $1.4 million, compared to a loss of $222,000 in 2019.

The decrease in 2021 and the increase in 2020 were primarily due to a $1.2 million gain on the sale of two OREO properties during 2020, one of which was participated to PNB from SEPH.

During 2019, Park sold certain AFS debt securities with a book value of $62.4 million at a gross loss of $692,000, and sold certain AFS debt securities with a book value of $29.1 million at a gross gain of $271,000.

During 2018, Park sold certain AFS debt securities with a book value of $245.0 million at a gross loss of $2.6 million, sold certain AFS debt securities with a book value of $2.0 million at a gross gain of $60,000, and sold certain HTM debt securities with a book value of $7.4 million at a gross gain of $0.3 million.

These HTM debt securities had been paid down by 96.3% of the principal outstanding at acquisition.

During the years ended December 31, 2020, 2019 and 2018, $(239,000), $345,000 and $(287,000), respectively, of unrealized (losses) gains on equity investments carried at fair value were recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income.

For the years ended December 31, 2020, 2019 and 2018, $2.4 million, $4.8 million and $1.4 million, respectively, of unrealized gains on equity investments carried at NAV were recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income.

Other components of net periodic pension benefit income increased by $3.2 million, or 68.0%, to $8.0 million in 2020, compared to $4.7 million in 2019.

The $4.7 million in 2019 was a decrease of $2.1 million, or 30.6%, compared to $6.8 million in 2018.

The increase in 2020 was largely due to an increase in the expected return on plan assets as a result of the increased value of plan assets.

The decrease in 2019 was largely due to a decrease in the expected return on plan assets based on a decrease in plan assets and increased interest costs.

Gain on the sale of non-performing loans was $2.8 million for 2018.

This was related to certain non-performing loans, which had a book balance of $174,000, that were sold in the fourth quarter of 2018.

No non-performing loans were sold in 2020 or 2019.

No debt securities were sold in 2021.

During the years ended December 31, 2021, 2020 and 2019, $552,000, $(239,000) and $345,000, respectively, of gains (losses) on equity investments carried at fair value were recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income.

Other components of net periodic pension benefit income increased by $200,000, or 2.5% to $8.2 million in 2021, compared to $8.0 million in 2020, and increased $3.2 million, or 68.0%, to $8.0 million in 2020, compared to $4.7 million in 2019.

The increases in 2021 and 2020 were largely due to an increase in the expected return on plan assets as a result of the increased value of plan assets.

Miscellaneous income increased by $3.2 million, or 42.9%, to $10.6 million in 2021, compared to $7.4 million in 2020, and increased $138,000, or 1.9%, to $7.4 million in 2020, compared to $7.2 million in 2019.

The increase in 2021 was primarily related to refunds of a consumer insurance product, an increase in income from printed check sales and an increase in gain on sale of assets.

Other Expense:

Other expense was $283.5 million in 2021, compared to $286.6 million in 2020 and $264.0 million in 2019.

Other expense increased by $22.6 million, or 8.6% in 2020, and increased by $35.2 million, or 15.4%, in 2019.

Other expense decreased by $3.1 million, or 1.1%, in 2021 and increased by $22.6 million, or 8.6% in 2020.

The following table displays total other expense for Park for 2021, 2020 and 2019.

18 unchanged sentences

Full-time equivalent employees 1,685 1,755 1,907

Other expense was impacted by the acquisitions of NewDominion and Carolina Alliance, which closed July 1, 2018 and April 1, 2019, respectively.

The NewDominion Division and the Carolina Alliance Division contributed an aggregate of $27.6 million and $27.2 million to other expense at Park during the year ended December 31, 2020 and December 31, 2019, respectively.

See Table 31- "Items Impacting Comparability" for further additional expense detail.

Table 30 - Other Expense breakout

Change from 2019 to 2020 Change from 2018 to 2019

(In thousands) Park less ND and CABF ND and CABF Total Park less ND and CABF ND and CABF Total

Salaries $ 7,354 $ 1,172 $ 8,526 $ 6,850 $ 8,909 $ 15,759

Employee benefits (657) 966 309 4,620 1,897 6,517

Occupancy expense 714 273 987 (134) 1,698 1,564

Furniture and equipment expense 1,696 77 1,773 58 835 893

Data processing fees 1,603 (694) 909 1,502 771 2,273

Professional fees and services (1,699) (315) (2,014) 3,065 1,358 4,423

Marketing 300 (225) 75 144 465 609

Insurance 2,712 581 3,293 (2,380) 221 (2,159)

Communication (1,136) (131) (1,267) 145 225 370

State tax expense 166 (4) 162 35 (19) 16

Amortization of intangible assets — (92) (92) — 1,777 1,777

FHLB prepayment penalty 9,917 — 9,917 415 — 415

Foundation contributions 1,455 45 1,500 (1,507) 7 (1,500)

Miscellaneous (231) (1,240) (1,471) (1,939) 3,215 1,276

Total other expense $ 22,194 $ 413 $ 22,607 $ 10,874 $ 21,359 $ 32,233

Salaries expense increased by $8.5 million, or 7.1%, to $128.0 million in 2020, compared to $119.5 in 2019.

The $119.5 million in 2019 was an increase of $15.8 million, or 15.2%, compared to $103.8 million in 2018.

The increase in 2020 was due to a $4.6 million increase in salary expense, which was primarily related to increases in base salary and $3.6 million in severance and restructuring related expense, a $1.9 million increase in additional compensation expense, an $850,000 increase in the vacation accrual and a $1.0 million increase in share-based compensation expenses related to PBRSU awards granted under the Park 2013 Long-Term Incentive Plan (the "2013 Incentive Plan") (prior to 2017) and both PBRSU and TBRSU awards granted under the Park 2017 Long-Term Incentive Plan for Employees (the "2017 Employee LTIP").

The increase in salaries expense in 2019 was due to a $13.2 million increase in salary expense, excluding merger-related costs, a $1.6 million increase in salary expense due to merger-related costs for the Carolina Alliance acquisition, and a $1.0 million increase in share-based compensation expense related to PBRSU awards granted under the 2013 Incentive Plan (prior to 2017) and the 2017 Employee LTIP.

Park had 1,755 full-time equivalent employees at year-end 2020, compared to 1,907 full-time equivalent employees at year-end 2019, of which 93 full-time equivalent employees were at Carolina Alliance, and compared to 1,782 full-time equivalent employees at year-end 2018, of which 40 full-time equivalent employees were at NewDominion.

During 2020, Park closed 23 offices, which resulted to the significant reduction in full-time equivalent employees during 2020.

Employee benefits expense increased $309,000, or 0.8%, to $37.1 million in 2020, compared to $36.8 million in 2019.

The $36.8 million in 2019 was an increase of $6.5 million, or 21.5%, compared to $30.3 million in 2018.

Salaries expense decreased by $2.5 million, to $125.6 million in 2021, compared to $128.0 million in 2020, and increased by $8.5 million, or 7.1%, in 2020 compared to $119.5 in 2019.

The decrease in 2021 was due to a $4.2 million decrease in salary expense, primarily related to a $3.2 million decrease in severance and restructuring related expense, a $1.1

million decrease in expense related to the vacation accrual, a $1.0 million decrease in base salary expense and a $1.0 million decrease in additional compensation expense, partially offset by a $3.3 million increase in incentive compensation expense and a $347,000 increase in share-based compensation expenses related to PBRSU awards granted under the Park 2013 Long-Term Incentive Plan (the "2013 Incentive Plan") (prior to 2017) and both PBRSU and TBRSU awards granted under the Park 2017 Long-Term Incentive Plan for Employees (the "2017 Employee LTIP").

Park had 1,685 full-time equivalent employees at year-end 2021, compared to 1,755 full-time equivalent employees at year-end 2020 and 1,907 full-time equivalent employees at year-end 2019.

During 2020, Park closed 23 offices, which resulted in the significant reduction in full-time equivalent employees during 2020.

Employee benefits expense increased $4.5 million, or 12.1%, to $41.6 million in 2021, compared to $37.1 million in 2020, and increased $309,000, or 0.8%, in 2020 compared to $36.8 million in 2019.

The increase in 2021 was due to a $2.7 million increase in group insurance costs, a $1.6 million increase in pension plan expense and a $693,000 increase in payroll tax expense, partially offset by a $496,000 decrease in miscellaneous employee benefits.

The increase in 2020 was due to a $2.4 million increase in pension plan expense, a $505,000 increase in miscellaneous employee benefits and a $300,000 increase in the KSOP match, partially offset by a $3.0 million decrease in group insurance costs.

The increase in 2019 was due to a $5.0 million increase in group insurance costs, a $1.4 million increase in payroll taxes and a $951,000 increase in the KSOP match, partially offset by a $673,000 decrease in pension plan expense.

Occupancy expense increased by $987,000, or 7.7%, to $13.8 million in 2020, compared to $12.8 million in 2019.

The $12.8 million in 2019 was an increase of $1.6 million, or 13.9%, compared to $11.3 million in 2018.

Occupancy expense decreased $763,000, or 5.5%, to $13.0 million in 2021, compared to $13.8 million in 2020, and increased by $987,000, or 7.7%, in 2020 compared to $12.8 million in 2019.

The $763,000 decrease in 2021 was primarily the result of decreased lease expense, which was mainly the result of the closure of some leased branches in 2020.

The $987,000 increase in 2020 was primarily the result of increased depreciation on premises and a write-down in the right-of-use lease asset related to branches that closed September 30, 2020.

The $1.6 million increase in 2019 was primarily related to the acquisition of Carolina Alliance.

Furniture and equipment expense increased $1.8 million, or 10.4%, to $18.8 million in 2020, compared to $17.0 million in 2019.

The $17.0 million in 2019 was an increase of $893,000, or 5.5%, compared to $16.1 million in 2018.

Furniture and equipment expense decreased $7.9 million, or 42.1%, to $10.9 million in 2021, compared to $18.8 million in 2020.

and increased $1.8 million, or 10.4%, in 2020 compared to $17.0 million in 2019.

The decrease in 2021 was primarily related to a change in the classification under which software and related maintenance costs are expensed, which are now classified under data processing fees, partially offset by increases in depreciation of furniture and equipment.

The increase in 2020 was primarily related to increased expenses related to repairs and maintenance on equipment, which also included software maintenance and costs, as well as increased depreciation on furniture and equipment.

The increase in 2019 was primarily due to increases in maintenance and repairs on equipment, as well as the acquisition of Carolina Alliance.

Data processing fees increased by $909,000, or 8.5%, in 2020 to $11.7 million, compared to $10.8 million in 2019.

The $10.8 million in 2019 was an increase of $2.3 million, or 26.8%, compared to $8.5 million in 2018.

Data processing fees increased by $18.9 million, or 161.9%, to $30.5 million in 2021, compared to $11.7 million in 2020, and increased $909,000, or 8.5%, in 2020 compared to $10.8 million in 2019.

The increase in 2021 was related to increased other data processing and software costs, partially due to the previously mentioned change in classification from furniture and equipment expense and a change in expensing software costs from other fees within professional fees and services to data processing fees.

The increase was also impacted by changes in debit card processing costs, which increased $832,000.

Overall data processing and software costs across all line items, excluding debit card processing costs, increased $2.3 million.

The increase in 2020 was related to increased mortgage processing costs, debit card processing costs and other data processing and software costs.

The increase in 2019 was primarily related to the acquisition of Carolina Alliance, as well as an increase in debit card related costs due to an increase in debit card transactions.

Professional fees and services decreased by $2.0 million, or 6.0%, to $31.3 million in 2020, compared to $33.3 million in 2019.

The $33.3 million in 2019 was an increase of $4.4 million, or 15.3%, compared to $28.9 million in 2018.

This subcategory of total other expense includes legal fees, management consulting fees, director fees, audit fees, regulatory examination fees and memberships in industry associations.

Professional fees and services decreased $3.9 million, or 12.3%, to $27.5 million, compared to $31.3 million for 2020, and decreased by $2.0 million, or 6.0%, in 2020 compared to $33.3 million in 2019.

This subcategory of total other expense includes legal fees, management consulting fees, directors' fees, audit fees, regulatory examination fees and memberships in industry associations.

The decrease in professional fees and services expense in 2021 was primarily due to decreases in other fees (due to the change in expensing software costs under data processing fees), credit costs and title and appraisal costs, partially offset by increases in legal expense.

The decrease in professional fees and services expense in 2020 was largely related to a $4.4 million decrease in fees related to the acquisition of Carolina Alliance and a $1.0 million decrease in legal expense, partially offset by a $2.1 million increase in management and consulting expense and a $1.2 million increase in title, appraisal and credit costs.

The increase in professional fees and services expense in 2019 was largely related to increases in fees related to the acquisition of Carolina Alliance, as well as increases in management and consulting expense.

Insurance expense increased by $3.3 million, or 105.2%, to $6.4 million in 2020, compared to $3.1 million in 2019.

The $3.1 million in 2019 was a decrease of $2.2 million, or 40.8%, compared to $5.3 million in 2018.

The increase in 2020 and the decrease in 2019 were primarily due to the utilization of a $2.2 million assessment credit to reduce the FDIC insurance expense during the third and fourth quarters of 2019.

Insurance expense decreased by $506,000, or 7.9%, to $5.9 million, compared to $6.4 million in 2020, and increased by $3.3 million, or 105.2%, in 2020 compared to $3.1 million in 2019.

The decrease in 2021 was impacted by a decrease in the average FDIC assessment rate compared to 2020.

The increase in 2020 was primarily due to the utilization of a $2.2 million assessment credit to reduce the FDIC insurance expense during the third and fourth quarters of 2019.

2020 was also impacted by an increase in the assessment base compared to 2019.

Communication expense decreased by $1.3 million, or 23.7%, to $4.1 million in 2020, compared to $5.4 million in 2019.

The decrease in 2020 was primarily related to a change in statement mailing and production costs, which resulted in

lower direct postage expense, but was more than offset by an increase in supply expense which is included in miscellaneous expense.

Amortization of intangible assets increased $1.8 million, to $2.4 million in 2019, compared to $578,000 in 2018.

The amortization of intangible assets was due to the core deposit intangibles from the acquisitions of both NewDominion and Carolina Alliance.

The subcategory "Miscellaneous" other expense includes expenses for supplies, travel, charitable contributions, and other miscellaneous expense.

The subcategory miscellaneous other expense decreased by $1.5 million, or 13.1%, to $9.8 million in 2020, compared to $11.2 million in 2019.

The $11.2 million in 2019 was an increase of $4.3 million, or 15.4%, compared to $6.9 million in 2018.

The $1.5 million decrease in 2020 was primarily due to a decrease in training and travel related expenses as well as a decrease in non-loan related losses.

The $4.3 million increase in 2019 was primarily due to a $1.3 million expense related to the write-down of the NewDominion trade name intangible, a $1.3 million increase in operating lease depreciation, a $475,000 increase in training and travel related expenses, a $421,000 increase in miscellaneous merger-related expenses, and a $319,000 increase in supplemental executive retirement plan expense.

Communication expense decreased by $545,000, or 13.3%, to $3.5 million in 2021, compared to $4.1 million in 2020, and decreased $1.3 million, or 23.7%, in 2020 compared to $5.4 million in 2019.

The decrease in 2021 was primarily related to lower telephone, cable and data related communication costs.

The decrease in 2020 was primarily related to a change in statement mailing and production costs, which resulted in lower direct postage expense, but was more than offset by an increase in supply expense which is included in miscellaneous expense.

The subcategory "Miscellaneous" other expense includes expenses for supplies, travel, and other miscellaneous expense.

The subcategory Miscellaneous other expense decreased by $920,000, or 9.4%, to $8.8 million in 2021, compared to $9.8 million in 2020.

The $9.8 million in 2020 was a decrease of $1.5 million, or 13.1%, compared to $11.2 million in 2019.

The decrease in 2021 was primarily related to a decrease in supply expense, operating lease depreciation, OREO expense and training and travel related related expenses, partially offset by an increase in non-loan related losses.

The decrease in 2020 was primarily due to a decrease in training and travel related expenses as well as a decrease in non-loan related losses.

Efficiency Ratio:

The following table details the calculation of the efficiency ratio for the years ended December 31, 2021, 2020, and 2019.

Table 26- Efficiency ratio (1)

Year Ended December 31,

(in thousands) 2021 2020 2019

Net interest income $ 329,893 $ 327,630 $ 297,737

Tax equivalent adjustment (2)

2,911 2,866 2,956

Net interest income - Fully tax equivalent $ 332,804 $ 330,496 $ 300,693

Total other income $ 129,944 $ 125,664 $ 97,193

Total other expense $ 283,518 $ 286,595 $ 263,988

Efficiency ratio 61.27 % 62.83 % 66.35 %

(1) Calculated by dividing "Total other expense" by the sum of fully-tax equivalent net interest income and "Total other income."

(2) The tax equivalent adjustment to net interest income was calculated assuming a 21% corporate federal income tax rate for 2021, 2020 and 2019.

Items Impacting Comparability:

10 unchanged sentences

Net interest income - adjusted $ 318,605 $ 322,508 $ 291,695

Provision for loan losses $ 12,054 $ 6,171 $ 7,945

less recoveries on former Vision Bank relationships (21,982) (3,042) (971) Provision for loan losses

Provision for loan losses - adjusted $ 34,036 $ 9,213 $ 8,916

(Recovery of) provision for credit losses $ (11,916) $ 12,054 $ 6,171

less recoveries on former Vision Bank relationships (3,169) (21,982) (3,042) (Recovery of) provision for credit losses

(Recovery of) provision for credit losses - adjusted $ (8,747) $ 34,036 $ 9,213

Other income $ 129,944 $ 125,664 $ 97,193

less net gain (loss) on sale of former Vision Bank OREO properties 1,208 (111) 4,229 Gain (loss) on the sale of OREO, net

less gain on 8.55% prior investment in NewDominion — — 3,500 Gain on equity securities, net

less net gain (loss) on sale of former Vision Bank OREO properties — 1,208 (111) (Loss) gain on the sale of OREO, net

Table 27 - Items impacting comparability (continued) Year Ended December 31,

(in thousands, except share and per share data) 2021 2020 2019 Affected Line Item

less other service income related to former Vision Bank relationships 525 590 52 Other service income

less rebranding initiative related expenses — (572) — Miscellaneous

less net gain on sale of non-performing loans — — 2,826 Gain on the sale of non-performing loans

less net gain (loss) on the sale of debt securities in the ordinary course of business 3,286 (421) Net gain (loss) on the sale of debt securities

Other income - adjusted $ 129,419 $ 121,152 $ 97,673

Table 31- Items impacting comparability Year Ended December 31,

(in thousands, except share and per share data) 2020 2019 2018 Affected Line Item

Other expense $ 283,518 $ 286,595 $ 263,988

less merger-related expenses related to NewDominion and Carolina Alliance acquisitions 8 117 3,567 Salaries

less merger-related expenses related to NewDominion and Carolina Alliance acquisitions — — 78 Employee benefits

less merger-related expenses related to NewDominion and Carolina Alliance acquisitions — — 1 Occupancy expense

11 unchanged sentences

less rebranding initiative related expenses 1,050 75 — Furniture and equipment expense

less rebranding initiative related expenses 591 — — Data processing fees

less rebranding initiative related expenses — 23 — Marketing

5 unchanged sentences

less management and consulting expenses related to collection of payments on former Vision Bank loan relationships 1,361 2,383 622 Professional fees and services

less one-time incentive expense — — 1,128 Salaries

less FHLB prepayment penalty — 10,529 612 FHLB prepayment penalty

8 unchanged sentences

Income tax expense as a percentage of income before taxes was 18.2% in 2021, 17.3% in 2020 and 17.7% in 2019.

The difference between the statutory federal corporate income tax rate of 21% for 2020 and Park’s effective 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 common shares held within Park’s salary deferral plan.

Park's permanent federal tax differences for 2020 were approximately $6.7 million, compared to $5.3 million for 2019.

The difference between the statutory federal corporate income tax rate of 21% for 2021 and Park’s effective tax rate reflected 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 common shares held within Park’s salary deferral plan, offset by the impact of state income taxes.

Park's permanent federal tax differences for 2021 were approximately $6.3 million in 2021, compared to $6.7 million for 2020.

Park expects permanent federal tax differences for 2022 will be approximately $5.8 million.

CREDIT EXPERIENCE

The allowance for loan losses is that amount believed adequate to absorb probable incurred credit losses in the loan portfolio based on management’s evaluation of various factors.

The determination of the allowance requires significant estimates, including the timing and amounts of expected cash flows on impaired loans, consideration of current economic conditions, and historical loss experience pertaining to pools of homogeneous loans, all of which may be susceptible to change.

The allowance is increased through a provision for loan losses that is charged to earnings based on management’s quarterly evaluation of the factors previously mentioned and is reduced by charge-offs, net of recoveries.

Provision for Loan Losses:

The provision for loan losses is the amount added to the allowance for loan losses to ensure the allowance is sufficient to absorb probable, incurred credit losses.

The amount of the provision for loan losses is determined by management after reviewing the risk characteristics of the loan portfolio, historic and current loan loss experience and current economic conditions.

The table below provides additional information on the provision for loan losses and the ALLL for 2020, 2019 and 2018.

Table 32 - ALLL Information

CREDIT METRICS AND (RECOVERY OF) PROVISION FOR CREDIT LOSSES

The (recovery of) provision for 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 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.

Section 4014 of the CARES Act provided financial institutions with optional temporary relief from having to comply with ASU 2016-13 including the CECL methodology for estimating the allowance for credit losses.

This temporary relief was set to expire on the earlier of the date on which the national emergency concerning COVID-19 terminated or December 31, 2020, with adoption being effective retrospectively as of January 1, 2020.

Section 540 of the Consolidated Appropriations Act, 2021, amended Section 4014 of the CARES Act by extending the relief period provided in the CARES Act.

The Consolidated Appropriations Act, 2021, modified the CARES Act so that temporary relief was to expire on the earlier of the first day of the fiscal year that begins after the date on which the national emergency concerning COVID-19 terminates or January 1, 2022.

Park elected to delay the implementation of ASU 2016-13 following the approval of the CARES Act and continued to use the incurred loss methodology for estimating the allowance for credit losses in 2020.

ASU 2016-13 requires financial institutions to calculate an allowance utilizing a reasonable and supportable forecast period which Park has established as a one-year period.

In the unprecedented circumstances surrounding the COVID-19 pandemic and the response thereto, Park believed that adopting ASU 2016-13 in the first quarter of 2020 would have added an unnecessary level of subjectivity and volatility to the calculation of the allowance for credit losses.

With the approval of the Consolidated Appropriations Act, 2021, management elected to further delay adoption of ASU 2016-13 to January 1, 2021.

This allowed Park to utilize the CECL standard for the entire year of adoption.

The adoption of ASU 2016-13 on January 1, 2021 resulted in a $6.1 million increase to the allowance for credit losses and a $3.9 million increase to the allowance for unfunded credit losses.

A cumulative effect adjustment resulting in an $8.0 million decrease to retained earnings and a $2.1 million increase to deferred tax assets was also recorded.

The table below provides additional information on the (recovery of) provision for credits losses and the ACL for 2021, 2020 and 2019.

Table 28 - ACL Activity

(In thousands) 2021 2020 2019

ALLL, beginning balance $ 56,679 $ 51,512 $ 49,988

ACL, beginning balance $ 85,675 $ 56,679 $ 51,512

Cumulative change in accounting principle;

adoption of ASU 2016-13 6,090 — —

Charge-offs 5,093 10,304 11,177

1 unchanged sentence

Net (recoveries) charge-offs (3,348) (16,942) 1,004

Provision for loan losses:

(Recovery of) provision for credit losses:

(11,916) 12,054 6,171

ALLL, ending balance $ 85,675 $ 56,679 $ 51,512

ACL, ending balance $ 83,197 $ 85,675 $ 56,679

Average loans $ 7,014,517 $ 6,990,458 $ 6,208,496

3 unchanged sentences

Of the $4.2 million that would have been recognized, approximately $2.7 million was included in interest income for the year ended December 31, 2021.

Charge-offs for 2020 include the charge-off of $283,000 in specific reserves for which provision expense had been recognized in a prior year, compared to $236,000 for 2019 and $20,000 for 2018.

Charge-offs for 2021 included the charge-off of $15,000 in specific reserves for which provision expense had been recognized in a prior year, compared to $283,000 for 2020 and $236,000 for 2019.

Net (recoveries) charge-offs adjusted for changes in specific reserves as a percentage of average loans for the years ended December 31, 2021, 2020 and 2019 were (0.10)%, (0.24)%, and 0.06%, respectively.

Loans acquired as part of the acquisitions of NewDominion and Carolina Alliance were recorded at fair value on the date of acquisition.

An allowance is only established on these loans as a result of credit deterioration post acquisition.

As of December 31, 2020, there was a $678,000 allowance related to acquired loans which were not designated as Purchased Credit Impaired ("PCI") and an allowance of $167,000 related to acquired PCI loans.

SEPH, as a non-bank subsidiary of Park, does not carry an ALLL balance, but recognizes a provision for loan losses when a charge-off is taken and recognizes a recovery of loan losses when a recovery is received.

At year-end 2020, the allowance for loan losses was $85.7 million, or 1.19%, of total loans outstanding, compared to $56.7 million, or 0.87%, of total loans outstanding at year-end 2019, and $51.5 million, or 0.90% of total loans outstanding at year-end 2018.

The table below provides additional information related to specific reserves on impaired commercial loans, additional reserves on PCI loans and general reserves for all other loans in Park’s portfolio at December 31, 2020, 2019 and 2018.

Table 33 - General Reserve Trends

Year Ended December 31,

(In thousands) 2020 2019 2018

Allowance for loan losses, end of period $ 85,675 $ 56,679 $ 51,512

Allowance on PCI loans 167 268 —

Allowance on purchased loans 678 — —

Specific reserves 5,434 5,230 2,273

General reserve on originated loans $ 79,396 $ 51,181 $ 49,239

SEPH, as a non-bank subsidiary of Park, does not carry an ACL balance, but recognizes a provision for credit losses when a charge-off is taken and recognizes a recovery of credit losses when a recovery is received.

At year-end 2021, the allowance for credit losses was $83.2 million, or 1.21%, of total loans outstanding, compared to $85.7 million, or 1.19%, of total loans outstanding at year-end 2020, and $56.7 million, or 0.87% of total loans outstanding at year-end 2019.

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 December 31, 2021, December 31, 2020 and December 31, 2019.

Also included is the January 1, 2021 allowance for credit losses calculated under the CECL methodology prescribed in ASU 2016-13.

Table 29- Allowance for Credit Losses Summary

(Dollars in thousands) 12/31/2021 (CECL methodology) 1/1/2021 (CECL methodology) 12/31/2020 (Incurred Loss methodology) 12/31/2019 (Incurred Loss methodology)

Total allowance for credit losses $ 83,197 $ 91,764 $ 85,675 $ 56,679

Allowance on PCD loans (PCI loans for the periods ended in 2020 and 2019) — 52 167 268

Allowance on purchased loans excluded from the general reserve — — 678 —

Specific reserves on individually evaluated loans 1,616 5,434 5,434 5,230

General reserves on collectively evaluated loans $ 81,581 $ 86,278 $ 79,396 $ 51,181

Total loans $ 6,871,122 $ 7,177,537 $ 7,177,785 $ 6,501,404

PCI loans (1)

11,153 14,331 3,943

Purchased loans 360,056 548,436 225,029

Impaired commercial loans 108,407 77,459 48,135

Originated loans excluding impaired commercial loans $ 6,698,169 $ 5,861,178 $ 5,415,025

Allowance for loan losses as a percentage of year-end loans 1.19 % 0.87 % 0.90 %

Allowance for loan losses on originated loans as a percentage of year-end originated loans 1.25 % 0.95 % 0.94 %

Allowance for loan losses on originated loans as a percentage of year-end originated loans (excluding PPP loans) (2)

General reserves as a percentage of originated total loans less impaired commercial loans 1.19 % 0.87 % 0.91 %

General reserves as a percentage of originated total loans less impaired commercial loans (excluding PPP loans) (2)

(1) Excludes PCI loans which are individually evaluated for impairment due to additional credit deterioration post acquisition.

These loans had a balance of $0, $5,000 and $475,000 as of December 31, 2020, 2019 and 2018, respectively.

PCD loans (PCI loans for periods ended in 2020 and 2019) 7,149 10,903 11,153 14,331

Purchased loans excluded from collectively evaluated loans — — 360,056 548,436

Individually evaluated loans 74,502 108,274 108,407 77,459

Collectively evaluated loans $ 6,789,471 $ 7,058,360 $ 6,698,169 $ 5,861,178

Allowance for credit losses as a % of period end loans 1.21 % 1.28 % 1.19 % 0.87 %

Allowance for credit losses as a % of period end loans (excluding PPP loans) (1)

1.22 % 1.34 % 1.25 % N.A

General reserve as a % of collectively evaluated loans 1.20 % 1.22 % 1.19 % 0.87 %

General reserve as a % of collectively evaluated loans (excluding PPP loans) (1)

1.21 % 1.28 % 1.24 % N.A

(1) Excludes $74.4 million of PPP loans and $77,000 in related allowance at December 31, 2021;

No PPP loans were outstanding at December 31, 2019 or December 31, 2018.

The allowance for loan losses of $85.7 million at December 31, 2020 represented a $29.0 million, or 51.2%, increase compared to $56.7 million at December 31, 2019.

$331.6 million of PPP loans and $337,000 in related allowance at January 1, 2021;

and $331.6 million of PPP loans and $337,000 in related allowance at December 31, 2020.

The allowance for credit losses of $83.2 million at December 31, 2021 represented an $8.6 million, or 9.3%, decrease compared to $91.8 million at January 1, 2021 as calculated under the CECL methodology.

The decline since January 1, 2021 was largely due to a $4.7 million decrease in general reserves, taking into consideration improved economic forecasts while balancing the risks associated with the COVID-19 pandemic and the delta and omicron variants, particularly in high risk portfolios such as hotels and accommodations, restaurants and food service and strip shopping centers.

Additionally, there was a $3.8 million decrease in specific reserves on individually evaluated loans from $5.4 million at January 1, 2021 to $1.6 million at December 31, 2021.

The allowance for credit losses of $85.7 million at December 31, 2020 represented a $29.0 million, or 51.2%, increase compared to $56.7 million at December 31, 2019.

This increase was largely the result of a $28.2 million increase in general reserves on total originated loans and a $204,000 increase in specific reserves.

As of December 31, 2020, a $678,000 allowance had been established for performing purchased loans and a $167,000 allowance had been established for PCI loans.

In addition to the established allowance related to purchased loans, as of December 31, 2020, these loans have a remaining purchase accounting discount of $7.2 million.

In addition to the established allowance related to purchased loans, as of December 31, 2020, these loans had a remaining purchase accounting discount of $7.2 million.

The $28.2 million increase in general reserves was the result of the estimated increase in incurred losses as a result of the impact of the COVID-19 pandemic.

This estimate was established based on consideration of Park's existing environmental loss factors, modification programs Park has put in place, and balances of high risk portfolios such as hotel and accommodations, restaurants and food service and strip shopping centers.

Much is still unknown about the long-term economic impact of the COVID-19 pandemic and management will continue to evaluate this estimate of incurred losses as new information becomes available

Management believes that the allowance for loan losses at year-end 2020 is adequate to absorb probable, incurred credit losses in the loan portfolio.

This estimate was established based on consideration of Park's then existing environmental loss factors, modification programs Park had put in place, and balances of high risk portfolios such as hotel and accommodations, restaurants and food service and strip shopping centers.

Management believes that the allowance for credit losses at year-end 2021 is adequate to absorb estimated life of loan credit losses in the loan portfolio.

See "Note 1 - Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in "ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K, and the discussion under the heading “CRITICAL ACCOUNTING POLICIES” earlier in this Management's Discussion and Analysis of Financial Condition and Results of Operations, for additional information on management’s evaluation of the adequacy of the allowance for loan losses.

The table below provides a summary of Park's loan loss experience over the past five years:

Table 34 - Summary of Loan Loss Experience

ACL Detail by Loan Type:

The following tables breakdown the allowance for credit losses and components by loan type.

The table below provides a summary of Park's loan loss experience over the past three years:

Table 30 - Summary of Loan Credit Loss Experience

(In thousands) 2021 2020 2019

Average loans $ 7,014,157 $ 6,990,458 $ 6,208,496

Allowance for loan losses:

Allowance for credit losses:

Beginning balance 85,675 56,679 51,512

Commercial, financial

and agricultural 1,468 2,231 2,796 6,017 5,786

Adoption of ASU 2016-13 6,090 — —

Commercial, financial and agricultural 957 1,468 2,231

Construction real estate — 6 —

4 unchanged sentences

Total charge-offs $ 5,093 $ 10,304 $ 11,177

Commercial, financial

and agricultural $ 20,765 $ 1,241 $ 1,221 $ 809 $ 1,259

Commercial financial, and agricultural $ 639 $ 20,765 $ 1,241

Construction real estate 2,299 1,122 2,682

2 unchanged sentences

Consumer 3,759 3,629 4,742

Leases 1 1 4 1 1

Total recoveries $ 8,441 $ 27,246 $ 10,173

Net (recoveries) charge-offs $ (3,348) $ (16,942) $ 1,004

Provision (recovery) included in earnings 12,054 6,171 7,945 8,557 (5,101)

(Recovery) provision included in earnings (11,916) 12,054 6,171

Ending balance $ 83,197 $ 85,675 $ 56,679

Ratio of net (recoveries) charge-offs to average loans (0.05) % (0.24) % 0.02 %

Ratio of allowance for loan losses

Ratio of allowance for credit losses

to end of year loans 1.21 % 1.19 % 0.87 %

The following table summarizes Park's allocation of the allowance for loan losses for the past five years:

Table 35 - Allocation of Allowance for Loan Losses

The follow table presents net-charge offs (recoveries), average loans outstanding, and net charge-offs as a percentage of average loans, by type of loan over the past three years:

Table 31- Net Charge-Offs (Recoveries) to Average Loans

Year Ended December 31,

(in thousands) 2021 2020 2019

Net Charge-offs (Recoveries) Average Loans Net Charge-offs (Recoveries) as a % of Average Loans Net Charge-offs (Recoveries) Average Loans Net Charge-offs (Recoveries) as a % of Average Loans Net Charge-offs (Recoveries) Average Loans Net Charge-offs (Recoveries) as a % of Average Loans

Commercial, financial, and agricultural $ 318 $ 1,435,221 0.02 % $ (19,297) $ 1,545,426 (1.25) % $ 990 $ 1,164,701 0.09 %

Construction real estate (2,299) 331,882 (0.69) % (1,116) 346,664 (0.32) % (2,682) 295,538 (0.91) %

Residential real estate (892) 1,771,880 (0.05) % (635) 1,867,956 (0.03) % (548) 1,859,002 (0.03) %

Commercial real estate (767) 1,766,346 (0.04) % 1,086 1,655,747 0.07 % (320) 1,513,623 (0.02) %

Consumer 293 1,686,849 0.02 % 3,005 1,546,574 0.19 % 3,565 1,367,045 0.26 %

Leases (1) 22,339 — % 15 28,091 0.05 % (1) 8,587 (0.01) %

Total $ (3,348) $ 7,014,517 (0.05) % $ (16,942) $ 6,990,458 (0.24) % $ 1,004 $ 6,208,496 0.02 %

The following table summarizes Park's allocation of the allowance for credit losses for the past three years:

Table 32- Allocation of Allowance for Credit Losses

December 31, 2021 2020 2019

(In thousands) Allowance Percent of Loans Per Category Allowance Percent of Loans Per Category Allowance Percent of Loans Per Category Allowance Percent of Loans Per Category Allowance Percent of Loans Per Category

(In thousands) Allowance Percent of Loans Per Category Allowance Percent of Loans Per Category Allowance Percent of Loans Per Category

Commercial, financial, and agricultural $ 14,025 18.90 % $ 25,608 22.14 % $ 20,203 18.23 %

16 unchanged sentences

As new appraisal information is received, management performs an evaluation of the appraisal and applies a discount for anticipated disposition costs to determine the net realizable value of the collateral, which is compared to the outstanding principal balance to determine if additional write-downs are necessary.

The following is a summary of Park’s nonperforming assets at the end of each of the last five years:

The following is a summary of Park’s nonperforming assets at the end of each of the last three years:

Table 33 - Nonperforming Assets

10 unchanged sentences

Percentage of nonperforming assets to total assets 1.11 % 1.55 % 1.42 %

Included in nonaccrual loans in the previous table were $1.6 million, $10.3 million and $11.7 million of SEPH nonaccrual loans at December 31, 2018, December 31, 2017, and December 30, 2016, respectively.

There were no SEPH nonaccrual loans at December 31, 2020 or December 31, 2019.

Included in OREO totals above were $594,000 of SEPH OREO at December 31, 2020, $929,000 of SEPH OREO at December 31, 2019, $1.5 million of SEPH OREO at December 31, 2018, $7.7 million of SEPH OREO at December 31, 2017 and $7.9 million of SEPH OREO at December 31, 2016.

Percentage of nonaccrual loans to total loans 1.06 % 1.64 % 1.39 %

Allowance for credit losses to nonaccrual loans 114.40 % 73.00 % 62.92 %

Included in OREO totals above were $594,000 of SEPH OREO at both December 31, 2021 and December 31, 2020 and $929,000 of SEPH OREO at December 31, 2019.

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.

8 unchanged sentences

Credit Quality Indicators:

When determining the quarterly and annual loan loss provision, Park reviews the grades of commercial loans.

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 (1 through 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 loan loss reserve percentage is allocated to these loans.

Generally, commercial loans that are graded a 6 are considered for partial charge-off or have been charged down to the net realizable value of the underlying collateral.

Commercial loans 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.

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.

Any commercial loan graded an 8 (loss) is completely charged-off.

5 unchanged sentences

Substandard — 109 973

Impaired 108,407 77,459 48,135

Accruing PCI 10,296 13,364 3,943

Individually evaluated for impairment 74,502 108,407 77,459

Accruing PCD (PCI loans for periods ended December 31, 2020 and 2019) 6,630 10,296 13,364

Total $ 3,869,313 $ 4,114,829 $ 3,537,322

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(2) commercial real estate loans;

(3) certain construction real estate loans;

(4) certain residential real estate loans;

(3) commercial related loans in the construction 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, less those commercial loans currently considered to be impaired.

Park had $102.9 million of non-impaired commercial loans included on the watch list at December 31, 2020, compared to $28.3 million at December 31, 2019, and $16.5 million at December 31, 2018.

Park’s watch list includes all criticized and classified commercial loans, defined by Park as loans rated special mention or worse.

Park had $75.4 million of collectively evaluated commercial loans included on the watch list at December 31, 2021, compared to $102.9 million at December 31, 2020, and $28.3 million at December 31, 2019.

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.

The $74.6 million increase in non-impaired commercial watch list loans from December 31, 2019 to December 31, 2020 was largely due to $73.2 million of hotels and accommodation loans that were downgraded to special mention or substandard as a result of the impact of COVID-19.

In addition to the $73.2 million in hotels and accommodation loans that were downgraded to special mention, $22.0 million in hotels and accommodation loans were downgraded to impaired status.

Park is closely monitoring the impact of COVID-19 on

its borrowers' ability to repay their loans in accordance with contractual terms.

The $75.4 million of collectively evaluated commercial watch list loans as of December 31, 2021 is elevated compared to pre-pandemic levels, an increase of $48.6 million compared to $26.8 million at March 31, 2020.

This $48.6 million increase was largely due to $54.1 million of hotels and accommodations loans that were downgraded to special mention or substandard as a result of the impact of COVID-19.

In addition to the $54.1 million in hotels and accommodations loans that were downgraded to special mention, $15.3 million in hotels and accommodations loans were downgraded to impaired status.

Park is closely monitoring the impact of COVID-19 on its borrowers' ability to repay their loans in accordance with contractual terms.

As additional information becomes available, management will continue to evaluate loans to ensure appropriate risk classification.

Delinquencies have remained low over the past 36 months.

Delinquencies have remained low over the past 36 months since January 1, 2019.

Delinquent and accruing loans were $15.1 million, or 0.22% of total loans at December 31, 2021, compared to $20.1 million, or 0.28% of total loans at December 31, 2020, and $23.8 million, or 0.37% of total loans at December 31, 2019.

Impaired Loans:

Park’s allowance for loan losses includes an allocation for loans specifically identified as impaired under U.S.

At December 31, 2020, loans considered to be impaired consisted substantially of commercial loans graded as "substandard" or “doubtful” and placed on non-accrual status.

Specific reserves on impaired commercial loans are typically based on management’s best estimate of the fair value of the 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 amounts different from management’s estimates.

Impaired commercial loans were $108.4 million at December 31, 2020, an increase of $30.9 million, compared to $77.5 million at December 31, 2019.

A majority of this increase occurred in the second and third quarters of 2020 with September 30, 2020 impaired loans totaling $116.1 million.

The $108.4 million of impaired commercial loans at December 31, 2020 included $8.8 million of loans modified in a TDR which are currently on accrual status and performing in accordance with the restructured terms, up from $8.4 million at December 31, 2019.

Impaired commercial loans are individually evaluated for impairment and specific reserves are established to cover any probable, incurred losses for those loans that have not been charged down to the net realizable value of the underlying collateral or to the net present value of expected cash flows.

As of December 31, 2020, management had taken partial charge-offs of $655,000 related to the $108.4 million of commercial loans considered to be impaired, compared to charge-offs of $719,000 related to the $77.5 million of impaired commercial loans at December 31, 2019.

The table below provides additional information related to Park's impaired commercial loans at December 31, 2020, 2019, and 2018.

Table 39 - Impaired Commercial Loans

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 or classified as TDRs will be individually evaluated and are labeled as 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.

Individually evaluated were $74.5 million at December 31, 2021, a decrease of $33.9 million, compared to $108.4 million at December 31, 2020, and a decrease of $3.0 million at December 31, 2020, compared to $77.5 million at December 31, 2019.

The $74.5 million of individually evaluated commercial loans at December 31, 2021 included $17.5 million of loans modified in a TDR which were then currently on accrual status and performing in accordance with the restructured terms, up from $8.8 million at December 31, 2020.

At December 31, 2021, Park had taken partial charge-offs of $624,000 related to the $74.5 million of the individually evaluated commercial loans, compared to partial charge-offs of $655,000 related to the $108.4 million of individually evaluated commercial loans at December 31, 2020 and compared to partial charge-offs of $719,000 related to the $77.5 million of individually evaluated commercial loans at December 31, 2019.

The table below provides additional information related to Park's individually evaluated commercial loans at December 31, 2021, 2020, and 2019.

Table 36 - Individually Evaluated Commercial Loans

Years ended December 31,

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Book value, after specific reserves $ 72,886 $ 102,973 $ 72,229

In conjunction with the NewDominion acquisition, Park acquired loans with deteriorated credit quality with a book value of $5.1 million which were recorded at the preliminary fair value of $4.9 million.

In conjunction with the Carolina Alliance acquisition, Park acquired loans with deteriorated credit quality with a book value of $19.9 million which were recorded at the initial fair value of $18.4 million.

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.

At December 31, 2021, there was no allowance for credit losses on PCD loans.

The carrying amount of loans acquired with deteriorated credit quality at December 31, 2021 was $7.1 million.

The carrying amount of loans acquired with deteriorated credit quality at December 31, 2020 was $11.2 million, of which none were considered impaired due to additional credit deterioration post acquisition.

The carrying amount of loans acquired with deteriorated credit quality at December 31, 2019 was $14.3 million, of which $5,000 were considered impaired due to additional credit deterioration post acquisition.

The remaining $14.3 million were not included in impaired loan totals.

The carrying amount of loans acquired with deteriorated credit quality at December 31, 2018 was $4.4 million, of which $475,000 were considered impaired due to additional credit deterioration post acquisition.

The remaining $3.9 million were not included in impaired loan totals.

Allowance for loan losses:

Loss factors are reviewed quarterly and updated at least annually to reflect recent loan loss history and incorporate current risks and trends which may not be recognized in historical data.

For all loan types, management considers the following factors in determining loan collectability and the appropriate level of the allowance:

• Changes in the nature and volume of the portfolio and in the terms of loans, including:

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

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

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 December 31, 2021 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 loss driver analysis ("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 plans to update the LDA annually;

however, due to the impact of COVID-19, the LDA analysis was last updated in the fourth quarter of 2019.

• 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 2021.

• 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 January 1, 2021, the date of CECL adoption, Park weighted a "most likely" scenario 80%, a "slower near-term growth" scenario 10%, and a "moderate recession" scenario 10%.

As of January 1, 2021, the "most likely" scenario forecasted Ohio unemployment to range between 5.31% and 5.79% during the next four quarters.

◦ As of March 31, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease significantly, to a range between 3.70% and 4.93% during the next four quarters.

In determining the appropriate weighting of scenarios at March 31, 2021, management considered this improved economic forecast while balancing the risks associated with the COVID-19 pandemic, including the risk of pandemic-related losses lagging behind the projected improvement in unemployment.

The calculation utilizing the 80% "most likely" scenario, 10% "slower near-term growth" scenario, and 10% "moderate recession scenario" resulted in a quantitative reserve of $58 million, which would have resulted in a decline of $17 million from the quantitative reserve of $75 million as of January 1, 2021.

Management then considered the reason for this decline and whether or not it was appropriate given the economic environment at March 31, 2021.

Upon review, management noted that the decline was the result of a significant decrease in forecasted unemployment.

The March 31, 2021 "most likely" scenario forecasted unemployment rates lower than any post-1975 Ohio unemployment rates of record.

Given the uncertainty at March 31, 2021 due to the COVID-19 pandemic, management did not believe that such a significant decrease in reserves was appropriate and sought to re-evaluate the weightings in order to calculate a more accurate life of loan loss estimate.

Management determined it was appropriate to weight the "most likely" scenario 50% and the "moderate recession" scenario 50%.

◦ As of December 31, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease, to a range between 3.32% and 3.97%, during the next four quarters.

In determining the appropriate weighting of scenarios at December 31, 2021, management considered the range of forecasted unemployment as well as a number of economic indicators.

While some economic indications continued to be optimistic, the Omicron variant, rising inflation, volatility in consumer confidence, employment, supply chain and workforce challenges continued to cause uncertainty to the overall economic environment.

Considering these factors, management determined it was appropriate to maintain the previous quarter weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2021.

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.

• Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices.

• Changes in national and local economic and business conditions and developments that affect the collectability of the portfolio.

• The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated losses in Park's existing portfolio.

The judgmental increases discussed below incorporate management’s evaluation of the impact of environmental qualitative factors which pose additional risks and assignment of a component of the allowance for loan losses in consideration of these factors.

Such environmental qualitative factors include:

global, national and local economic trends and conditions;

experience, ability and depth of lending management and staff;

effects of any changes in lending policies and procedures;

and levels of, and trends in, consumer bankruptcies, delinquencies, impaired loans and charge-offs and recoveries.

The determination of this component of the allowance for loan losses requires considerable management judgment.

Actual loss experience may be more or less than the amount allocated.

Commercial Loans

Excluding acquired loans, the allowance for loan losses related to performing commercial loans was $57.1 million, or 1.55% of the outstanding principal balance of performing commercial loans at December 31, 2020.

Excluding acquired loans, at December 31, 2020, the coverage level within the commercial loan portfolio was approximately 5.56 times the 132-month historical loss factor compared to 3.40 times the 120-month historical loss factor at December 31, 2019.

Historical loss experience, defined as charge-offs plus changes in specific reserves, over the 132-month period ended December 31, 2020, for the commercial loan portfolio was 0.28%.

This 132-month loss experience includes only the performance of the PNB loan portfolio and excludes the impact of P NB participations in Vision Bank loans.

Excluding acquired loans, the overall reserve of 1.55% for other accruing commercial loans breaks down as follows:

PPP loans are reserved at 0.10%;

pass-rated commercial loans are reserved at 1.64%;

special mention commercial loans are reserved at 3.47%;

and substandard commercial loans are reserved at 3.83%.

The reserve levels for pass-rated, special mention and substandard commercial loans in excess of the 132-month loss experience of 0.28% are due to the following factors which management reviews on a quarterly or annual basis:

• Historical Loss Factor:

In calculating the allowance for loan losses, management believes it is appropriate to consider historical loss rates that are comparable to the current period being analyzed, giving consideration to losses experienced over a full cycle.

As such, a year is added to the look back period each time historical losses are updated, until the economic cycle is complete, as defined by a period of rising charge-offs, considering both internal and industry trends.

In updating the historical loss rates to incorporate 2020 losses, management considered if the economic deterioration as a result of the COVID-19 pandemic represented the end of a cycle for the purposes of the allowance for loan loss calculation, but, due to the historically low level of charge-offs, determined 2020 should be included in the cycle beginning in 2010.

For the historical loss factor at December 31, 2020, the Company utilized an annual loss rate, calculated based on an average of the net charge-offs and the annual change in specific reserves for impaired commercial loans, experienced during 2010 through 2020 within the individual segments of the commercial and consumer loan categories.

• Loss Emergence Period Factor:

Typically, management calculates the loss emergence period for each commercial loan segment on an annual basis.

The loss emergence period is calculated based upon the average period of time it takes from the probable occurrence of a loss event to the loan being moved to nonaccrual.

If the loss emergence period for any commercial loan segment is greater than one year, management applies additional general reserves to all performing loans within that segment of the commercial loan portfolio.

The loss emergence period was last updated in the fourth quarter of 2019.

Management did not update the loss emergence period calculation in 2020.

Due to the COVID-19 pandemic, management performed a timely analysis into its commercial loan portfolio to identify loans

negatively impacted by the pandemic.

This resulted in the downgrade of numerous loans to nonaccrual status within months of the loss event (the COVID-19 pandemic).

Including these loans artificially lowers the loss emergence period for 2020.

Management does not believe this is reflective of what is expected as the loss emergence period for the remaining portfolio.

During the third quarter of 2020, Park made the decision to extend the loss emergence period on all commercial loan types by six months.

Management believes that the start of the COVID-19 pandemic in March 2020 represents the loss event.

Management continues to refine its estimate of incurred losses as a result of this March 2020 loss event.

Approximately nine months following the start of the pandemic, Park has experienced very little, if any, increase in delinquencies and charge-offs.

Management believes that this is due to the unprecedented level of economic stimulus, CARES Act accommodations, and Consolidated Appropriations Act, 2021 accommodations provided by the U.S.

government which has delayed loan defaults and losses.

• Loss Migration Factor:

Park’s commercial loans are individually risk graded.

If loan downgrades occur, the probability of default increases, and accordingly, management allocates a higher percentage reserve to those accruing commercial loans graded special mention and substandard.

Annually, management calculates a loss migration factor for each commercial loan segment for special mention and substandard credits based on a review of losses over the period of time a loan takes to migrate from pass-rated to impaired.

The loss migration factor was last updated in the fourth quarter of 2020.

• Environmental Loss Factor:

Management has identified certain macroeconomic factors that trend in accordance with losses in Park’s commercial loan portfolio.

Certain environmental loss factors have been determined to correlate with higher charge-offs while other adjustments are based on a subjective evaluation of other environmental loss factors.

Environmental factors applicable to the commercial loan portfolio include:

the Ohio unemployment rate, percent change in Ohio GDP, the consumer confidence index, the prevalence of fixed rate loans in the portfolio and other environmental factors.

In evaluating the ongoing relevance and amount of the other environmental factors, management considers:

changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices, changes in national and local economic and business conditions, and developments that affect the collectability of the portfolio, and the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated losses in Park's existing portfolio.

All of these factors are evaluated in relation to the historical look back period.

At both December 31, 2020 and December 31, 2019, such subjective environmental loss factor inputs accounted for 42% of the allowance for loan losses driven by environmental loss factors.

These macroeconomic factors are reviewed quarterly and the adjustments made to the environmental loss factor impacting each segment in the performing commercial loan portfolio correlate to changes in the macroeconomic environment in relation to the historical loss period.

The environmental loss factors were updated in each quarter of 2020 to consider the economic impact of the COVID-19 pandemic.

These factors were increased from 0.60% of applicable loans at December 31, 2019 to 0.675% of applicable loans at March 31, 2020, to 0.75% of applicable loans at June 30, 2020, to 0.825% at September 30, 2020, and to 0.855% at December 31, 2020.

The increases in the first and second quarters of 2020 were the result of upward adjustments to the factors for Ohio unemployment, percent change in Ohio GDP and consumer confidence.

The increase in the third quarter of 2020 was due to the increased uncertainty in the overall economic environment, the unknown length and severity of the pandemic and the limitations in the incurred loss model to capture all probable incurred losses during such uncertain times.

The increase in the fourth quarter was a result of consideration of the other environmental factors in relation to the extended 132-month historical loss period.

Management will continue to evaluate this estimate of incurred losses as new information becomes available.

In addition to the increases in the environmental loss factor, in the second quarter, Park added additional reserves for three industries at particularly high risk due to the pandemic:

hotels and accommodations, restaurants and food service, and strip shopping centers.

These industries have had high levels of deferrals and have been particularly impacted by shut downs of non-essential businesses, increased health department regulations, and changes in consumer behavior.

Management expects that a high percentage of the 4-rated credits in these portfolios will eventually migrate to special mention, substandard, or impaired status.

As a result, additional reserves totaling $3.8 million were added for these portfolios on top of that already calculated.

This amount was calculated by applying the loss factor for special mention credits to all 4-rated loans in these

A breakout of the 4-rated balances and additional reserve related to these portfolios is detailed in the following table.

Table 40 - High Risk Industries Reserve

December 31, 2020

(in thousands) 4-Rated Balance 4-Rated Balance - Originated 4-Rated Balance - Purchased Additional Reserve

• 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;

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).

During 2020, Park added an additional reserve for three industries at particularly high risk due to the COVID-19 pandemic:

hotels and accommodations;

restaurants and food service;

and strip shopping centers.

These industries have experienced high levels of deferrals and have been particularly impacted by shut downs of non-essential businesses, increased health department regulations, and changes in consumer behavior.

Management expects that a relatively higher percentage of the 4-rated credits in these portfolios will eventually migrate to special mention, substandard, or impaired status.

In adopting CECL, management determined it was appropriate to retain and maintain this qualitative adjustment throughout 2021 as this

adjustment takes into account the additional risk in these portfolios, which is not captured in the quantitative calculation.

As of December 31, 2021, additional reserves totaling $5.2 million were added for these portfolios on top of the quantitative reserve already calculated.

This represented an increase from $3.8 million as of December 31, 2020, which had been calculated under the previous incurred loss methodology.

A breakout of the 4-rated balances within these portfolios and the additional reserve related to these portfolios is detailed in the following table:

Table 37 - Additional COVID-19 Reserves

December 31, 2021 December 31, 2020

(in thousands) 4-Rated Balance Additional Reserve 4-Rated Balance Additional Reserve

Hotels and accommodations $ 148,018 $ 2,226 $ 96,909 $ 1,391

Restaurants and food service 40,648 917 33,409 637

Strip shopping centers 184,171 2,033 177,706 1,731

Total $ 372,837 $ 5,176 $ 308,024 $ 3,759

Additionally, management applied a 1% reserve to all hotels and accommodations loans in the general reserve population to account for increased valuation risk.

At December 31, 2020, Park's originated hotels and accommodations loans had a balance of $181.4 million with an additional reserve specific to valuation risks of $1.8 million.

As of December 31, 2020, Park had $337.1 million of PPP loans which are included in the commercial, financial and agricultural portfolio segment.

Additionally, management applied a 1.00% reserve to all hotels and accommodations loans in the collectively evaluated population to account for increased valuation risk.

This was consistent with 2020 year end and considered various economic conditions due to COVID-19 variants, continued volatility in the hotel industry, and travel trends, all of which impacted valuations.

At December 31, 2021, Park's originated hotels and accommodation loans included in the population of collectively evaluated loans had a balance of $203.9 million with an additional reserve related to valuation risks of $2.0 million.

At December 31, 2020, Park's originated hotels and accommodation loans included in the population of collectively evaluated loans had a balance of $181.4 million with an additional reserve related to valuation risks of $1.8 million.

There is still a significant amount of uncertainty related to the economic impact of COVID-19, including the duration of the pandemic, the risk related to new variants, future government programs that may be established in response to the pandemic, and the resiliency of the U.S.

Management will continue to evaluate its estimate of expected credit losses as new information becomes available.

As of December 31, 2021, Park had $74.4 million of PPP loans which were included in the commercial, financial and agricultural portfolio segment compared to $331.6 million as of December 31, 2020.

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 was calculated for these loans to reflect minimal credit risk.

Consumer Loans

Generally, consumer loans are not individually graded.

Consumer loans include:

(1) mortgage and installment loans included in the construction real estate segment of the loan portfolio;

(2) mortgage, home equity lines of credit ("HELOC"), and installment loans included in the residential real estate segment of the loan portfolio;

and (3) all loans included in the consumer segment of the loan portfolio.

The amount of loan loss reserve assigned to these loans is based on historical loss experience over the past 132 months, through December 31, 2020.

Management generally considers a one-year coverage period (the “Historical Loss Factor”) appropriate because the probable loss on any given loan in the consumer loan pool should ordinarily become apparent in that time frame.

However, management may incorporate adjustments to the Historical Loss Factor as circumstances warrant additional reserves (e.g., increased loan delinquencies, improving or deteriorating economic conditions, changes in lending management and changes in underwriting standards).

The loss factor applied to Park’s consumer loan portfolio as of December 31, 2020 was based on the historical loss experience over the preceding 132 months, plus an additional judgmental reserve, increasing the total allowance for loan loss coverage in the consumer loan portfolio to 2.63 times the 132-month historical loss factor of 0.28% compared to 1.90 times the 120-month historical loss factor of 0.31% at December 31, 2019.

For the consumer portfolio, a specific COVID-19 factor was added to each segment equal to 75% of the 132-month historical loss factor (representing 9 months of charge-off delay).

This increase considers the payment deferrals being provided to consumer loan customers and unprecedented level of government stimulus as well as the likely delays in delinquencies and charge-offs as a result.

Much is still unknown about the economic impact of COVID-19, including the duration of the pandemic, future government programs that may be established as a result of the pandemic, and the resiliency of the U.S.

Management will continue to evaluate this estimate of incurred losses as new information becomes available.

Given uncertainty about the magnitude and length of the COVID-19 pandemic and related economic shutdown, additional loan loss provisions may be required that would adversely impact earnings in future periods.

Purchased Loans

Loans acquired as part of the acquisitions of NewDominion and Carolina Alliance were recorded at fair value on the respective dates of acquisition.

An allowance is only established on these loans as a result of credit deterioration post acquisition.

At December 31, 2020, there was a $678,000 allowance related to performing acquired loans.

At December 31, 2020, a reserve of $167,000 had been established related to PCI loans.

At December 31, 2019, there was no allowance related to performing acquired loans, and a reserve of $268,000 related to PCI loans.

Current Expected Credit Losses:

In June 2016, the FASB issued ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13").

The new accounting guidance in FASB ASU 2016-13 replaces the incurred loss methodology with an expected loss methodolgy, which is referred to as the CECL methodology.

The CECL methodology is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, HTM debt securities, and reinsurance receivables.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor.

The CECL methodology requires an entity to estimate credit losses over the life of an asset or off-balance sheet credit exposure.

The new accounting guidance was to have been effective for Park for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019.

Section 540 of the Consolidated Appropriations Act, 2021, amended Section 4014 of the CARES Act by extending the relief period provided in the CARES Act.

The Consolidated Appropriations Act, 2021, modifies the CARES Act so that temporary relief will expire on the earlier of the first day of the fiscal year that begins after the date on which the national emergency concerning COVID-19 terminates or January 1, 2022.

Park elected to delay the implementation of CECL following the approval of the CARES Act.

The CECL standard requires financial institutions to calculate an allowance utilizing a reasonable and supportable forecast period which Park has established as a one-year period.

In the unprecedented circumstances surrounding the COVID-19 pandemic and the response thereto, Park believes that adopting the CECL methodology in the first quarter of 2020 would have added an unnecessary level of subjectivity and volatility to the calculation of the allowance for credit losses.

With the approval of the Consolidated Appropriations Act, 2021, management has elected to further delay adoption of CECL to January 1, 2021.

This will allow Park to utilize the CECL standard for the entire year of adoption.

Park formed a cross-functional CECL Committee and engaged a third party vendor to assist with the adoption of ASU 2016-13.

The Company currently intends to use a blend of multiple economic forecasts to estimate expected credit losses over a one year reasonable and supportable forecast period and then revert, over a one year period to longer term historical loss experience to arrive at lifetime expected losses.

Based on preliminary modeling results, management estimates that the reserve will increase to between $90 million and $100 million upon adoption, with the day 1 increase being recorded through a one-time cumulative-effect adjustment to retained earnings as of January 1, 2021.

The actual impact from adopting this guidance may be subject to change based upon refinement and finalization of the model and associated assumptions, the refinement and finalization of qualitative factors, the implementation and testing of certain internal controls ensuring model effectiveness and management's judgment.

Park expects the Allowance for Credit Losses for unfunded commitments to increase to between $3.5 million and $4.5 million upon adoption of ASU 2016-13, with the day 1 increase being recorded through a one-time cumulative-effect adjustment to retained earnings as of January 1, 2021.

While it is expected that the adoption of ASU 2016-13 will increase the allowance for credit losses, many factors will determine the ultimate calculation at January 1, 2021.

The adoption of ASU 2016-13 will not, however, change the overall credit risk in the Company's loan, lease and investment securities portfolios or the ultimate losses with respect thereto.

The transition adjustment to increase the allowance will primarily result in a decrease to shareholders' equity, net of income taxes.

The ultimate impact of the adoption of ASU 2016-13 will depend on the composition of the loan, lease and investment securities portfolios, finalization of credit loss models, and macroeconomic conditions and forecasts that exist at the date of adoption.

A 10 basis point reserve was calculated for these loans to reflect minimal credit risk as of December 31, 2021 and 2020.

CAPITAL RESOURCES

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Park’s objective in managing its liquidity is to maintain the ability to continuously meet the cash flow needs of customers, such as borrowings or deposit withdrawals, while at the same time seeking higher yields from longer-term lending and investing activities.

Cash and cash equivalents increased by $210.5 million during 2020 to $370.5 million at year end.

Cash and cash equivalents decreased by $151.3 million during 2021 to $219.2 million at year end.

Cash provided by operating activities was $157.3 million in 2021, $111.6 million in 2020 and $111.6 million in 2019.

Net income was the primary source of cash provided by operating activities during each year.

Cash used in investing activities was $455.9 million in 2020, while cash provided by investing activities was $60.1 million in 2019 and $45.4 million in 2018.

Cash used in investing activities was $412.1 million in 2021 and $455.9 million in 2020, while cash provided by investing activities was $60.1 million in 2019.

Investment securities transactions and loan originations/repayments are the major uses or sources of cash in investing activities.

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 $188.1 million in 2020, $302.2 million in 2019 and $77.8 million in 2018.

Cash used by the net increase in the loan portfolio was $620.2 million in 2020, $216.4 million in 2019 and $57.3 million in 2018.

Cash provided by financing activities was $554.8 million in 2020, while cash used in financing activities was $179.0 million in 2019 and $179.3 million in 2018.

Net investment securities transactions used cash of $709.5 million in 2021 and provided cash of $188.1 million in 2020 and $302.2 million in 2019.

Cash provided by the net paydown in the loan portfolio was $312.2 million in 2021, and cash used by the net increase in the loan portfolio was $620.2 million in 2020 and $216.4 million in 2019.

Cash provided by financing activities was $103.5 million in 2021 and $554.8 million in 2020, while cash used in financing activities was $179.0 million in 2019.

A major source of cash provided by or used in financing activities is the net change in deposits.

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Other major sources of cash from financing activities are short-term borrowings and long-term debt.

In 2021, net short-term borrowings decreased and used $103.4 million in cash and net long-term debt decreased and used $32.5

million in cash.

In 2020, net short-term borrowings increased and provided $111.6 million in cash and net long-term debt increased and provided $2.1 million in cash.

In 2019, net short-term borrowings decreased and used $20.1 million in cash and net long-term debt decreased and used $208.1 million in cash.

In 2018, net short-term borrowings decreased and used $169.3 million in cash and net long-term debt decreased and used $100.2 million in cash.

Cash used in the repurchase of common shares was $16.0 million in 2021, $7.5 million in 2020 and $40.5 million in 2019.

Finally, cash declined by $74.3 million in 2021, $70.4 million in 2020 and $69.1 million in 2019, from the payment of cash dividends.

Funds are available from a number of sources, including the capital markets, the investment securities portfolio, the core deposit base, FHLB borrowings, the capability to securitize or package loans for sale, and a $15.0 million revolving line of credit with another financial institution, which did not have an outstanding balance as of December 31, 2020.

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.

In the opinion of Park's management, the present funding sources provide more than adequate liquidity for Park to meet our cash flow needs.

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Short-term borrowings 238,786 — — — — 238,786

Long-term debt 32,500 — — — — 32,500

Subordinated notes 15,000 — — 173,210 — 188,210

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However, the usefulness of the interest rate sensitivity gap analysis as a forecasting tool in projecting net interest income is limited.

The gap analysis does not consider the magnitude, timing or frequency by which assets or liabilities will reprice during a period and also contains assumptions as to the repricing of transaction and savings accounts that may not prove to be correct.

The gap analysis does not consider the magnitude, timing or frequency by which assets or liabilities will reprice during a period and also

contains assumptions as to the repricing of interest bearing transaction accounts and savings accounts that may not prove to be correct.

The cumulative twelve-month interest rate sensitivity gap position at year-end 2020 was a positive $1,295 million or 15.29% of total interest earning assets.

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Management uses a 50 basis 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.

At December 31, 2021, the earnings simulation model projected that net income would increase by 7.5% using a rising interest rate scenario and decrease by 15.1% using a declining interest rate scenario over the next year.

At December 31, 2020, the earnings simulation model projected that net income would decrease by 2.9% using a rising interest rate scenario and decrease by 8.8% using a declining interest rate scenario over the next year.

At December 31, 2019, the earnings simulation model projected that net income would decrease by 1.9% using a rising interest rate scenario and increase by 0.5% using a declining interest rate scenario over the next year.

At December 31, 2018, the earnings simulation model projected that net income would decrease by 0.4% using a rising interest rate scenario and decrease by 3.1% using a declining interest rate scenario over the next year.

Consistently, over the past several years, Park’s earnings simulation model has projected that changes in interest rates would have only a small impact on net income and the net interest margin.

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Short-term borrowings 14 238,786 — — — 238,786

Long-term debt 16 — 32,500 — — 32,500

Subordinated notes 16 — — — 188,210 188,210

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Supplemental Executive Retirement Plan 19 652 1,788 1,989 31,430 35,859

Purchase obligations 11,522 — — — 11,522

Total contractual obligations $ 7,898,563 $ 229,644 $ 91,503 $ 285,971 $ 8,505,681

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The Corporation’s operating lease obligations represent short-term and long-term lease and rental payments for facilities and equipment.

Purchase obligations represent obligations under agreements to purchase goods or services that are enforceable and legally binding on the Corporation.

Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements :

In order to meet the financing needs of our customers, the Corporation issues loan commitments and standby letters of credit.

At December 31, 2020, the Corporation had $1,372.2 million of loan commitments for commercial, commercial real estate, and residential real estate loans and had $17.0 million of standby letters of credit.

At December 31, 2019, the Corporation had $1,309.9 million of loan commitments for commercial, commercial real estate, and residential real estate loans and had $17.2 million of standby letters of credit.

At December 31, 2021, the Corporation had $1.4 billion of loan commitments for commercial, commercial real estate, and residential real estate loans and had $18.2 million of standby letters of credit.

At December 31, 2020, the Corporation had $1.4 billion of loan commitments for commercial, commercial real estate, and residential real estate loans and had $17.0 million of standby letters of credit.

Commitments to extend credit under loan commitments and standby letters of credit do not necessarily represent future cash requirements.

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Cash dividends declared for Park's common shares were $74.6 million in 2021, $70.6 million in 2020 and $69.5 million in 2019.

On a per share basis, the cash dividends declared were $4.28 per share in 2020, $4.24 per share in 2019 and $4.07 per share in 2018.

On a per share basis, the cash dividends declared were $4.52 per common share in 2021, $4.28 per common share in 2020 and $4.24 per common share in 2019.

The table below shows the repurchases and issuances of common shares and treasury shares for 2019 through 2021.

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Cash payment for fractional shares in dividend reinvestment plan — (171)

Common shares issued for the acquisition of NewDominion Bank — 435,457

Common shares issued for the acquisition of CAB Financial Corporation — 1,037,205

Treasury shares repurchased (40,535) (421,253)

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Cash payment for fractional shares in dividend reinvestment plan — (36)

Common shares issued for the acquisition of CAB Financial Corporation — 1,037,205

Treasury shares repurchased (7,507) (76,000)

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Balance at December 31, 2021 $ (142,490) 16,219,563

Park issued 1,037,205 and 435,457 new common shares, which had not already been held as treasury shares, during 2019 and 2018 in the acquisitions of CABF and NewDominion, respectively, but did not issue any new common shares, which had not already been held as treasury shares, in 2020.

Park issued 1,037,205 new common shares, which had not already been held as treasury shares, during 2019 in the acquisitions of CABF, but did not issue any new common shares, which had not already been held as treasury shares, in 2020 or 2021.

Common shares had a balance of $461.8 million, $460.7 million and $459.4 million at December 31, 2021, 2020, and 2019, respectively.

Accumulated other comprehensive income (loss) (net) reflected income of $5.6 million at December 31, 2020, compared to a loss of $9.6 million at December 31, 2019, and a loss of $49.8 million at December 31, 2018.

Accumulated other comprehensive income (loss) (net) reflected income of $15.2 million at December 31, 2021 and $5.6 million at December 31, 2020, compared to a loss of $9.6 million at December 31, 2019.

During 2021, the change in net unrealized holding gain (loss) on AFS debt securities, net of income tax, was a loss of $19.5 million.

During the 2020 year, the change in net unrealized holding gain (loss) on AFS debt securities, net of income tax, was a gain of $23.2 million.

During the 2019 year, the change in net unrealized holding gain (loss) on AFS debt securities, net of income tax, was a gain of $37.7 million.

During the 2018 year, the change in net unrealized holding gain (loss) on AFS debt securities, net of income tax, was a loss of $15.6 million.

Additionally, Park recognized an other comprehensive loss of $7.7 million, net of income tax, related to the change in pension plan assets and benefit obligations in 2020, compared to an other comprehensive gain of $3.0 million, net of income tax, related to the change in pension plan assets and benefit obligations in 2019, and compared to an other comprehensive loss of $3.0 million, net of income tax, related to the change in pension plan assets and benefit obligations in 2018.

Finally, during the 2020 year, Park recognized an other comprehensive loss of $244,000, net of income tax, related to an unrealized net holding loss on cash flow hedging derivatives, compared to an other comprehensive loss of $454,000, net of income tax, related to an unrealized net holding loss on cash flow hedging derivatives in 2019.

Beginning accumulated other comprehensive loss (net) as of January 1, 2018, included a $995,000 adjustment related to the adoption of ASU 2016-01- Financial Instruments - Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities.

Additionally, Park recognized an other comprehensive gain of $28.6 million, net of tax, related to the change in pension plan assets and benefit obligations in 2021, compared to an other comprehensive loss of $7.7 million, net of income tax, related to the change in pension plan assets and benefit obligations in 2020, and an other comprehensive gain of $3.0 million, net of income tax, related to the change in pension plan assets and benefit obligations in 2019.

Finally, during the 2021 year, Park recognized an other comprehensive gain of $492,000, net of income tax, related to an unrealized net holding gain on cash flow hedging derivatives, compared to an other comprehensive loss of $244,000, net of income tax, related to an unrealized net holding loss on cash flow hedging derivatives in 2020, and an other comprehensive loss of $454,000, net of income tax, related to an unrealized net holding loss on cash flow hedging derivatives in 2019.

Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies.

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The adoption of this framework modified the calculation of the various capital ratios, added an additional ratio, common equity tier 1, and revised the adequately and well-capitalized thresholds under the prompt corrective action regulations applicable to PNB.

Additionally, under this framework, in order to avoid limitations on capital distributions, including dividend payments and stock repurchases, Park must hold a capital conservation buffer of 2.50% above the adequately capitalized risk-based capital ratios.

The Federal Reserve Board also adopted requirements Park must maintain to be deemed "well-capitalized" and to remain a financial holding company.

Additionally, under this 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 above the adequately capitalized risk-based capital ratios.

The capital conservation buffer was fully phased in at 2.50% on January 1, 2019.

The amounts shown below as the adequately capitalized ratio plus capital conservation buffer includes the 2.50% buffer.

The Federal Reserve Board 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 December 31, 2021.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis