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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-26 · 932 added, 946 removed, 1925 unchanged (49% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Financial Statements

Audited Financial Statements Page

Management’s Report on Internal Control Over Financial Reporting 84

Report of Independent Registered Public Accounting Firm 85

Auditor Name:

Auditor Location:

Auditor Firm ID:

Consolidated Balance Sheets at December 31, 2021 and 2020 89

Consolidated Statements of Income for the Years Ended December 31, 2021, 2020 and 2019 91

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019 93

Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2021, 2020 and 2019 94

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 96

Notes to Consolidated Financial Statements 97

Management’s Report on Internal Control Over Financial Reporting

To the Board of Directors and Shareholders

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We reviewed the results of management's assessment with the Audit Committee of the Board of Directors of the Corporation.

The Corporation’s independent registered public accounting firm, Crowe LLP, has audited the Consolidated Balance Sheets of the Corporation and its subsidiaries as of December 31, 2020 and 2019 and the related Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Stockholders' Equity and Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2020, included in "ITEM 8.

The Corporation’s independent registered public accounting firm, Crowe LLP, has audited the Consolidated Balance Sheets of the Corporation and its subsidiaries as of December 31, 2021 and 2020 and the related Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Shareholders' Equity and Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2021, included in "ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K and the Corporation’s internal control over financial reporting as of December 31, 2021, and has issued their Report of Independent

14 unchanged sentences

(2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2021 due to the adoption of ASU 2016-13 Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

Basis for Opinions

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses – Other Environmental Loss Factors

As described in Notes 1 and 7 to the consolidated financial statements, the Company’s allowance for loan losses is a valuation account that reflects the Company’s estimation of probable incurred credit losses in its loan portfolio.

The allowance for loan losses was $85,675,000 at December 31, 2020, which consists of three components:

the valuation allowance for loans individually evaluated for impairment (“specific reserves”), representing $5,434,000, the valuation allowance for loans acquired with deteriorated credit quality, representing $167,000, and the valuation allowance for loans collectively evaluated for impairment (“general reserves”), representing $80,074,000.

The general reserves are based on the Company’s historical loss experience adjusted for other factors including environmental loss factors.

The determination of the allowance for loan losses requires significant estimates and subjective assumptions which require a high degree of judgment relating to how those assumptions impact probable incurred credit losses within the loan portfolio.

Changes in these assumptions could have a material effect on the Company’s financial results.

As described in Note 7 to the consolidated financial statements, historical loss experience on commercial loans is adjusted primarily for a loss emergence period factor, a loss migration factor and environmental loss factors.

During 2020, the Company added additional reserves for three industries that demonstrated higher risk as a result of the pandemic as well as reserves to hotel and accommodations loans to account for increased valuation risk.

Certain environmental loss factors were determined to correlate with higher charge-offs in the commercial loan portfolio.

Environmental factors applicable to the commercial loan portfolio included:

the Ohio unemployment rate;

the percentage 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 the institution’s existing portfolio.

All of these factors are evaluated in relation to the historical look back period.

To formulate the additional allocations to the allowance for loan losses for environmental loss factors, management multiplies the outstanding principal balance of the various commercial loan classes by the applicable factor.

Management’s identification and analysis of these issues requires significant judgment.

We determined that auditing management’s estimate of the allowance allocation resulting from the environmental factors is a critical audit matter as it involved especially subjective auditor judgment.

The primary procedures we performed to address this critical audit matter included:

• Testing the effectiveness of controls over the estimation of the allowance for loan losses, including controls addressing management’s review of the conclusions related to the environmental loss factors and the resulting allocation of the allowance, as well as controls over the mathematical application of the environmental loss factors to adjust the historical loss experience.

• Substantive testing of management’s process for developing the environmental loss factors, which included:

◦ Evaluation of the reasonableness of management’s judgments and assumptions related to the assessment of the data used in the determination of environmental loss factors and the resulting allocation of the allowance.

Among other procedures, our evaluation considered the weight of evidence from internal and external sources and whether such assumptions were applied consistently period over period.

◦ Analytically evaluating the environmental loss factor allocation for consistency with overall trends in the loan portfolio and environmental conditions.

◦ Testing the accuracy of the mathematical application of the environmental factors to adjust the historical loss experience.

◦ Testing the total amount of the environmental factor allocation assigned within the allowance for loan loss balance.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses

In accordance with Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments —Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, the Company adopted Accounting Standards Codification (“ASC”) 326 as of January 1, 2021 as described in Notes 2 and 6 of the consolidated financial statements.

See also the explanatory paragraph above.

The allowance for credit losses (the “ACL”) is an accounting estimate of expected credit losses over the life of loans.

The ASU requires the Company’s loan portfolio, measured at amortized cost, to be presented at the net amount expected to be collected.

Estimates of expected credit losses for loans are based on historical experience, current conditions and reasonable and supportable forecasts over the life of the loans.

In order to estimate the expected credit losses, the Company implemented a new loss estimation model.

The Company disclosed the impact of adoption of this standard on January 1, 2021 with a $6.1 million increase to the allowance for credit losses and a $8.0 million decrease to retained earnings for the cumulative effect adjustment recorded upon adoption.

Recovery of credit losses for the year ending December 31, 2021 was $11.9 million and the Allowance for credit losses at December 31, 2021 was $83.2 million.

The Company measures expected credit losses based on pooled loans when similar risk characteristics exist primarily utilizing a discounted cash flow (“DCF”) model.

A loss driver analysis was performed to identify appropriate loss drivers to create a regression model for use in forecasting cash flows for each loan segment.

Probability of default (“PD”) and loss given default (“LGD”) are assumptions in the model used to discount loan-level cash flows that are adjusted for prepayments and curtailments.

A quantitative adjustment is made on top of the model using economic forecasts that are weighted to reflect model risk in the current economic environment.

The Company adjusts its quantitative results for certain qualitative factors to reflect the extent to which management expects current conditions and reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated.

The allowance for credit losses was identified by us as a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management throughout the initial adoption and subsequent application processes, including the need to involve our valuation services specialists.

The principal considerations resulting in our determination included the following:

• Significant auditor judgment and audit effort to evaluate the loss estimation model and significant assumptions related to the loss driver analysis, PD and LGD input into the DCF model.

• Significant auditor judgment and audit effort used in evaluating the quantitative adjustment made on top of the model that weight the economic scenarios to reflect model risk in the current economic environment.

The primary procedures performed to address the critical audit matter included:

• Testing the effectiveness of management's controls addressing:

◦ Management’s selection of the DCF model, including evaluation of the appropriateness of the loss driver analysis and probability of default and loss given default curves input into the model.

◦ Management’s review of the relevance and reliability of data used in the DCF model.

◦ Management’s review over the Company’s judgments used in the determination of the quantitative adjustment made on top of the model that weight the economic scenarios used in the forecast.

• Substantive testing included:

◦ Evaluating the appropriateness of the Company's methodology applied in the adoption of ASC 326.

◦ Evaluating the appropriateness of the loss driver analysis and probability of default and loss given default curves into the DCF model, assisted by our valuation services specialists.

◦ Evaluating the relevance and reliability of data used in the DCF model.

◦ Evaluating management’s judgments for developing and applying a quantitative adjustment made on top of the model that weight the economic scenarios used in the forecast.

We have served as the Company's auditor since 2006.

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Park National Corporation and Subsidiaries

Consolidated Balance Sheet

Consolidated Balance Sheets

at December 31, 2021 and 2020

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Investment securities:

Debt securities available-for-sale, at fair value (amortized cost of $ 1,007,834 and $ 1,187,499 at December 31, 2020 and 2019, respectively)

Debt securities available-for-sale, at fair value (amortized cost of $ 1,727,363 and $ 1,007,834 at December 31, 2021 and 2020, respectively, and no allowance for credit losses at December 31, 2021)

1,754,140 1,059,341

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Total loans 6,871,122 7,177,785

Allowance for loan losses ( 85,675 ) ( 56,679 )

Allowance for credit losses ( 83,197 ) ( 85,675 )

Net loans 6,787,925 7,092,110

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Unfunded commitments in affordable housing tax credit investments 28,484 29,298

Allowance for credit losses on off-balance sheet commitments 4,282 116

Other 67,750 54,576

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461,800 460,687

Accumulated other comprehensive income (loss), net of taxes 5,571 ( 9,589 )

Accumulated other comprehensive income, net of taxes 15,155 5,571

Retained earnings 776,294 704,764

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329,893 327,630 297,737

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

Net interest income after provision for loan losses

315,576 291,566 258,953

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

Net interest income after (recovery of) provision for credit losses 341,809 315,576 291,566

Other income:

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2,379 1,773 1,828

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

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

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

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8,152 7,952 4,732

Gain on the sale of non-performing loans

Miscellaneous

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1,754 928 1,487

Unrealized net actuarial (loss) gain and prior service credit, net of income tax effect of $( 2,306 ), $ 402 and $( 1,076 ), for the years ended December 31, 2020, 2019, and 2018, respectively

Unrealized net actuarial gain (loss) and prior service credit, net of income tax effect of $ 7,144 , $( 2,306 ) and $ 402 , for the years ended December 31, 2021, 2020, and 2019, respectively

26,875 ( 8,675 ) 1,511

Change in funded status of defined benefit pension plan, net of income tax effect 28,629 ( 7,747 ) 2,998

Securities available-for-sale:

Net (gain) loss realized on sale of securities, net of income tax effect of $( 690 ), $ 88 and $ 538 for the years ended December 31, 2020, 2019 and 2018, respectively

Debt securities available-for-sale:

Net (gain) loss realized on sale of debt securities AFS, net of income tax effect of $( 690 ) and $ 88 for the years ended December 31, 2020 and 2019, respectively

— ( 2,596 ) 333

Unrealized gains on debt securities transferred from HTM to AFS, net of income tax effect of $5,076 for the year ended December 31, 2019

Change in unrealized securities holding gain (loss), net of income tax effect of $ 6,844 , $ 4,845 and $( 4,674 ), for the years ended December 31, 2020, 2019 and 2018, respectively

Change in unrealized holding (loss) gain on debt securities AFS, net of income tax effect of $( 5,193 ), $ 6,844 and $ 4,845 , for the years ended December 31, 2021, 2020 and 2019, respectively

( 19,537 ) 25,747 18,227

Unrealized net holding gain (loss) on securities available-for-sale, net of income tax effect 23,151 37,655 ( 15,562 )

Unrealized net holding (loss) gain on debt securities available-for-sale, net of income tax effect ( 19,537 ) 23,151 37,655

Cash flow hedging derivatives:

Unrealized loss on cash flow hedging derivatives, net of income tax effect of $( 65 ) and $( 121 ) for the years ended December 31, 2020 and 2019, respectively

Unrealized gain (loss) on cash flow hedging derivatives, net of income tax effect of $ 131 , $( 65 ) and $( 121 ) for the years ended December 31, 2021, 2020 and 2019, respectively

492 ( 244 ) ( 454 )

Unrealized net holding loss on cash flow hedging derivatives, net of income tax effect ( 244 ) ( 454 ) —

Other comprehensive income (loss) $ 15,160 $ 40,199 $ ( 18,533 )

Unrealized net holding gain (loss) on cash flow hedging derivatives, net of income tax effect 492 ( 244 ) ( 454 )

Other comprehensive income $ 9,584 $ 15,160 $ 40,199

Comprehensive income $ 163,529 $ 143,083 $ 142,899

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Balance, January 1, 2019, as previously presented — — 15,698,178 358,598 614,069 ( 90,373 ) ( 49,788 )

Cumulative effect of change in accounting principle for marketable equity securities, net of income tax

1,917 ( 995 )

Cumulative effect of change in accounting principle for leases, net of income tax ( 143 )

Balance at January 1, 2019 as adjusted — $ — 15,698,178 $ 358,598 $ 613,926 $ ( 90,373 ) $ ( 49,788 )

Reclassification of disproportionate income tax effects

3,806 ( 3,806 )

Other comprehensive loss, net of income tax

Cash dividends, $ 4.07 per share

Other comprehensive income, net of income tax 40,199

Cash dividends, $ 4.24 per common share

Cash payment for fractional shares in dividend reinvestment plan

Issuance of 435,457 common shares for the acquisition of NewDominion Bank

( 171 ) ( 3 )

Issuance of 1,037,205 common shares for the acquisition of CAB Financial Corporation 1,037,205 98,275

Share-based compensation expense

Issuance of 27,719 common shares under share-based compensation awards, net of 8,736 common shares withheld to pay employee income taxes 18,983 ( 2,480 ) ( 273 ) 1,926

12,921 ( 1,597 ) ( 317 ) 1,304

Treasury shares repurchased

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Balance, December 31, 2019 — $ — 16,346,442 $ 459,389 $ 646,847 $ ( 127,633 ) $ ( 9,589 )

Cumulative effect of change in accounting principle for leases, net of income tax ( 143 )

Balance, December 31, 2018, as adjusted — $ — 15,698,178 $ 358,598 $ 613,926 $ ( 90,373 ) $ ( 49,788 )

Net income 127,923

Other comprehensive income, net of income tax 15,160

Cash dividends, $ 4.24 per share

Cash dividends, $ 4.28 per common share

Cash payment for fractional shares in dividend reinvestment plan ( 36 ) ( 3 )

Issuance of 1,037,205 common shares for the acquisition of CAB Financial Corporation 1,037,205 98,275

Share-based compensation expense 5,998

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(In thousands, except share and per share data) Shares Outstanding Amount Shares Outstanding Amount

Balance, December 31, 2019 — $ — 16,346,442 $ 459,389 $ 646,847 $ ( 127,633 ) $ ( 9,589 )

Balance at December 31, 2020 16,314,197 460,687 704,764 ( 130,766 ) 5,571

Cumulative effect of change in accounting principle for credit losses, net of income tax ( 7,956 )

Balance, January 1, 2021, as adjusted $ — $ — 16,314,197 $ 460,687 $ 696,808 $ ( 130,766 ) $ 5,571

Net income 153,945

Other comprehensive income, net of income tax 9,584

Cash dividends, $ 4.28 per share

Cash dividends, $ 4.52 per common share

Cash payment for fractional shares in dividend reinvestment plan ( 45 ) ( 6 )

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Adjustments to reconcile net income to net cash provided by operating activities:

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

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

Accretion of loan fees and costs, net ( 25,185 ) ( 21,598 ) ( 6,826 )

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Borrowing prepayment penalty — 10,529 612

(Increase) decrease in deferred income tax ( 4,525 ) ( 844 ) 538

Realized net investment securities (gains) losses ( 3,286 ) 421 2,271

Increase in deferred income tax ( 3,131 ) ( 4,525 ) ( 844 )

Realized net debt securities (gains) losses — ( 3,286 ) 421

Gain on equity securities, net ( 5,011 ) ( 2,182 ) ( 5,118 )

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Gain on sale of loans in secondary market ( 18,018 ) ( 24,269 ) ( 7,198 )

Gain on sale of nonperforming loans — — ( 2,826 )

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

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

Bank owned life insurance income ( 4,897 ) ( 4,789 ) ( 4,557 )

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Decrease in other assets 12,342 9,216 12,530

(Decrease) increase in other liabilities ( 6,302 ) ( 3,781 ) 5,131

Decrease in other liabilities ( 7,939 ) ( 6,302 ) ( 3,781 )

Net cash provided by operating activities $ 157,332 $ 111,646 $ 111,626

$ 111,646 $ 111,626 $ 131,994

Investing activities:

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8,677 7,970 14,675

Proceeds from sales of debt securities 312,160 91,110 244,399

Proceeds from sales of investment securities 934 312,160 91,110

Proceeds from calls and maturities of:

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AFS debt securities 232,197 223,728 195,989

HTM debt securities — — ( 7,133 )

AFS debt securities ( 953,900 ) ( 354,299 ) —

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Net decrease in other investments 2,597 2,120 6,429

Net loan originations, portfolio loans

( 620,200 ) ( 216,353 ) ( 57,315 )

Net loan paydowns (originations), portfolio loans 312,187 ( 620,200 ) ( 216,353 )

Park National Corporation and Subsidiaries

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(In thousands) 2021 2020 2019

Proceeds from the sale of nonperforming loans 4,400 — 3,000

Proceeds from the sale of non-mortgage loans 3,718 4,400 —

Proceeds from the sale of OREO 758 5,654 1,465

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Purchases of premises and equipment ( 14,093 ) ( 28,632 ) ( 14,885 )

Cash (paid for) received from acquisitions, net — ( 4,831 ) 12,270

Cash paid for acquisitions, net — — ( 4,831 )

Net cash (used in) provided by investing activities

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Net increase in deposits 605,168 1,230,073 159,696

Net (increase) decrease in OWS deposits ( 710,101 ) — —

Net increase (decrease) in short-term borrowings 111,573 ( 20,072 ) ( 169,323 )

Net increase in off-balance sheet deposits ( 272,952 ) ( 710,101 ) —

Net (decrease) increase in short-term borrowings ( 103,444 ) 111,573 ( 20,072 )

Proceeds from issuance of long-term debt — — 50,000

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Net cash provided by (used in) financing activities $ 103,515 $ 554,774 $ ( 178,963 )

Increase (decrease) in cash and cash equivalents 210,518 ( 7,258 ) ( 1,898 )

(Decrease) increase in cash and cash equivalents ( 151,294 ) 210,518 ( 7,258 )

Cash and cash equivalents at beginning of year

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Right-of-use assets obtained in exchange for lease obligations 1,190 7,821 11,475

Loans transferred to foreclosed assets — — 11,379

New commitments in affordable housing tax credit investments 10,000 10,000 10,000

New commitments in other investment securities 3,000 — —

The accompanying notes are an integral part of the consolidated financial statements.

10 unchanged sentences

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, mortgage servicing rights, and pension plan obligations and related expenses.

Additionally, the pandemic may particularly impact certain loan concentrations in the hotel and accommodations, restaurant and food service, and strip shopping center industries.

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

Additionally, the COVID-19 pandemic may particularly impact certain loan concentrations in the hotel and accommodations, restaurant and food service, and strip shopping center industries.

Reclassifications

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The Corporation’s national bank subsidiary, The Park National Bank ("PNB"), previously was required to maintain average reserve balances with the Federal Reserve Bank of Cleveland.

The Federal Reserve Board announced on March 15, 2020 that the Board reduced reserve requirement ratios to zero percent effective March 26, 2020.

The Federal Reserve Board announced on March 15, 2020 that the Federal Reserve Board reduced reserve requirement ratios to zero percent effective March 26, 2020.

This action eliminated reserve requirements for all depository institutions.

The average required reserve balance was approximately $ 89.2 million at December 31, 2019.

No other compensating balance arrangements were in existence at December 31, 2020.

There were no compensating balance arrangements in existence at December 31, 2021 or 2020.

Investment Securities

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HTM securities are those debt securities that the Corporation has the positive intent and ability to hold to maturity and are recorded at amortized cost.

AFS securities are those debt securities that would be available to be sold in the future in response to the Corporation’s liquidity needs, changes in market interest rates, and asset-liability management strategies, among other reasons.

AFS securities are reported at fair value, with unrealized holding gains and losses excluded from earnings but included in other comprehensive income (loss), net of applicable income taxes.

AFS debt securities are those debt securities that would be available to be sold in the future in response to the Corporation’s liquidity needs, changes in market interest rates, and asset-liability management strategies, among other reasons.

AFS debt securities are reported at fair value, with unrealized holding gains and losses excluded from earnings, but included in other comprehensive income (loss), net of applicable income taxes.

The Corporation did not hold any trading securities during any period presented.

Interest income from debt securities includes amortization of purchase premium or discount.

Premiums and discounts on investment securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated.

Premiums on callable debt securities are amortized to their earliest call date.

Gains and losses realized on the sale of debt securities are recorded on the trade date and determined using the specific identification method.

A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days past due.

Interest accrued but not received for a security placed on nonaccrual status is reversed against interest income.

ACL - Debt Securities AFS

For debt securities AFS in an unrealized loss position, Park first assesses whether it intends to sell, or it is more likely than not that Park will be required to sell, the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income.

For debt securities AFS that do not meet the aforementioned criteria, Park evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized

cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes.

Changes in the ACL are recorded as a provision for (or recovery of) credit loss expense.

Losses are charged against the ACL when management believes that uncollectibility of a debt security AFS is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on debt securities AFS totaled $ 6.3 million at December 31, 2021 and is excluded from the estimate of credit losses.

ACL - HTM Debt Securities

Management measures expected credit losses on HTM debt securities on a collective basis by major security type.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

Park does not currently hold any HTM debt securities.

Equity Securities

Equity securities, included within "Other investment securities" on the Consolidated Balance Sheets, are carried at fair value, with changes in fair value reported in net income.

Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.

Debt securities are evaluated quarterly for potential other-than-temporary impairment.

Management considers the facts related to each security including the nature of the security, the amount and duration of the loss, the credit quality of the issuer, the expectations for that security’s performance and whether Park intends to sell, or it is more likely than not that Park will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.

Declines in the value of debt securities that are considered to be other-than-temporary are separated into (1) the amount of the total impairment related to credit loss and (2) the amount of the total impairment related to all other factors.

The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings.

The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income (loss), net of income tax.

The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Interest income from investment securities includes amortization of purchase premium or discount.

Premiums and discounts on investment securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated.

Gains and losses realized on the sale of investment securities are recorded on the trade date and determined using the specific identification method.

Federal Home Loan Bank and Federal Reserve Bank of Cleveland Stock

11 unchanged sentences

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives.

The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded.

In order to hedge the change in interest rates resulting from its commitments to fund the loans, the Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into.

Fair value of these mortgage derivatives is estimated based on the change in mortgage interest rates from the date the interest on the loan is locked.

The fair value of these derivatives is included in "Loans" in the Consolidated Balance Sheets.

Changes in the fair values of these derivatives are included in "Other service income" in the Consolidated Statements of Income.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff, are reported at their outstanding principal balances adjusted for any charge-offs, any nonaccrual interest payments applied to principal, any deferred fees or costs on originated loans, and any unamortized premiums or discounts on purchased loans.

The fair value of an interest rate lock is recorded at the time the commitment to fund a mortgage loan is executed and is adjusted for the expected exercise of a commitment before a loan is funded.

In order to hedge against a change in interest rates resulting from the Company's commitments to fund loans, the Company enters into forward commitments for the future delivery of mortgage loans.

The fair value of Park's mortgage banking derivatives is estimated based on the change in mortgage interest rates from the date the interest on a loan is locked.

The fair value of these mortgage banking derivatives is included in "Loans" in the Consolidated Balance Sheets.

Changes in the fair values of these mortgage banking derivatives are included in "Other service income" in the Consolidated Statements of Income.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost.

Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred loan fees and costs.

Interest income is accrued on the unpaid principal balance.

Accrued interest receivable totaled $ 17.1 million at December 31, 2021 and was reported in "Accrued interest receivable" on the Consolidated Balance Sheets.

Late charges on loans are recognized as income when they are collected.

12 unchanged sentences

The delinquency status of a loan is based on contractual terms and not on how recently payments have been received.

Commercial loans placed on nonaccrual status are considered impaired (see Note 6 - Loans).

Park’s charge-off policy for commercial loans requires management to establish a specific reserve or record a charge-off when collection is in doubt or it is probable a loss has been incurred and there is, or likely will be, a collateral shortfall related to the estimated value of the collateral securing the loan.

Park’s charge-off policy for commercial loans requires management to establish a specific reserve or record a charge-off when collection is in doubt and there is, or likely will be, a collateral shortfall related to the estimated value of the collateral securing a loan.

The Company’s charge-off policy for consumer loans is dependent on the class of the loan.

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The charge-off policy for other consumer loans, primarily installment loans, requires a monthly review of delinquent loans and a complete charge-off for any account that reaches 120 days past due.

In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful.

For loans which are on nonaccrual status, it is Park’s policy to reverse interest previously accrued on the loans against interest income.

Interest on such loans may be recorded on a cash basis and be included in earnings only when Park expects to receive

the entire recorded investment of the loan.

Interest on such loans may be recorded on a cash basis and be included in earnings only when Park expects to receive the entire recorded investment of the respective loans.

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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Commercial, financial and agricultural:

Commercial, financial and agricultural ("C&I") loans are made for a wide variety of general corporate purposes, including financing for commercial and industrial properties, financing for equipment, inventory and accounts receivable, acquisition financing, commercial leasing, and to consumer finance companies.

The term of each commercial loan varies by its purpose.

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The collateral for these CRE loans is the underlying commercial real estate.

Risk of loss on CRE loans largely depends upon the cash flow of the properties which is influenced by the amount of vacancy experienced by the underlying real estate, the credit capacity of the tenants occupying the underlying real estate, and general economic trends as they may adversely impact the value of the property.

These risks are mitigated by generally requiring personal guaranties of the owners of the properties and by requiring appraisals pursuant to government regulations.

Risk of loss on CRE loans largely depends upon the cash flow of the properties, which is influenced by the amount of vacancy experienced with respect to underlying real estate, the credit capacity of the tenants occupying the underlying real estate, and general economic trends, as they may adversely impact the value of a property.

These risks are mitigated by generally requiring personal guarantees of the owners of the properties and by requiring appraisals pursuant to government regulations.

Construction real estate :

The Company defines construction loans as both commercial construction loans and residential construction loans where the loan proceeds are used exclusively for the improvement of real estate as to which the Company holds a mortgage.

The Company defines construction loans as both commercial construction loans and residential construction loans where the loan proceeds are used exclusively for the improvement of real estate.

Construction loans may be in the form of a permanent loan or a short-term construction loan, depending on the needs of the individual borrower.

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In the event that a default on a construction loan occurs and foreclosure follows, Park must take control of the project and attempt to either arrange for completion of construction or dispose of the unfinished project.

Additional risk exists with respect to loans made to developers who do not have a buyer for the property, as the developer may lack funds to pay the loan if the property is not sold upon completion.

Additional risks exist with respect to loans made to developers who do not have a buyer for the property, as the developer may lack funds to pay the loan if the property is not sold upon completion.

Park attempts to reduce such risks on loans to developers by generally requiring personal guarantees and reviewing current personal financial statements and tax returns as well as other projects undertaken by the developer.

Residential real estate:

The Company defines residential real estate loans as first mortgages on individuals’ primary residences or second mortgages of individuals’ primary residences in the form of HELOCs or installment loans.

Credit approval for residential real estate loans requires demonstration of sufficient income to repay the principal and interest and the real estate taxes and insurance, stability of employment, an established credit record and a current independent third-party appraisal providing the market value of the real estate securing the loan.

The Company defines residential real estate loans as first mortgages on individuals’ primary residences or second mortgages on individuals’ primary residences in the form of HELOCs or installment loans.

Credit approval for residential real estate loans requires demonstration of sufficient income to repay the principal and interest and the real estate

taxes and insurance, stable employment, an established credit record and a current independent third-party appraisal providing the market value of the real estate securing the loan.

Residential real estate loans typically have longer terms and higher balances with lower yields as compared to consumer loans, but generally carry lower risks of default.

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These risks are mitigated by completing a comprehensive underwriting of the borrower and by requiring appraisals pursuant to government regulations.

The Company originates direct and indirect consumer loans, primarily automobile loans, to customers in its primary market areas.

Credit approval for consumer loans requires income sufficient to repay principal and interest due, stability of employment, an established credit record and sufficient collateral for secured loans.

The Company originates direct and indirect consumer loans, primarily automobile loans, to customers in the Company's primary market areas.

Credit approval for consumer loans requires income sufficient to repay principal and interest due, stable employment, an established credit record and sufficient collateral for secured loans.

Consumer loans typically have shorter terms and lower balances with higher yields as compared to real estate mortgage loans, but generally carry higher risks of default.

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Park's commercial loan portfolio includes loans to a wide variety of corporations and businesses across many industrial classifications in the 26 Ohio counties, three North Carolina counties, four South Carolina counties and one Kentucky county where PNB operates, with the exception of nationwide aircraft loans and nationwide asset-based lending to consumer finance companies.

The primary industries represented by these customers include real estate rental and leasing, finance and insurance, construction, agriculture, forestry, fishing and hunting, manufacturing, retail trade, health care, accommodation and food services and other services.

Purchased Credit Impaired Loans

The primary industries represented by these customers include real estate rental and leasing, finance and insurance, construction, health care and social assistance, accommodation and food services, manufacturing, other services, retail trade, and agriculture, forestry, fishing and hunting.

The Company has purchased loans, some of which have shown evidence of credit deterioration since origination.

These PCI loans are recorded at fair value at inception, such that there is no carryover of the sellers' allowance for loan losses.

After acquisition, losses are recognized by an increase in the allowance for loan losses.

PCI loans are accounted for individually or aggregated into pools of loans based on common characteristics.

The Company estimates the amount and timing of expected cash flows for each loan or pool and the expected cash flows in excess of the amount paid is recorded as interest income over the remaining life of the loan (accretable yield).

The excess of the loan’s or pool's contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan or pool, expected cash flows continue to be estimated.

If the present value of expected cash flows is less than the carrying amount, a loss is recorded as a provision for loan losses.

If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

Allowance for Loan Losses

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.

The allowance for loan losses includes both (1) an estimate of loss based on historical loss experience within both commercial and consumer loan categories with similar characteristics (“statistical allocation”) and (2) an estimate of loss based on an impairment analysis of each commercial loan that is considered to be impaired (“specific allocation”).

Included in the statistical allocation is a reserve for TDRs within the consumer loan portfolio.

Management performs a periodic evaluation to ensure the reserve calculated utilizing the statistical allocation is consistent with a reserve calculated under Accounting Standards Codification ("ASC") 310-10 - Receivables .

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 (“historical loss experience”), 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.

GAAP requires a specific allocation to be established as a component of the allowance for loan losses for certain loans when it is probable that all amounts due pursuant to the contractual terms of the loans will not be collected, and the recorded investment in the loans exceeds their measure of impairment.

Management considers the following related to commercial loans when determining if a loan should be considered impaired :

(1) current debt service coverage levels of the borrowing entity;

payment history over the most recent 12-month period;

(3) other signs of deterioration in the borrower’s financial situation, such as changes in credit scores;

and (4) global cash flows of financially sound guarantors that have previously supported loan payments.

The recorded investment is the balance of the loan, plus accrued interest receivable.

Impairment is measured using either the present value of expected future cash flows based upon the initial effective interest rate on the loan, or the fair value of the collateral.

If a loan is considered to be collateral dependent, the fair value of collateral, less estimated selling costs, is used to measure impairment.

Loans acquired as part of the acquisition of NewDominion Bank were recorded at fair value on the date of acquisition, July 1, 2018.

Loans acquired as part of the acquisition of Carolina Alliance Bank were recorded at fair value on the date of acquisition, April 1, 2019.

An allowance is only established on acquired NewDominion Bank loans and Carolina Alliance Bank loans as a result of credit deterioration post acquisition.

As of December 31, 2020, there was a $ 678,000 allowance related to performing acquired NewDominion Bank loans and Carolina Alliance Bank loans.

Upon adoption of ASC 326, Park elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account.

Loans are only removed from the existing pools if they are written off, paid off, or sold.

Upon adoption of ASC 326, the allowance for credit losses was determined for each pool and added to the pool's carrying amount to establish a new amortized cost basis.

The difference between the unpaid principal balance of the pool and the new amortized cost basis is the noncredit premium or discount, which will be amortized into interest income over the remaining life of the pool.

Changes to the allowance for credit losses after adoption are recorded through provision for credit loss expense.

The ACL is a valuation account that is deducted from the amortized cost of total loans to present the net amount expected to be collected on the loans.

Loans are charged off against the allowance when management believes that the uncollectibility of a loan balance is confirmed.

Expected recoveries cannot not exceed the aggregate of the amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant and available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical credit loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.

ACL - Loans - Collectively Evaluated

The ACL is measured on a collective pool basis when similar risk characteristics exist.

Park has identified the following portfolio segments and measures the allowance for credit losses using the following methods:

Portfolio Segment Measurement Method Loss Driver

Commercial, financial and agricultural

Commercial, financial and agricultural Discounted Cash Flow Ohio Unemployment, Ohio GDP

PPP loans Other Not Applicable

Overdrafts Historical Loss Experience Not Applicable

Commercial real estate Discounted Cash Flow Ohio Unemployment, Ohio GDP

Construction real estate:

Commercial Discounted Cash Flow Ohio Unemployment, Ohio GDP

Retail Discounted Cash Flow Ohio Unemployment, Ohio GDP

Residential real estate:

Commercial Discounted Cash Flow Ohio Unemployment, Ohio HPI

Mortgage Discounted Cash Flow Ohio Unemployment, Ohio HPI

HELOC Discounted Cash Flow Ohio Unemployment, Ohio HPI

Installment Discounted Cash Flow Ohio Unemployment, Ohio HPI

Consumer Discounted Cash Flow Ohio Unemployment, Ohio GDP

GFSC Discounted Cash Flow Ohio Unemployment, Ohio GDP

Check loans Historical Loss Experience Not Applicable

Leases Remaining Life Not Applicable

Expected credit losses are estimated over the contractual term of the loans, adjusted for prepayments when appropriate.

The contractual term excludes extensions, renewals, and modifications unless either of the following applies:

management has a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by Park.

In general, Park utilized a DCF method to estimate the quantitative portion of the allowance for credit losses for loans evaluated on a collective pooled basis.

For each segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows.

The LDA utilized Park's own Federal Financial Institutions Examination Council's ("FFIEC") Call Report data for the commercial, financial and agricultural and residential real estate segments.

Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer segments.

In creating the DCF model, Park established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.

Park's policy is to utilize its own data, which includes loan-level loss data from 2013 through December 31, 2021, whenever possible.

Park and peer FFIEC Call Report data are utilized when there are insufficient defaults for a statistically sound calculation, or if Park does not have its own loan-level detail reflecting similar economic conditions as the forecasted loss drivers.

Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, and loss history, and forecasted loss drivers.

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 weighting of the scenarios is evaluated on a quarterly basis considering the various scenarios in the context of the current economic environment and presumed risk of loss.

Additional key assumptions in the DCF model include the PD, LGD, and prepayment/curtailment rates.

When possible, Park utilizes its own PDs for the reasonable and supportable forecast period.

When it is not possible to use Park's own PDs, the LDA is utilized to determine PDs based on the forecasted economic factors.

In all cases, the LDA is then utilized to determine the long-term historical average, which is reached over the reversion period.

When possible, Park's utilizes its own 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.

The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the level of PD forecasted.

In all cases, the Frye Jacobs method is utilized to calculate LGDs during the reversion period and long-term historical average.

Prepayment and curtailment rates were calculated based on Park's own data utilizing a three-year average.

When the discounted cash flow method is used to determine the allowance for credit losses, management incorporates expected prepayments to determine the effective interest rate utilized to discount expected cash flow.

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;

• 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;

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

• The quality of Park's credit review function;

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

• The effect of other external factors such as the regulatory, legal and technological environments, competition, 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).

Allowance for Credit Losses - Loans - Individually Evaluated

Loans that do not share risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation.

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 establishes 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, adjusted for selling costs as appropriate.

Allowance for Credit Losses - Off-Balance Sheet Credit Exposures

Park estimates expected credit losses over the contractual period in which Park is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by Park.

The allowance for credit losses on off-balance sheet credit exposures is adjusted within "Miscellaneous other expense" on the Consolidated Statements of Income.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over the commitments' respective estimated lives.

Funding rates are based on a historical analysis of Park's portfolio, while estimates of credit losses are determined using the same loss rates as funded loans.

Troubled Debt Restructurings ("TDRs")

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A court's discharge of a borrower's debt in a Chapter 7 bankruptcy is considered a concession when the borrower does not reaffirm the discharged debt.

Additionally, Park is working with borrowers impacted by the COVID-19 pandemic and providing modifications to include

either interest only deferral or principal and interest deferral, in each case, for initial periods up to 90 days.

As necessary, Park

is making available a second 90-day interest only deferral or principal and interest deferral bringing the total potential deferral

period to six months.

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.

In accordance with this guidance, such

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

TDRs are measured at the present value of estimated future cash flows using the loan’s effective rate at inception, or if a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.

Commercial TDRs are separately identified for impairment disclosures.

Additionally, Park has worked with borrowers impacted by the COVID-19 pandemic and provided modifications in the form of either interest only deferral or principal and interest deferral, in each case, for initial periods 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.

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

In accordance with this guidance, such modified loans will be considered current and will continue to accrue interest during the deferral period.

Premises and Equipment

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Premises and equipment are carried at cost, less accumulated depreciation and amortization.

Depreciation is generally provided on the straight-line method over the estimated useful lives of the related assets.

Depreciation is generally provided on the straight-line method over the estimated useful lives of

the related assets.

Leasehold improvements are amortized over the shorter of the remaining lease period or the estimated useful lives of the improvements.

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Equipment, furniture and fixtures 3 to 12 Years

Software 3 Years

Leasehold improvements Shorter of the remaining lease period or the estimated useful life of the improvement

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OREO is initially recorded at fair value less anticipated selling costs (net realizable value), establishing a new cost basis, and consists of property acquired through foreclosure and real estate held for sale.

If the net realizable value is below the carrying value of the loan at the date of transfer, the difference is charged to the allowance for loan losses.

If the net realizable value is below the carrying value of the loan at the date of transfer, the difference is charged to the allowance for credit losses.

These assets are subsequently accounted for at the lower of cost or fair value less costs to sell.

Subsequent changes in the value of real estate are classified as OREO valuation adjustments, are reported as adjustments to the carrying amount of OREO and are recorded within “Other income”.

In certain circumstances

where management believes the devaluation may not be permanent in nature, Park utilizes a valuation allowance to record OREO devaluations, which is also expensed through “Other income”.

Costs relating to development and improvement of such properties are capitalized (not in excess of fair value less estimated costs to sell) and costs relating to holding the properties are charged to "Other expense".

Subsequent changes in the value of real estate are classified as OREO valuation adjustments, are reported as adjustments to the carrying amount of OREO, and recorded within the line item “Other income”.

In certain circumstances where management believes the devaluation may not be permanent in nature, Park utilizes a valuation allowance to record OREO devaluations, which is also expensed through the line item “Other income”.

Costs relating to development and improvement of such properties are capitalized (not in excess of fair value less estimated costs to sell), and costs relating to holding the properties are charged to the line item "Other expense".

Foreclosed Assets

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Mortgage Servicing Rights

When Park sells mortgage loans with servicing retained, MSRs are recorded at fair value with the income statement effect recorded in "Other service income." Capitalized MSRs are amortized in proportion to and over the period of the estimated future servicing income of the underlying loan and are included within “Other service income”.

When Park sells mortgage loans with servicing retained, MSRs are recorded at fair value with the income statement effect recorded in "Other service income".

Capitalized MSRs are amortized in proportion to and over the period of the estimated future servicing income of the underlying loan and are included within “Other service income”.

MSRs are assessed for impairment quarterly, based on fair value, with any impairment recognized through a valuation allowance.

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Goodwill is not amortized to expense, but is 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 the performance of additional analysis is unnecessary.

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.

Park evaluates goodwill for impairment on April 1 of each year, with financial data as of March 31.

Based on the qualitative analysis performed as of April 1, 2020, the Company determined that goodwill for PNB was not impaired.

During each of the second, third and fourth quarters of 2020, management determined that the deterioration in general economic conditions as a result of the COVID-19 pandemic and responses thereto represented a triggering event prompting an evaluation of goodwill for impairment.

Based on the qualitative analysis performed during each of the second, third and fourth quarters of 2020, the Company determined that goodwill was not impaired.

Management continues to monitor economic factors to evaluate goodwill impairment.

(See Note 8 - Goodwill and Other Intangible Assets and Note 30 - Segment Information for operating segment results.)

Other intangible assets consist of core deposit intangibles and a trade name intangible.

Other intangible assets consist of core deposit intangibles.

Core deposit intangibles are amortized on an accelerated basis over a period of ten years.

The trade name intangible when initially recorded, assumed an indefinite useful life.

During 2019, the trade name intangible was deemed impaired, and a $ 1.3 million charge was recorded in "other expense".

(See Note 8 - Goodwill and Other Intangible Assets.)

Consolidated Statements of Cash Flows

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Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Management does not believe there now are such matters that will have a material effect on the financial statements.

The Corporation accounts for income taxes using the asset and liability approach.

Under this method, deferred tax assets and deferred tax liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

To the extent that Park does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is recorded.

All positive and negative evidence is reviewed when determining how much of a valuation allowance is recognized on a quarterly basis.

Management does not believe that there are currently such matters that will have a material effect on the financial statements.

I ncome Taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates.

A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

An uncertain tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination being presumed to occur.

An uncertain tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.

The benefit recognized for a tax position that meets the “more-likely-than-not” criteria is measured based on the largest benefit that is more than 50 percent likely to be realized, taking into consideration the amounts and probabilities of the outcome upon settlement.

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Dividend Restriction

Banking regulations require maintaining certain capital levels and may limit the dividends paid by a bank to its parent holding company or by the parent holding company to its shareholders.

Banking regulations require the maintenance of certain capital levels and may limit the dividends paid by a bank to its parent holding company or by the parent holding company to its shareholders.

(See Note 23 - Dividend Restrictions and Note 28 - Capital Ratios.)

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Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 27 - Fair Value.

Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items.

Fair value estimates involve uncertainties and matters of significant judgment regarding

interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items.

Changes in assumptions or in market conditions could significantly affect the estimates.

At the inception of a derivative contract, Park designates the derivative as one of three types based on its intentions and belief as to the likely effectiveness as a hedge.

At the inception of a derivative contract, Park designates the derivative as one of three types based on Park's intentions and belief as to the likely effectiveness as a hedge.

These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”).

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Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged.

Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-

interest income.

Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income.

Cash flows on hedges are classified in the Consolidated Statements of Cash Flow under the same item as the cash flows of the items being hedged.

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The documentation includes linking cash flow hedges to specific assets and liabilities on the Consolidated Balance Sheets.

Park also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items.

Park discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.

Park also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used are highly effective in offsetting changes in cash flows of the hedged items.

Park discontinues hedge accounting when it determines that a derivative is no longer effective in offsetting cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income.

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The Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position.

The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements.

The Company anticipates that the counterparties will be able to fully satisfy their obligations under the outstanding agreements.

All the contracts to which the Company is party settle monthly or quarterly.

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Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under restricted stock unit awards.

Earnings and dividends per common share are restated for any stock splits and stock dividends through the date of issuance of the consolidated financial statements.

(See Note 18 - Share-Based Compensation and Note 22 - Earnings Per Common Share.)

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The Corporation is a financial holding company headquartered in Newark, Ohio.

The operating segments for the Corporation are its chartered national bank subsidiary, PNB (headquartered in Newark, Ohio) and GFSC.

The reportable segment for the Corporation is its chartered national bank subsidiary, PNB (headquartered in Newark, Ohio).

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

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Adoption of New Accounting Pronouncements

ASU 2018-13 - Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement:

In August 2018, the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement .

This ASU modifies the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement by removing, modifying and adding certain requirements.

The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The adoption of this guidance on January 1, 2020 did not have an impact on Park’s consolidated financial statements, but did impact disclosures.

ASU 2020-04 - Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting:

In March 2020, the FASB issued ASU 2020-04 - Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The amendments in this ASU are effective from March 12, 2020 through December 31, 2022.

The adoption of this guidance did not have a material impact on Park's consolidated financial statements, but Park will consider this guidance as contracts are transitioned from LIBOR to another reference rate.

ASU 2021-01 - Reference Rate Reform (Topic 848):

In January 2021, the FASB issued ASU 2021-01 - Reference Rate Reform (Topic 848):

This ASU clarifies the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848.

The amendments in this ASU are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform.

The amendments in this ASU are effective immediately for all entities.

Issued But Not Yet Effective Accounting Standards

ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments:

In June 2016, the FASB issued ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The new accounting guidance in this ASU replaces the incurred loss methodology with an expected loss methodology, which is referred to as the current expected credit loss ("CECL") methodology.

Effective January 1, 2021, Park adopted ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") ("ASC 326"), as amended.

The new accounting guidance in ASU 2016-13 replaces the incurred loss methodology with an expected loss methodology, which is referred to as the current expected credit loss ("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.

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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 4014 of the CARES Act provided financial institutions with optional temporary relief from having to comply with ASU 2016-13 ("Measurement of Credit Losses on Financial Instruments") including the CECL methodology for estimating the allowance for credit losses.

The new accounting guidance was to have originally been effective for Park for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019.

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, modifies the CARES Act so that the 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.

At adoption, Park did not have any securities classified as HTM debt securities.

No allowance was recorded related to AFS debt securities at the date of adoption, 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.

The Consolidated Appropriations Act, 2021, modified 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 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.

Park adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

Results for reporting periods beginning on and after after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with the then applicable U.S.

Park recorded a net decrease to retained earnings of $ 8.0 million as of January 1, 2021 for the cumulative effect of adopting ASC 326.

Park adopted ASC 326 using the prospective transition approach for financial assets PCD that were previously classified as PCI and accounted for under ASC 310-30.

In accordance with ASC 326, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

On January 1, 2021, the amortized cost basis of the PCD assets was adjusted to reflect the addition of $ 52,000 to the allowance for credit losses.

The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2021.

As permitted by ASC 326, Park elected to maintain pools of loans accounted for under ASC 310-30.

In accordance with ASC 326, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were TDRs as of the date of adoption.

The following table illustrates the impact of ASC 326:

January 1, 2021

(In thousands) As Reported Under ASC 326 Pre-ASC 326 Adoption Impact of ASC 326 Adoption

Loans $ 7,177,666 $ 7,177,785 $ ( 119 )

Commercial, financial and agricultural 17,351 25,608 ( 8,257 )

Commercial real estate 25,599 23,480 2,119

Construction real estate 5,390 7,288 ( 1,898 )

Residential real estate 14,484 11,363 3,121

Consumer 28,343 17,418 10,925

Leases 598 518 80

Total ACL on loans $ 91,765 $ 85,675 $ 6,090

ACL on off-balance sheet commitments $ 3,982 $ 116 $ 3,866

Net deferred tax liability 777 2,892 ( 2,115 )

Shareholders' equity:

$ 1,032,300 $ 1,040,256 $ ( 7,956 )

ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20):

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The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing disclosures that are no longer considered cost beneficial, clarifying the specific requirements of disclosures and adding disclosure requirements identified as relevant.

The amendments in ASU 2018-14 are effective for fiscal years ending after December 15, 2020.

The adoption of this guidance on January 1, 2021 did not have an impact on Park’s consolidated financial statements, but will impact disclosures.

ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses:

In November 2018, the FASB issued ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses.

The amendment in ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20.

Impairment of receivables arising from operating leases are to be accounted for in accordance with Topic 842, Leases.

Park will consider this clarification in determining the appropriate adoption of ASU 2016-13.

ASU 2019-04 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments:

In April 2019, the FASB issued ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.

ASU 2019-04 includes amendments that clarify or address specific issues about certain aspects of the amendments in ASU 2016-01, Financial Instruments - Overall (Subtopic 925-10):

Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, and ASU 2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities.

Park has already adopted ASU 2016-01.

As a result, certain provisions in the amendments within ASU 2019-04 related to the same topics as ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The adoption of the provisions related to the same topics as ASU 2016-01 on January 1, 2020, did not have a material effect on Park's consolidated financial statements.

For the amendments related to Topic 326 that clarify or address specific aspects of ASU 2016-13, Park will consider these clarifications in determining the appropriate adoption of ASU 2016-13.

Park has already adopted ASU 2017-12.

As a result, the amendments within ASU 2019-04 were effective as of January 1, 2020.

This ASU allows entities, like Park, that did not reclassify debt securities from HTM to AFS upon the adoption of ASU 2017-12 to reclassify these securities as of the adoption of ASU 2019-04.

Park considered this option and, effective September 1, 2019, reclassified all HTM debt securities to AFS.

The transfer occurred at fair value and resulted in an unrealized gain, net of taxes, of $ 19.1 million being recorded in other comprehensive income.

ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326):

In May 2019, the FASB issued ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326).

The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326.

Park will consider this amendment in determining the appropriate adoption of ASU 2016-13.

ASU 2019-11 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses:

In November 2019, the FASB issued ASU 2019-11 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses .

ASU 2019-11 represents changes to clarify, correct errors in, or improve the ASC related to five topics.

The amendments make the ASC easier

to understand and easier to apply by eliminating inconsistencies and providing clarifications.

Park will consider these clarifications and improvements in determining the appropriate adoption of ASU 2016-13.

The amendments in ASU 2018-14 were effective for fiscal years ended after December 15, 2020.

The adoption of this guidance on January 1, 2021 did not have an impact on Park’s consolidated financial statements, but did impact disclosures.

ASU 2019-20 - Income Taxes (Topic 740):

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The adoption of this guidance on January 1, 2021, did not have a material impact on Park's consolidated financial statements.

ASU 2020-02 - Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842):

In February 2020, the FASB issued ASU 2020-02 - Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842) .

ASU 2020-02 represents changes to clarify or improve the ASC.

The amendments make the ASC easier to understand and easier to apply by eliminating inconsistencies and providing clarifications.

It also addresses transition and open effective date information for Topic 842.

Park will consider these clarifications and improvements in determining the appropriate adoption of ASU 2016-13.

ASU 2020-03 - Codification Improvements to Financial Instruments:

In March 2020, the FASB issued ASU 2020-03 - Codification Improvements to Financial Instruments .

ASU 2020-03 represents changes to clarify or improve the ASC related to seven topics.

The amendments make the ASC easier to understand and easier to apply by eliminating inconsistencies and providing clarifications.

Issues 1, 2, 3, 4 and 5 are conforming amendments and for public entities were effective upon the issuance of the standard.

Issues 6 and 7 are amendments that affect the guidance in ASU 2016-13.

Park will consider these clarifications and improvements in determining the appropriate adoption of ASU 2016-13.

ASU 2020-04 - Reference Rate Reform (Topic 848):

Facilitation of the Effect of Reference Rate Reform on Financial Reporting :

In March 2020, the FASB issued ASU 2020-04 - Reference Rate Reform (Topic 848):

Facilitation of the Effect of Reference Rate Reform on Financial Reporting .

The amendments in this ASU provide optional expedients and exceptions to applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform if certain criteria are met.

The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022.

ASU 2020-08 - Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs:

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The adoption of this guidance on January 1, 2021, did not have a material impact on Park's consolidated financial statements.

ASU 2021-01 - Reference Rate Reform (Topic 848):

In January 2021, the FASB issued A SU 2021-01 - Reference Rate Reform (Topic 848):

This ASU clarifies the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848.

The amendments in this ASU are effective immediately for all entities.

ASU 2021-06 - Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946):

In August 2021, FASB issued ASU 2021-06 - Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946) .

ASU 2021-06 updates the codification to align with SEC Final Rule Releases No.

33-10786 and No.

Specific to financial institutions, these SEC releases updated required annual statistical disclosures.

The amendments in ASU 2021-06 were effective immediately.

Park has updated the statistical disclosures in its Annual Report on Form 10-K for the fiscal year ending December 31, 2021, to align with this guidance.

Issued But Not Yet Effective Accounting Standards

There are no issued but not yet effective accounting standards impacting Park as of December 31, 2021.

Park National Corporation is a financial holding company headquartered in Newark, Ohio.

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SEPH holds the remaining assets and liabilities retained by Vision subsequent to the sale.

SEPH also holds

OREO that had previously been transferred to SEPH from Vision.

SEPH also holds OREO that had previously been transferred to SEPH from Vision.

SEPH's assets consist primarily of nonperforming loans and OREO.

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See Note 29-Segment Information for financial information on the Corporation’s operating segments.

Business Combinations

CAB Financial Corporation

On April 1, 2019, CAB Financial Corporation, a South Carolina corporation, merged with and into Park, with Park continuing as the surviving entity pursuant to the Agreement and Plan of Merger and Reorganization (the "CABF Merger Agreement"), dated as of September 12, 2018, by and between Park and CABF.

Immediately following the CABF merger into Park, Carolina Alliance Bank, a South Carolina state-chartered bank and a wholly-owned subsidiary of CABF, was merged with and into PNB, with PNB as the surviving bank.

In accordance with the CABF Merger Agreement, CABF shareholders were to receive for each share of their CABF common stock (i) $ 3.80 in cash (the cash consideration) and (ii) 0.1378 of a Park common share (the stock consideration).

CABF stock options and restricted stock awards were fully vested (with any performance-based vesting condition deemed satisfied) and canceled and converted automatically into the right to receive merger consideration.

Purchase consideration consisted of 1,037,205 Park common shares, valued at $ 98.3 million, and $ 28.6 million in cash to acquire 100% of CABF's outstanding shares of common stock.

The acquisition is expected to provide additional revenue growth and geographic diversification.

Carolina Alliance's results of operations were included in Park's results beginning April 1, 2019.

For the years ended December 31, 2020 and 2019, Park recorded merger-related expenses of $ 603,000 and $ 8.8 million, respectively, associated with the Carolina Alliance acquisition.

Goodwill of $ 46.9 million arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of PNB and Carolina Alliance.

The goodwill is not deductible for income tax purposes as the transaction was accounted for as a tax-free exchange.

The following table summarizes the consideration paid for Carolina Alliance and the amounts of the assets acquired and liabilities assumed at their fair value:

(in thousands)

Consideration

Cash $ 28,630

Park common shares 98,275

Fair value of total consideration transferred $ 126,905

Recognized amounts of identifiable assets acquired and liabilities assumed

Cash and cash equivalents $ 23,799

Securities 97,606

Loans 578,577

Premises and equipment 8,337

Core deposit intangibles 8,207

Other assets 32,123

Total assets acquired $ 748,649

Deposits $ 632,649

Other liabilities 35,951

Total liabilities assumed 668,600

Net identifiable assets 80,049

Goodwill $ 46,856

Park accounted for the Carolina Alliance acquisition using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date, in accordance with FASB ASC Topic 805, Business Combinations.

The fair value of net assets acquired includes fair value adjustments to loans that were not considered impaired as of the acquisition date.

The fair value adjustments were determined using discounted contractual cash flows.

However, Park believes that all contractual cash flows related to these loans will be collected.

As such, these loans were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans which have shown evidence of credit deterioration since origination.

Loans acquired that were not subject to these requirements included non-impaired loans with a fair value and gross contractual amounts receivable of $ 560.2 million and $ 572.6 million, respectively, on the date of acquisition.

The table below presents information with respect to the fair value of acquired loans as well as their book balance at the acquisition date.

(in thousands) Book Balance Fair Value

Commercial, financial and agricultural $ 80,895 $ 80,580

Commercial real estate 281,425 273,855

Construction real estate:

Commercial 43,106 42,176

Mortgage 11,130 10,633

Residential real estate:

Commercial 48,546 48,684

Mortgage 30,519 30,969

HELOC 40,825 39,853

Consumer 4,813 4,647

Leases 28,589 28,781

Purchased credit impaired 19,850 18,399

Total loans $ 589,698 $ 578,577

The following table presents supplemental pro forma information as if the Carolina Alliance acquisitions had occurred as of January 1, 2018.

The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the respective transactions, depreciation expense on property acquired, interest expense on deposits acquired, and the related tax effects.

The pro forma information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed date.

Twelve months ended December 31,

(dollars in thousands, except per share data) 2019 2018

Net interest income $ 304,540 $ 295,656

Net income 111,463 118,679

Basic earnings per share 6.76 7.18

Diluted earnings per share 6.72 7.12

Investment Securities

The amortized cost and fair value of investment securities are shown in the following tables.

Management performs a quarterly evaluation of investment securities for any other-than-temporary impairment.

During 2020, 2019 and 2018, there were no investment securities deemed to be other-than-temporarily impaired.

"Debt securities" and "Other investment securities" are summarized below.

Debt Securities

Investment securities at December 31, 2020 and December 31, 2019 were as follows:

The following table summarizes the amortized cost and fair value of debt securities at December 31, 2021 and December 31, 2020 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss).

There was no related allowance for credit losses at December 31, 2021.

(In thousands) Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value

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Government sponsored entities’ asset-backed securities 849,114 13,437 8,088 854,463

Collateralized loan obligations 500,066 3 1,395 498,674

Corporate debt securities 11,250 169 7 11,412

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Government sponsored entities’ asset-backed securities 726,589 26,248 728 752,109

Corporate debt securities 2,000 14 — 2,014

$ 1,007,834 $ 52,235 $ 728 $ 1,059,341

The following table provides detail on investment securities with unrealized losses aggregated by investment category and length of time the individual securities had been in a continuous loss position at December 31, 2020 and December 31, 2019:

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 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.

All debt securities were classified as AFS at December 31, 2021 and December 31, 2020.

The following table provides detail on investment securities in an unrealized loss position for which an allowance for credit losses has not been recorded at December 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position:

Less than 12 Months 12 Months or Longer Total

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Debt Securities Available-for-Sale

Obligations of states and political subdivisions $ 1,834 $ 24 $ — $ — $ 1,834 $ 24

Government sponsored entities’ asset-backed securities 333,653 4,996 73,431 3,092 407,084 8,088

$ 86,393 $ 695 $ 4,727 $ 33 $ 91,120 $ 728

Collateralized loan obligations 429,671 1,395 — — 429,671 1,395

Corporate debt securities 2,243 7 — — 2,243 7

$ 767,401 $ 6,422 $ 73,431 $ 3,092 $ 840,832 $ 9,514

Investment securities in an unrealized loss position at December 31, 2020, were as follows:

Less than 12 Months 12 Months or Longer Total

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Total $ 86,393 $ 695 $ 4,727 $ 33 $ 91,120 $ 728

Management does not believe any individual unrealized loss as of December 31, 2020 or 2019 represented an other-than-temporary impairment.

The unrealized loss on agency issued debt securities are primarily the result of interest rate changes.

These conditions will not prohibit Park from receiving its contractual principal and interest payments on these debt securities.

The fair value of these debt securities is expected to recover as payments are received on these securities and they approach maturity.

Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss attributable to credit will be recognized in net income in the period the other-than-temporary impairment is identified.

The amortized cost and estimated fair value of investments in debt securities at December 31, 2020, are shown in the following table by contractual maturity, except for asset-backed securities, which are shown as a single total, due to the unpredictability of the timing in principal repayments.

At December 31, 2021, Park’s debt security portfolio consisted of $ 1.8 billion of securities, $ 840.8 million of which were in an unrealized loss position with unrealized losses of $ 9.5 million.

Of the $ 840.8 million of securities in an unrealized loss position, $ 73.4 million were in an unrealized loss position for 12 months or longer.

The majority of the unrealized losses were related to Park’s U.S.

Government sponsored entities' asset-backed securities portfolio.

Unrealized losses have not been recognized into earnings as they represent negative adjustments to fair value relative to the rate of interest paid on the securities and not losses related to the creditworthiness of the respective issuers.

Management does not intend to sell, and it is not more likely than not that management would be required to sell, the securities prior to their anticipated recovery.

Management believes the value will recover as the securities approach maturity or market rates change.

There was no allowance for credit losses recorded for debt securities AFS at December 31, 2021.

Additionally, for the years ended December 31, 2021, 2020, and 2019, there were no credit-related investment impairment losses recognized.

The amortized cost and estimated fair value of investments in debt securities at December 31, 2021, are 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.

(In thousands) Amortized Cost Fair Value Tax Equivalent Yield (1)

Debt Securities Available-for-Sale

Corporate debt securities

Due five through ten years $ 2,000 $ 2,014 4.00 %

Obligations of states and political subdivisions

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Government sponsored entities’ asset-backed securities $ 849,114 $ 854,463 1.73 %

Collateralized loan obligations $ 500,066 $ 498,674 1.61 %

Corporate debt securities

Due five through ten years $ 11,250 $ 11,412 3.93 %

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

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Government and its agencies, in an amount greater than 10 % of shareholders’ equity.

There were no sales of AFS debt securities during 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 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.

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 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.

During 2019, Park sold certain AFS debt securities with a book value of $ 62.4 million at a gross loss of $ 0.7 million and sold certain AFS debt securities with a book value of $ 29.1 million at a gross gain of $ 271,000 .

Other Investment Securities

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

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

The FHLB and FRB restricted stock investments are carried at their redemption value.

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During the year ended December 31, 2020, the FHLB repurchased 79,697 shares of FHLB stock with a book value of $ 8.0 million.

Additionally, during 2019, Park acquired Carolina Alliance's FHLB shares which were subsequently repurchased by the FHLB.

No shares of FRB stock were purchased or sold in 2020.

During the year ended December 31, 2019, the FHLB repurchased 133,281 shares of FHLB stock with a book value of $ 13.3 million.

Park purchased 128,553 shares of FRB stock with a book value of $ 6.4 million in 2019.

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 the Consolidated Statements of Income.

An additional $ 3.5 million gain recorded within "Gain on equity securities, net" on the Consolidated Statement of Income for the year ended December 31, 2018 relates 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 the 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 the Consolidated Statements of Income.

The composition of the loan portfolio, by class of loan, as of December 31, 2020 and December 31, 2019 was as follows:

The composition of the loan portfolio at December 31, 2021 and December 31, 2020 was as follows:

December 31, 2021 December 31, 2020

(In thousands) Amortized Cost Amortized Cost Accrued Interest Receivable Recorded Investment

Commercial, financial and agricultural:

1,588,989 $ 6,528 $ 1,595,517

(In thousands) Loan Balance Accrued Interest Receivable Recorded Investment Loan Balance Accrued Interest Receivable Recorded Investment

Commercial, financial and agricultural (1)

$ 1,223,079 (2) (2) (2)

PPP loans 74,420 (2) (2) (2)

Overdrafts 1,127 (2) (2) (2)

Commercial real estate (1)

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Construction real estate:

226,991 572 227,563 233,637 826 234,463

115,492 232 115,724 96,574 228 96,802

938 3 941 1,488 4 1,492

Commercial 214,561 226,991 $ 572 $ 227,563

Retail 107,225 116,430 $ 235 $ 116,665

Residential real estate:

526,222 1,161 527,383 479,081 1,339 480,420

1,096,358 947 1,097,305 1,176,316 1,381 1,177,697

182,028 647 182,675 224,766 1,113 225,879

8,436 22 8,458 12,563 32 12,595

1,659,704 4,510 1,664,214 1,452,375 4,314 1,456,689

24,438 14 24,452 30,081 20 30,101

Commercial 533,802 526,222 $ 1,161 $ 527,383

Mortgage 1,033,658 1,096,358 $ 947 $ 1,097,305

HELOC 165,605 182,028 $ 647 $ 182,675

Installment 5,642 8,436 $ 22 $ 8,458

1,659,704 $ 4,510 $ 1,664,214

* Included within commercial, financial and agricultural loans and commercial real estate loans was an immaterial amount of consumer loans that were not broken out by class.

In order to support customers, Park participated in the CARES Act Paycheck Protection Program ("PPP"), approving and funding 4,439 loans totaling $ 543.1 million under the PPP.

Included within commercial, financial and agricultural loans are $ 337.1 million of PPP loans at December 31, 2020 .

For its assistance in originating and retaining these loans, Park received an aggregate of $ 20.2 million in fees from the SBA.

Of this $ 20.2 million of PPP fees, Park recognized $ 13.7 million during the year ended December 31, 2020 .

Consumer 1,685,793 (2) (2) (2)

GFSC 1,793 (2) (2) (2)

Check loans 2,093 (2) (2) (2)

Leases 20,532 24,438 $ 14 $ 24,452

Total $ 6,871,122 $ 7,177,785 $ 20,653 $ 7,198,438

Allowance for credit losses ( 83,197 ) ( 85,675 )

Net loans $ 6,787,925 $ 7,092,110

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

(2) Results for reporting periods beginning after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S.

Category was not broken out as a separate class at December 31, 2020.

In order to support customers, Park participated in the CARES Act Paycheck Protection Program ("PPP").

PPP loans were broken out as a separate class as of December 31, 2021.

Included within commercial, financial and agricultural loans as of December 31, 2020 were $ 331.6 million of PPP loans.

For its assistance in originating the first round of PPP loans during 2020, Park received an aggregate of $ 20.2 million in fees from the SBA, and for its assistance in originating additional PPP loans during 2021, Park received an aggregate of $ 12.9 million in fees from the SBA.

During the years ended December 31, 2021 and December 31, 2020, $ 16.3 million and $ 13.7 million, respectively, of PPP fee income was recognized within loan interest income.

There was no PPP fee income earned during the year ended December 31, 2019.

Loans are shown net of deferred origination fees, costs and unearned income of $ 19.5 million at December 31, 2021, and of $ 23.6 million at December 31, 2020, which represented a net deferred income position in both years.

At December 31, 2020, included in the net deferred origination fees, costs and unearned income of $ 23.6 million were $ 6.5 million in net origination fees related to PPP loans.

At December 31, 2021 and December 31, 2020, included in the net deferred origination fees, costs and unearned income were $ 2.8 million and $ 6.5 million, respectively, in net origination fees related to PPP loans.

At December 31, 2021 and December 31, 2020, loans included purchase accounting adjustments of $ 4.2 million and $ 7.2 million, respectively, which represented a net deferred income position at each date.

This fair market value purchase accounting adjustment related to loans which are not PCI is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.

Overdrawn deposit accounts of $ 2.0 million and $ 2.2 million had been reclassified to loans at December 31, 2020 and December 31, 2019, respectively, and are included in the commercial, financial and agricultural loan class above.

This fair market value purchase accounting adjustment is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.

Overdrawn deposit accounts of $ 1.1 million and $ 2.0 million were reclassified to loans at December 31, 2021 and December 31, 2020, respectively.

As of December 31, 2021, overdrafts were within their own class and as of December 31, 2020, overdrafts were included in the commercial, financial and agricultural loan segment in the previous table.

Credit Quality

The following table presents the recorded investment in nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing by class of loan as of December 31, 2020 and December 31, 2019:

(In thousands) Nonaccrual Loans Accruing TDRs Loans Past Due 90 Days or More and Accruing Total Nonperforming Loans

The following table presents the amortized cost of nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing, by class of loan, at December 31, 2021:

December 31, 2021

(In thousands) Nonaccrual

Loans Accruing

TDRs Loans Past Due

and Accruing Total

Nonperforming

Commercial, financial and agricultural:

Commercial, financial and agricultural $ 13,271 $ 9,396 $ — $ 22,667

PPP loans — — 793 793

Overdrafts — — — —

Commercial real estate 40,142 7,713 — 47,855

Construction real estate:

3,110 — — 3,110

Commercial 52 169 — 221

Retail 716 9 — 725

Residential real estate:

4,304 253 — 4,557

14,016 8,400 416 22,832

1,286 909 77 2,272

184 1,728 — 1,912

Commercial 2,366 240 — 2,606

Mortgage 11,718 7,779 372 19,869

HELOC 1,590 803 — 2,393

Installment 82 1,508 — 1,590

Consumer 1,518 700 431 2,649

GFSC 79 6 11 96

Check loans — — — —

Leases 1,188 — — 1,188

Total loans $ 72,722 $ 28,323 $ 1,607 $ 102,652

(In thousands) Nonaccrual Loans Accruing TDRs Loans Past Due 90 Days or More and Accruing Total Nonperforming Loans

The following table presents the recorded investment in nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing, by class of loan, at December 31, 2020:

December 31, 2020

(In thousands) Nonaccrual

Loans Accruing

TDRs Loans Past Due 90 Days or More and Accruing Total

Nonperforming

Commercial, financial and agricultural $ 23,261 5,619 $ — $ 28,880

1 unchanged sentence

Construction real estate:

Commercial 3,110 — — 3,110

Mortgage 14 31 — 45

Residential real estate:

2,025 — — 2,025

15,271 8,826 1,209 25,306

2,062 1,010 44 3,116

462 1,964 — 2,426

Commercial 4,304 253 — 4,557

Mortgage 14,016 8,400 416 22,832

HELOC 1,286 909 77 2,272

Installment 184 1,728 — 1,912

Consumer 2,172 1,017 724 3,913

1 unchanged sentence

Total loans $ 117,368 $ 20,888 $ 1,594 $ 139,850

The following table provides additional information regarding those nonaccrual and accruing TDR loans that are individually evaluated for impairment and those collectively evaluated for impairment as of December 31, 2020 and December 31, 2019.

12/31/2020 12/31/2019

(In thousands)

Nonaccrual and Accruing TDRs Loans Individually Evaluated for Impairment Loans Collectively Evaluated for Impairment Nonaccrual and Accruing TDRs Loans Individually Evaluated for Impairment Loans Collectively Evaluated for Impairment

The following table provides additional detail on nonaccrual loans and the related ACL, by class of loan, at December 31, 2021:

December 31, 2021

(In thousands) Nonaccrual Loans With No ACL Nonaccrual Loans With an ACL Related ACL

Commercial, financial and agricultural:

Commercial, financial and agricultural 11,494 1,777 1,343

PPP loans — — —

Overdrafts — — —

Commercial real estate 39,151 991 188

Construction real estate:

3,110 3,110 — 453 453 —

30 — 30 109 — 109

15 — 15 77 — 77

Commercial 52 — —

Retail — 716 67

Residential real estate:

4,557 4,557 — 2,025 2,025 —

22,416 — 22,416 24,097 — 24,097

2,195 — 2,195 3,072 — 3,072

1,912 — 1,912 2,426 — 2,426

Commercial 2,366 — —

Mortgage — 11,718 73

HELOC — 1,590 99

Installment — 82 24

Consumer — 1,518 393

Check loans — — —

Leases 914 274 43

Total loans $ 53,977 $ 18,745 $ 2,240

All of the loans individually evaluated for impairment were evaluated using the fair value of the collateral or the present value of expected future cash flows as the measurement method.

The following table presents loans individually evaluated for impairment by class of loan as of December 31, 2020 and December 31, 2019.

12/31/2020 12/31/2019

(In thousands) Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated

Nonaccrual commercial loans are evaluated on an individual basis and are excluded from the collective evaluation.

Management’s general practice is to proactively charge down loans individually evaluated to the fair value of the underlying collateral.

Nonaccrual consumer loans are collectively evaluated based on similar risk characteristics.

The following table presents loans individually evaluated for impairment by class of loan as of December 31, 2020:

December 31, 2020

(In thousands) Unpaid Principal Balance Recorded Investment ACL Allocated

With no related allowance recorded

15 unchanged sentences

Total $ 109,062 $ 108,455 $ 5,434

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral.

At December 31, 2020 and December 31, 2019, there were $ 0.6 million and $ 0.5 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $ 16,000 and $ 210,000 , respectively, of partial charge-offs on loans individually evaluated for impairment that also had a specific reserve allocated.

The allowance for loan losses included specific reserves related to loans individually evaluated for impairment at December 31, 2020 and 2019 of $ 5.4 million and $ 5.2 million, respectively.

These loans with specific reserves had a recorded investment of $ 13.9 million and $ 12.7 million as of December 31, 2020 and 2019, respectively.

Interest income on nonaccrual loans individually evaluated for impairment is recognized on a cash basis only when Park

expects to receive the entire recorded investment in the loans.

Interest income on accruing TDRs individually evaluated for

impairment continues to be recorded on an accrual basis.

The following table presents the average recorded investment and

interest income recognized subsequent to impairment on loans individually evaluated for impairment as of and for the years ended December 31, 2020, 2019, and 2018:

Year ended December 31, 2020

(In thousands) Recorded Investment as of December 31, 2020 Average Recorded Investment Interest Income Recognized

The following table provides the amortized cost basis of collateral-dependent loans by class of loan, as of December 31, 2021:

December 31, 2021

(In thousands) Real Estate Business Assets Other Total

Commercial, financial and agricultural

Commercial, financial and agricultural $ 9,321 $ 13,366 $ 156 $ 22,843

Commercial real estate 52,901 37 — 52,938

3 unchanged sentences

Commercial 2,906 — 57 2,963

Consumer — — —

Mortgage 370 — — 370

HELOC 148 — — 148

Leases — 1,211 — 1,211

Total $ 108,455 $ 92,294 $ 2,879

Year ended December 31, 2019

(In thousands) Recorded Investment as of December 31, 2019 Average Recorded Investment Interest Income Recognized

Total loans $ 66,824 $ 14,614 $ 213 $ 81,651

Interest income on nonaccrual loans individually evaluated for impairment is recognized on a cash basis only when Park expects to receive the entire recorded investment in the loans.

Interest income on accruing TDRs individually evaluated for impairment continues to be recorded on an accrual basis.

The following table presents interest income recognized on nonaccrual loans for the year ended December 31, 2021:

Interest Income Recognized

(In thousands) December 31, 2021

Commercial, financial and agricultural:

Commercial, financial and agricultural $ 180

Commercial real estate 1,844

3 unchanged sentences

Commercial 204

Consumer — — —

Leases 134 59 —

Total $ 77,491 $ 57,768 $ 1,893

Year ended December 31, 2018

(In thousands) Recorded Investment as of December 31, 2018 Average Recorded Investment Interest Income Recognized

Installment 2

Total loans $ 2,770

The following table presents the average recorded investment and interest income recognized subsequent to impairment on loans individually evaluated for impairment as of and for the years ended December 31, 2020 and 2019:

December 31, 2020 December 31, 2019

(In thousands) Recorded Investment Average Recorded Investment Interest Income Recognized Recorded Investment Average Recorded Investment Interest Income Recognized

Commercial, financial and agricultural $ 28,836 $ 30,280 $ 735 $ 33,088 $ 21,415 $ 527

5 unchanged sentences

Consumer — — — — — —

Leases 1,595 1,115 — 134 59 —

Total $ 108,455 $ 92,294 $ 2,879 $ 77,491 $ 57,768 $ 1,893

The following tables present the aging of the recorded investment in past due loans as of December 31, 2020 and December 31, 2019 by class of loan.

(In thousands) Accruing Loans Past Due 30-89 Days Past Due Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing (1)

The following table presents the aging of the amortized cost in past due loans at December 31, 2021 by class of loan:

December 31, 2021

(In thousands) Accruing Loans

Past Due 30-89

Days Past Due

Loans and Loans Past

Due 90 Days or

Total Past Due Total Current (2)

Total Recorded Investment

Amortized Cost

Commercial, financial and agricultural:

Commercial, financial and agricultural $ 2,908 $ 9,547 $ 12,455 $ 1,210,624 $ 1,223,079

PPP loans 242 793 1,035 73,385 74,420

Overdrafts — — — 1,127 1,127

Commercial real estate 65 1,461 1,526 1,800,266 1,801,792

1 unchanged sentence

Commercial — — — 214,561 214,561

Mortgage 77 — 77 115,647 115,724

Installment 12 — 12 929 941

Retail 346 660 1,006 106,219 107,225

Residential real estate:

4 unchanged sentences

Consumer 2,614 618 3,232 1,682,561 1,685,793

GFSC 153 52 205 1,588 1,793

Check loans 10 — 10 2,083 2,093

Leases 60 526 586 19,946 20,532

1 unchanged sentence

(1) Includes an aggregate of $ 1.6 million of loans past due 90 days or more and accruing.

The remaining are past due, nonaccrual loans.

(2) Includes an aggregate of $ 92.6 million of nonaccrual loans which are current in regards to contractual principal and interest payments.

(In thousands) Accruing Loans Past Due 30-89 Days Past Due, Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing (1)

The remaining loans were past due nonaccrual loans.

(2) Includes an aggregate of $ 53.3 million of nonaccrual loans which were current in regards to contractual principal and interest payments.

The following table presents the aging of the recorded investment in past due loans at December 31, 2020 by class of loan:

December 31, 2020

(in thousands) Accruing Loans

Past Due 30-89

Days Past Due

Loans and Loans Past

Due 90 Days or

Total Past Due Total Current (2)

Total Recorded Investment

Total Recorded

Commercial, financial and agricultural $ 7,372 $ 13,968 $ 21,340 $ 1,574,177 $ 1,595,517

13 unchanged sentences

(1) Includes an aggregate of $ 1.6 million of loans past due 90 days or more and accruing.

The remaining are past due, nonaccrual loans.

(2) Includes an aggregate of $ 66.3 million of nonaccrual loans which are current in regards to contractual principal and interest payments.

The remaining loans were past due nonaccrual loans.

(2) Includes an aggregate of $ 92.6 million of nonaccrual loans which were current in regards to contractual principal and interest payments.

Credit Quality Indicators

Management utilizes past due information as a credit quality indicator across the loan portfolio.

Past due information as of December 31, 2020 and 2019 is included in the tables above.

Past due information at December 31, 2021 and December 31, 2020 is included in the previous tables.

The past due information is the primary credit quality indicator within the following classes of loans:

(1) mortgage loans and installment loans in the construction real estate segment;

(2) mortgage loans, HELOC and installment loans in the residential real estate segment;

and (3) consumer loans.

(1) overdrafts in the commercial, financial and agricultural portfolio segment;

(2) retail loans in the construction real estate portfolio segment;

(3) mortgage loans, HELOC and installment loans in the residential real estate portfolio segment;

and (4) consumer loans, GFSC loans, and check loans in the consumer portfolio segment.

The primary credit indicator for commercial loans is based on an internal grading system that grades all commercial loans on a scale from 1 to 8.

1 unchanged sentence

A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss.

Commercial loans that are pass rated (graded a 1 through a 4) are considered to be of acceptable credit risk.

Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher loan loss reserve percentage is allocated to these loans.

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.

Loans classified as special mention have potential weaknesses that require management’s close attention.

If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of Park’s credit position at some future date.

Commercial loans graded a 6 (substandard), also considered watch list credits, are considered to represent higher credit risk and, as a result, a higher 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 PD is applied to these loans.

Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or the value of the collateral pledged, if any.

3 unchanged sentences

Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and included within the impaired category.

A loan is deemed impaired when management determines the borrower's ability to perform in accordance with the contractual loan agreement is in doubt.

Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and included within the individually evaluated category.

A loan is deemed impaired, and is individually evaluated, when management determines the borrower's ability to perform in accordance with the contractual loan agreement is in doubt.

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

The tables below present the recorded investment by loan grade at December 31, 2020 and December 31, 2019 for all commercial loans:

(In thousands) 5 Rated 6 Rated Nonaccrual and Accruing TDRs Purchased Credit Impaired (1)

Pass-Rated Recorded

Based on the most recent analysis performed, the risk category of loans by class of loans as of December 31, 2021 follows:

December 31, 2021 Term Loans Amortized Cost Basis by Origination Year

(In thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Total

Commercial, financial and agricultural:

Commercial, financial and agricultural (1)

Pass 267,016 208,078 100,736 52,705 36,528 59,909 468,749 1,193,721

Special Mention 1,608 1,592 429 59 277 — 11,986 15,951

Substandard 106 906 401 1,345 549 7,818 484 11,609

Doubtful — 30 465 227 463 125 488 1,798

Total 268,730 210,606 102,031 54,336 37,817 67,852 481,707 1,223,079

Commercial, financial and agricultural:

Pass $ 69,588 $ 4,832 $ — $ — $ — $ — $ — $ 74,420

Special Mention — — — — — — — —

Substandard — — — — — — — —

Doubtful — — — — — — — —

Total $ 69,588 $ 4,832 $ — $ — $ — $ — $ — $ 74,420

Commercial real estate (1)

Pass 376,468 445,780 263,786 154,637 115,571 317,371 14,890 1,688,503

Special Mention 786 6,206 32,965 9,354 4,297 17,829 996 72,433

Substandard 3,897 2,578 1,385 11,373 5,967 14,541 450 40,191

Doubtful — — — — 47 618 — 665

Total 381,151 454,564 298,136 175,364 125,882 350,359 16,336 1,801,792

Construction real estate:

Commercial 164 — 3,110 1,002 223,287 $ 227,563

Pass 96,929 76,867 7,003 4,841 1,856 3,412 22,444 213,352

Special Mention 202 — — 691 — — — 893

Substandard — 52 — 264 — — — 316

Doubtful — — — — — — — —

Total 97,131 76,919 7,003 5,796 1,856 3,412 22,444 214,561

Residential Real Estate:

Commercial 798 22 4,557 1,510 520,496 $ 527,383

Leases 331 — 1,595 112 22,414 $ 24,452

Pass 138,801 165,202 67,921 44,896 26,583 70,434 15,507 529,344

Special Mention 95 884 106 79 — 497 135 1,796

Substandard 735 22 691 41 95 993 29 2,606

Doubtful 56 — — — — — — 56

Total 139,687 166,108 68,718 45,016 26,678 71,924 15,671 533,802

Pass 6,705 5,729 2,628 2,151 705 845 — 18,763

Special Mention 198 111 184 67 21 — — 581

Substandard — 698 — 23 19 78 — 818

Doubtful — — 332 16 22 — — 370

Total 6,903 6,538 3,144 2,257 767 923 — 20,532

December 31, 2021 Term Loans Amortized Cost Basis by Origination Year

(In thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Total

Total Commercial Loans

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

(1) There were no loans acquired with deteriorated credit quality which were nonaccrual or TDRs at December 31, 2020.

(In thousands) 5 Rated 6 Rated Nonaccrual and Accruing TDRs Purchased Credit Impaired (1)

Pass Rated Recorded Investment

Pass 955,507 906,488 442,074 259,230 181,243 451,971 521,590 3,718,103

Special Mention 2,889 8,793 33,684 10,250 4,595 18,326 13,117 91,654

Substandard 4,738 4,256 2,477 13,046 6,630 23,430 963 55,540

Doubtful 56 30 797 243 532 743 488 2,889

Total 963,190 919,567 479,032 282,769 193,000 494,470 536,158 3,868,186

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

The table below presents the recorded investment by loan grade at December 31, 2020 for all commercial loans:

December 31, 2020

(In thousands) 5 Rated 6 Rated Nonaccrual and Accruing TDRs PCI Pass-Rated Recorded

Commercial, financial and agricultural (1)

14,638 — 28,880 337 1,551,662 $ 1,595,517

Commercial real estate (1)

87,439 117 70,357 7,461 1,588,832 1,754,206

Construction real estate:

4 unchanged sentences

Total Commercial Loans $ 103,370 $ 139 $ 108,499 $ 10,422 $ 3,906,691 $ 4,129,121

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

(1) Excludes loans acquired with deteriorated credit quality which are nonaccrual or TDRs due to additional credit deterioration or modification post acquisition.

These loans had a recorded investment of $ 6,000 at December 31, 2019.

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

Park considers the performance of the loan portfolio and its impact on the allowance for credit losses.

For residential and consumer loan classes, Park also evaluates credit quality based on the aging status of the loan, which was previously presented, and by performing status.

The following tables present the amortized cost in residential and consumer loans based on performing status.

Park defines a loan as nonperforming if it is on nonaccrual status, designated as an accruing TDR, or is greater than 90 days past due and accruing.

December 31, 2021 Term Loans Amortized Cost Basis by Origination Year

(In thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Total

Commercial, financial and agricultural:

Performing 1,127 — — — — — — 1,127

Nonperforming — — — — — — — —

Total 1,127 — — — — — — 1,127

Construction Real Estate:

Performing 68,374 26,247 5,710 2,743 1,505 1,842 79 106,500

Nonperforming — 647 57 — — 21 — 725

Total 68,374 26,894 5,767 2,743 1,505 1,863 79 107,225

Residential Real Estate:

Performing 230,299 217,022 114,077 68,774 59,939 323,678 — 1,013,789

Nonperforming — 626 785 824 574 17,060 — 19,869

Total 230,299 217,648 114,862 69,598 60,513 340,738 — 1,033,658

Residential Real Estate:

Performing 400 — 121 58 41 2,640 159,952 163,212

Nonperforming 89 40 — 37 90 1,811 326 2,393

Total 489 40 121 95 131 4,451 160,278 165,605

Residential Real Estate:

Performing — 3 418 111 1,049 2,471 — 4,052

Nonperforming — 12 5 26 78 1,469 — 1,590

Total — 15 423 137 1,127 3,940 — 5,642

Performing 649,638 505,555 259,230 119,222 64,699 62,136 22,664 1,683,144

Nonperforming 241 506 755 399 155 593 — 2,649

Total 649,879 506,061 259,985 119,621 64,854 62,729 22,664 1,685,793

Performing — 243 986 292 63 5 108 1,697

Nonperforming — 9 73 5 9 — — 96

Total — 252 1,059 297 72 5 108 1,793

Performing — — — — — — 2,093 2,093

Nonperforming — — — — — — — —

Total — — — — — — 2,093 2,093

Total Consumer Loans

Performing 949,838 749,070 380,542 191,200 127,296 392,772 184,896 2,975,614

Nonperforming

330 1,840 1,675 1,291 906 20,954 326 27,322

Total 950,168 750,910 382,217 192,491 128,202 413,726 185,222 3,002,936

Loans and Leases Acquired with Deteriorated Credit Quality

In conjunction with the NewDominion acquisition, Park acquired loans with a book value of $ 277.9 million as of the July 1,

2018 acquisition date.

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 with a book value of $ 5.1 million were recorded at the initial fair value of $ 4.9 million.

The carrying amount of loans acquired with deteriorated credit quality at December 31, 2020 and December 31, 2019 was $ 1.6 million and $ 3.0 million, respectively, while the outstanding customer balance was $ 1.7 million and $ 3.2 million, respectively.

A t December 31, 2020 and December 31, 2019, an allowance for loan losses of $ 1,000 and $ 101,000 , respectively, had been recognized related to the acquired impaired loans.

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 with a book value of $ 19.9 million were recorded at the initial fair value of $ 18.4 million.

The carrying amount of loans and leases acquired with deteriorated credit quality at December 31, 2020 and December 31, 2019 was $ 9.5 million and $ 11.3 million, respectively, while the outstanding customer balance was $ 11.8 million and $ 13.8 million, respectively.

At December 31, 2020 and December 31, 2019 , an allowance for loan losses of $ 166,000 and $ 167,000 , respectively, had been recognized related to the acquired impaired loans.

NewDominion 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.Carolina Alliance 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 and December 31, 2020 was $ 7.1 million and $ 11.2 million, respectively.

Troubled Debt Restructurings

4 unchanged sentences

A court's discharge of a borrower's debt in a Chapter 7 bankruptcy is considered a concession when the borrower does not reaffirm the discharged debt.

Additionally, Park is working with borrowers impacted by the COVID-19 pandemic and providing modifications to include

either interest only deferral or principal and interest deferral, in each case, for initial periods up to 90 days.

As necessary, Park

is making available a second 90-day interest only deferral or principal and interest deferral bringing the total potential deferral

period to six months.

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.

In accordance with this guidance, such

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

Certain loans which were modified during the years ended December 31, 2020 and December 31, 2019 did not meet the definition of a TDR as the modification was a delay in a payment that was considered to be insignificant.

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

A majority of these modifications were excluded from 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.

Certain loans which were modified during the years ended December 31, 2021 and 2020 did not meet the definition of a TDR as the modification was a delay in a payment that was considered to be insignificant.

Management considers a forbearance period of up to three months or a delay in payment of up to 30 days to be insignificant.

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Management reviews all accruing TDRs quarterly to ensure payments continue to be made in accordance with the modified terms.

The terms of certain other loans were modified during the years ended December 31, 2021 and 2020 that did not meet the definition of a TDR.

Excluding COVID-19 related modifications, there were $ 0.2 million of substandard commercial loans modified during each of the years ended December 31, 2021 and December 31, 2020 which did not meet the definition of a TDR.

Excluding COVID-19 related modifications, consumer loans modified during 2021 which did not meet the definition of a TDR had a total amortized cost as of December 31, 2021 of $ 32.9 million.

Excluding COVID-19 related modifications, consumer loans modified during 2020 which did not meet the definition of a TDR had a total recorded investment as of December 31, 2020 of $ 57.9 million.

Many of these loans were to borrowers who were not experiencing financial difficulties but who were looking to reduce their cost of funds.

At December 31, 2021 and 2020, there were $ 20.9 million and $ 25.8 million, respectively, of TDRs included in the nonaccrual loan totals.

At December 31, 2021 and 2020, $ 10.5 million and $ 12.9 million, respectively, of these nonaccrual TDRs were performing in accordance with the terms of the restructured notes.

At December 31, 2020 and 2019, loans with a recorded investment of $ 20.9 million and $ 21.3 million, respectively, were included in accruing TDR loan totals.

At December 31, 2021 and 2020, loans totaling $ 28.3 million and $ 20.9 million, respectively, were included in accruing TDR loan totals.

Management will continue to review the restructured loans and may determine it is appropriate to move certain nonaccrual TDRs to accrual status in the future.

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Additional specific reserves of $ 7,000 were recorded during the year ended December 31, 2020, as a result of TDRs identified in the 2020 year.

Additional specific reserves of $ 0.2 million were recorded during the year ended December 31, 2018, as a result of TDRs identified in the 2018 year.

Quarterly, management reviews renewals/modifications of loans previously identified as TDRs to consider if it is appropriate to

remove the TDR classification.

If the borrower is no longer experiencing financial difficulty and the renewal/modification did

not contain a concessionary interest rate or other concessionary terms and the terms of the renewal/modification are considered

to be market terms based on the current risk characteristics of the borrower, management considers the potential removal of the

TDR classification.

If deemed appropriate, the TDR classification is removed if the borrower has complied with the terms of the

loan at the date of the renewal/modification and there was a reasonable expectation that the borrower would continue to comply

with the terms of the loan subsequent to the date of the renewal/modification.

The majority of these TDRs were originally

considered restructurings in a prior year as a result of a renewal/modification with an interest rate that was not commensurate

with the risk of the underlying loan at the time of the renewal/modification.

During the years ended December 31, 2020 and 2019, Park removed the TDR classification on $ 2.3 million and $ 38,000 , respectively, of loans that met the requirements discussed above.

The terms of certain other loans were modified during the years ended December 31, 2020 and 2019 that did not meet the definition of a TDR.

Excluding COVID-19 related modifications, there were $ 0.2 million of substandard commercial loans modified during the year ended December 31, 2020 which did not meet the definition of a TDR.

There were $ 0.6 million of substandard commercial loans modified during the year ended December 31, 2019 which did not meet the definition of a TDR.

Excluding COVID-19 related modifications, consumer loans modified during 2020 which did not meet the definition of a TDR had a total recorded investment as of December 31, 2020 of $ 57.9 million .

Consumer loans modified during 2019 which did not meet the definition of a TDR had a total recorded investment as of December 31, 2019 of $ 36.2 million.

Many of these loans were to borrowers who were not experiencing financial difficulties but who were looking to reduce their cost of funds.

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.

Of the $ 103.5 million in consumer COVID-19 related

modifications, $ 2.1 million were already classified as TDRs due to previous modifications and $ 949,000 were classified as

TDRs due to the COVID-19 modification.

Of the $ 563.7 million in commercial COVID-19 related modifications, $ 6.3 million

were already classified as TDRs due to previous modifications and $ 109,000 were classified as TDRs due to the COVID-19

modification.

The remaining loans met the exclusion criteria for TDR accounting either in Section 4013 of the CARES Act or

in applicable interagency guidance.

The following tables detail the number of contracts modified as TDRs during the years ended December 31, 2020, 2019 and 2018 as well as the recorded investment of these contracts at December 31, 2020, 2019, and 2018.

The recorded investment pre- and post-modification is generally the same due to the fact that Park does not typically forgive principal.

Additional specific reserves of $ 1,300 were recorded during the year ended December 31, 2019, as a result of TDRs identified in the 2019 year.

Quarterly, management reviews renewals/modifications of loans previously identified as TDRs to consider if it is appropriate to remove the TDR classification.

If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms and the terms of the renewal/modification are considered to be market terms based on the current risk characteristics of the borrower, management considers the potential removal of the TDR classification.

If deemed appropriate, the TDR classification is removed if the borrower has complied with the terms of the loan at the date of the renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification.

The majority of these TDRs were originally considered restructurings in a prior year as a result of a renewal/modification with an interest rate that was not commensurate with the risk of the underlying loan at the time of the renewal/modification.

During the years ended December 31, 2021 and 2020, Park removed the TDR classification on $ 4.1 million and $ 2.3 million, respectively, of loans that met the requirements discussed above.

The following tables detail the number of contracts modified as TDRs during the years ended December 31, 2021, 2020 and 2019 as well as the amortized cost/ recorded investment of these contracts at December 31, 2021, 2020, and 2019.

The amortized cost/ recorded investment pre- and post-modification is generally the same due to the fact that Park does not typically forgive principal.

December 31, 2021

(In thousands) Number of Contracts Accruing Nonaccrual Recorded Investment

(In thousands) Number of Contracts Accruing Nonaccrual Amortized

Commercial, financial and agricultural

Commercial, financial and agricultural 10 $ 1,356 $ 169 $ 1,525

PPP loans — — — —

Overdrafts — — — —

Commercial real estate 15 2,002 6,747 8,749

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Commercial 1 — — —

Mortgage 1 26 — 26

Installment 1 — 14 14

Retail 2 — 705 705

Residential real estate:

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Consumer 131 116 417 533

Check loans — — — —

Leases 1 — 325 325

Total loans 195 $ 4,046 $ 9,438 $ 13,484

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Of those loans which were modified and determined to be a TDR during the year ended December 31, 2019, $ 2.1 million were on nonaccrual status as of December 31, 2018.

The following table presents the recorded investment in financing receivables which were modified as TDRs within the previous 12 months and for which there was a payment default during the year ended December 31, 2020, December 31, 2019, and December 31, 2018.

For this table, a loan is considered to be in default when it becomes 30 days contractually past due under the modified terms.

The additional allowance for loan loss resulting from the defaults on TDR loans was immaterial.

The following table presents the amortized cost/ recorded investment in financing receivables which were modified as TDRs within the previous 12 months and for which there was a payment default during the year ended December 31, 2021, December 31, 2020, and December 31, 2019.

For this table, a loan is considered to be in default when it becomes 30 days

contractually past due under the modified terms.

The additional allowance for credit loss resulting from the defaults on TDR loans was immaterial.

December 31, 2021 Year ended

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December 31, 2019

(In thousands) Number of Contracts Recorded Investment Number of Contracts Recorded Investment Number of Contracts Recorded Investment

(In thousands) Number of Contracts Amortized Cost Number of Contracts Recorded Investment Number of Contracts Recorded Investment

Commercial, financial and agricultural:

4 $ 2,776 1 $ 20

Commercial, financial and agricultural — $ — (1) (1) (1) (1)

PPP loans — — (1) (1) (1) (1)

Overdrafts — — (1) (1) (1) (1)

Commercial real estate — — 1 223 — —

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Commercial — — — — — —

Mortgage — — — — — —

Installment 1 14 — — — —

Retail 1 648 1 14 — —

Residential real estate:

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Consumer 34 360 56 539

Consumer 14 169 (1) (1) (1) (1)

GFSC — — (1) (1) (1) (1)

Check loans — — (1) (1) (1) (1)

Leases — — — — — —

Total loans 22 $ 1,259 55 $ 4,401 70 $ 1,365

(1) Results for reporting periods beginning after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S.

Category was not broken out as a separate class at December 31, 2020.

Of the $ 1.3 million in modified TDRs which defaulted during the year ended December 31, 2021, $ 115,000 were accruing loans and $ 1.1 million were nonaccrual loans.

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During 2021, new loans and advances on existing loans were made to these executive officers, directors and related entities of directors totaling $ 1.2 million and $ 9.7 million, respectively.

These extensions of credit were offset by principal payments of $ 9.7 million.

These extensions of credit were offset by principal payments of $ 12.6 million and the removal of loans from the related party listing totaling $ 3.2 million.

During 2020, new loans and advances on existing loans were $ 0.6 million and $ 12.4 million, respectively.

These extensions of credit were offset by principal payments of $ 9.7 million.

Allowance for Loan Losses

The allowance for loan losses is that amount management believes is adequate to absorb probable incurred credit losses in the

loan portfolio based on management’s evaluation of various factors including the overall growth in the loan portfolio, an

analysis of individual loans, prior and current loss experience, and current economic conditions.

A provision for loan losses is

charged to operations based on management’s periodic evaluation of these and other pertinent factors as discussed within Note

1 - Summary of Significant Accounting Policies.

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 ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets.

A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors as discussed within Note 1-Summary of Significant Accounting Policies.

During the first quarter of 2021, Park adopted ASU 2016-13, including the CECL methodology for estimating the ACL.

This standard was adopted prospectively on January 1, 2021, resulting in a $ 6.1 million increase to the ACL 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 as of the adoption of ASU 2016-13.

Quantitative Considerations

The ACL is primarily calculated utilizing a DCF model.

Key inputs and assumptions used in this model are discussed below:

• Forecast model - For each portfolio segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows.

The LDA analysis utilized Park's own FFIEC Call Report data for the commercial, financial and agricultural and residential real estate portfolio segments.

Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer portfolio segments.

Park 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 $ 57.9 million, which would have resulted in a decline of $ 17.0 million from the quantitative reserve of $ 74.9 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.

Commercial Loans

The following are factors management reviews specifically for commercial loans on a quarterly or annual basis.

• Historical Loss Factor:

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 portfolios.

A breakout of the 4-rated balances and additional reserve related to these portfolios is detailed in the following table.

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.

• 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 this qualitative adjustment 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 is 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:

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 accommodation loans had a balance of $ 181.4 million with an additional reserve related 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.

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

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.

The activity in the allowance for loan losses for the years ended December 31, 2020, 2019, and 2018 is summarized in the following tables.

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 the 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.

At December 31, 2021 and 2020, Park had $ 74.4 million and $ 331.6 million, respectively, of PPP loans which were included in the commercial, financial and agricultural portfolio segment.

These loans are guaranteed by the SBA and thus have not been

reserved for using the same methodology as the rest of Park’s loan portfolio.

A 10 basis point reserve was calculated for these loans to reflect minimal credit risk at December 31, 2021 and December 31, 2020.

The activity in the allowance for credit losses for the years ended December 31, 2021, 2020, and 2019 is summarized in the following tables.

Year ended December 31, 2021

(In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total

Allowance for loan losses:

Allowance for credit losses:

Beginning balance $ 25,608 $ 23,480 $ 7,288 $ 11,363 $ 17,418 $ 518 $ 85,675

Impact of adopting ASC 326 ( 8,257 ) 2,119 ( 1,898 ) 3,121 10,925 80 6,090

Charge-offs 957 35 — 49 4,052 — 5,093

( 20,765 ) ( 738 ) ( 1,122 ) ( 991 ) ( 3,629 ) ( 1 ) ( 27,246 )

Net (recoveries) charge-offs ( 19,297 ) 1,086 ( 1,116 ) ( 635 ) 3,005 15 ( 16,942 )

Recoveries ( 639 ) ( 802 ) ( 2,299 ) ( 941 ) ( 3,759 ) ( 1 ) ( 8,441 )

Net charge-offs (recoveries) 318 ( 767 ) ( 2,299 ) ( 892 ) 293 ( 1 ) ( 3,348 )

(Recovery) Provision ( 3,008 ) ( 900 ) ( 1,931 ) ( 3,952 ) ( 1,764 ) ( 361 ) ( 11,916 )

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(In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total

Allowance for loan losses:

Allowance for credit losses:

Beginning balance $ 20,203 $ 10,229 $ 5,311 $ 8,610 $ 12,211 $ 115 $ 56,679

Charge-offs 1,468 1,824 6 356 6,634 16 10,304

( 1,241 ) ( 720 ) ( 2,682 ) ( 787 ) ( 4,742 ) ( 1 ) ( 10,173 )

Net charge-offs (recoveries) 990 ( 320 ) ( 2,682 ) ( 548 ) 3,565 ( 1 ) 1,004

Provision (Recovery) 4,416 141 ( 1,834 ) ( 669 ) 4,003 114 6,171

Recoveries ( 20,765 ) ( 738 ) ( 1,122 ) ( 991 ) ( 3,629 ) ( 1 ) ( 27,246 )

Net (recoveries) charge-offs ( 19,297 ) 1,086 ( 1,116 ) ( 635 ) 3,005 15 ( 16,942 )

(Recovery) Provision ( 13,892 ) 14,337 861 2,118 8,212 418 12,054

Ending balance $ 25,608 $ 23,480 $ 7,288 $ 11,363 $ 17,418 $ 518 $ 85,675

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(In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total

Allowance for loan losses:

Allowance for credit losses:

Beginning balance $ 16,777 $ 9,768 $ 4,463 $ 8,731 $ 11,773 $ — $ 51,512

Charge-offs 2,231 400 — 239 8,307 — 11,177

( 1,221 ) ( 272 ) ( 712 ) ( 844 ) ( 4,078 ) ( 4 ) ( 7,131 )

Recoveries ( 1,241 ) ( 720 ) ( 2,682 ) ( 787 ) ( 4,742 ) ( 1 ) ( 10,173 )

Net charge-offs (recoveries) 990 ( 320 ) ( 2,682 ) ( 548 ) 3,565 ( 1 ) 1,004

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Ending balance $ 20,203 $ 10,229 $ 5,311 $ 8,610 $ 12,211 $ 115 $ 56,679

Loans collectively evaluated for impairment in the following tables include all performing loans at December 31, 2020 and 2019, as well as nonperforming loans internally classified as consumer loans.

Nonperforming consumer loans are not typically individually evaluated for impairment, but receive a portion of the statistical allocation of the allowance for loan losses.

Loans individually evaluated for impairment include all impaired loans internally classified as commercial loans at December 31, 2020 and 2019, which are evaluated for impairment in accordance with U.S.

GAAP (see Note 1 - Summary of Significant Accounting Policies).

The composition of the allowance for loan losses at December 31, 2020 and 2019 was as follows:

Loans collectively evaluated for impairment in the following tables include all performing loans at December 31, 2021 and December 31, 2020, as well as nonperforming loans internally classified as consumer loans.

Nonperforming consumer loans are not typically individually evaluated for impairment, but receive a portion of the statistical allocation of the ACL.

Loans individually evaluated for impairment include all impaired loans internally classified as commercial loans at December 31, 2021 and December 31, 2020, which are evaluated for impairment in accordance with U.S.

GAAP (See Note 1-Significant Accounting Policies).

The composition of the ACL at December 31, 2021 and December 31, 2020 was as follows:

December 31, 2021

(In thousands) Commercial, financial, and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total

Allowance for loan losses:

(In thousands) Commercial,

financial and

agricultural Commercial

real estate Construction

real estate Residential

real estate Consumer Leases Total

Ending allowance balance attributed to loans:

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Total ending loan balance $ 1,298,626 $ 1,801,792 $ 321,786 $ 1,738,707 $ 1,689,679 $ 20,532 $ 6,871,122

Allowance for loan losses as a percentage of loan balance:

ACL as a percentage of loan balance:

Loans individually evaluated for impairment 6.11 % 0.39 % — % — % — % 3.62 % 2.17 %

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Total 1.08 % 1.41 % 1.79 % 0.66 % 1.56 % 1.16 % 1.21 %

Recorded investment:

Loans individually evaluated for impairment $ 28,836 $ 70,357 $ 3,110 $ 4,557 $ — $ 1,595 $ 108,455

Loans collectively evaluated for impairment 1,566,344 1,676,388 340,116 1,808,892 1,664,214 22,745 7,078,699

Loans acquired with deteriorated credit quality 337 7,461 1,002 2,372 — 112 11,284

Total ending recorded investment $ 1,595,517 $ 1,754,206 $ 344,228 $ 1,815,821 $ 1,664,214 $ 24,452 $ 7,198,438

December 31, 2020

(In thousands) Commercial, financial, and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total

Allowance for loan losses:

(In thousands) Commercial,

financial and

agricultural Commercial

real estate Construction

real estate Residential

real estate Consumer Leases Total

Ending allowance balance attributed to loans:

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Total ending loan balance $ 1,588,989 $ 1,748,189 $ 343,421 $ 1,813,044 $ 1,659,704 $ 24,438 $ 7,177,785

Allowance for loan losses as a percentage of loan balance:

ACL as a percentage of loan balance:

Loans individually evaluated for impairment 13.04 % 1.87 % — % 0.35 % — % 21.57 % 5.01 %

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Loans acquired with deteriorated credit quality 337 7,461 1,002 2,372 — 112 11,284

966 9,182 1,143 2,625 2 523 14,441

Total ending recorded investment $ 1,595,517 $ 1,754,206 $ 344,228 $ 1,815,821 $ 1,664,214 $ 24,452 $ 7,198,438

(1) Excludes loans acquired with deteriorated credit quality which are individually evaluated for impairment due to additional credit deterioration post acquisition.

These loans had a balance of $ 5,000 , a recorded investment of $ 6,000 , and no allowance as of December 31, 2019.

Goodwill and Other Intangible Assets

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Amortization — 2,355 2,355

Trade name intangible impairment — 1,300 1,300

December 31, 2019 $ 159,595 $ 11,523 $ 171,118

Acquired goodwill and other intangible assets 46,856 8,207 55,063

Amortization — 2,263 2,263

Trade name intangible impairment — 1,300 1,300

December 31, 2020 $ 159,595 $ 9,260 $ 168,855

Acquired goodwill and other intangible assets — — —

Amortization — 1,798 1,798

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The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

Based on the qualitative analysis performed during each of the second, third and fourth quarters of 2020, the Company determined that goodwill was not impaired.

Management continues to monitor economic factors to evaluate goodwill impairment.

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

Acquired Intangible Assets

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The NewDominion trade name intangible was initially recorded assuming an indefinite useful life.

Considering Park's rebranding initiative, Park concluded that the trade name intangible represented a definite life asset, and impairment was recorded during 2019.

Considering Park's rebranding initiative, Park concluded that the trade name intangible represented a definite life asset, and impairment of $ 1.3 million was recorded during 2019.

Core deposit intangibles are being amortized, on an accelerated basis, over a period of ten years.

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Mortgage loans held for sale were $ 9.4 million and $ 31.7 million at December 31, 2021 and 2020, respectively.

These amounts are included in "Loans" on the Consolidated Balance Sheets and in the residential real estate loan segments in Note 6 - Loans and Note 7 - Allowance for Loan Losses.

These amounts are included in "Loans" on the Consolidated Balance Sheets and in the residential real estate loan segments in Note 5 - Loans and Note 6 - Allowance for Credit Losses.

The contractual balance was $ 9.2 million and $ 30.9 million at December 31, 2021 and 2020, respectively.

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During 2020, Park transferred a non-performing loan held for investment, with a book balance of $ 4.4 million, to the loans held for sale portfolio, and subsequently completed the sale of this non-performing loan held for sale, recognizing no gain or loss on sale.

During 2018, Park transferred certain non-performing loans held for investment, with a book balance of $ 174,000 , to the loans held for sale portfolio, and subsequently completed the sale of these non-performing loans held for sale, recognizing a net gain on sale of $ 2.8 million.

No non-performing loans were held for sale or sold during 2019.

No non-performing loans were held for sale or sold during 2021 or 2019.

Foreclosed and Repossessed Assets

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Commercial real estate $ — $ 625

Construction real estate — 879

Residential real estate 775 806

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Equipment, furniture and fixtures (1)

76,675 89,390

Leasehold improvements 6,436 6,381

2 unchanged sentences

Premises and equipment, net $ 89,008 $ 88,660

(1) Prior to 2021, software was included within equipment, furniture and fixtures

Depreciation expense amounted to $ 13.3 million, $ 10.8 million and $ 9.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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Leased assets, net $ 2,438 $ 3,896

Depreciation expense on operating lease assets of $ 1.8 million, $ 1.3 million, and $ 26,000 was recorded for the years ended December 31, 2020, 2019 and 2018, respectively.

Depreciation expense on operating lease assets of $ 1.5 million, $ 1.8 million, and $ 1.3 million was recorded for the years ended December 31, 2021, 2020 and 2019, respectively.

Investments in Qualified Affordable Housing

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Unfunded commitments 28,484 29,298

Commitments are funded when capital calls are made by the general partner.

Commitments are funded when capital calls are made by the general partner of a limited partnership.

Park expects that the commitments as of December 31, 2021 will be funded between 2022 and 2032.

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Repurchase agreements with customers are included in "Short-term borrowings" on the Consolidated Balance Sheets.

All repurchase agreements are subject to terms and conditions of repurchase/security agreements between Park and the client and are accounted for as secured borrowings.

All repurchase agreements are subject to the terms and conditions of repurchase/security agreements between Park and the client and are accounted for as secured borrowings.

Park's repurchase agreements consisted of customer accounts and securities which are pledged on an individual security basis.

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These borrowings were collateralized with U.S.

government and agency securities with a fair value of $ 366 million and $ 200 million at December 31, 2020 and December 31, 2019, respectively.

government sponsored entities' asset-backed securities with a fair value of $ 334.9 million and $ 366.0 million at December 31, 2021 and December 31, 2020, respectively.

Declines in the value of the collateral would require Park to pledge additional securities.

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Overnight and Continuous Up to 30 days 30 - 90 days Greater than 90 days Total

government and agency securities $ 317,230 $ — $ — $ — $ 317,230

government sponsored entities' asset-backed securities $ 213,786 $ — $ — $ — $ 213,786

December 31, 2020

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Overnight and Continuous Up to 30 days 30 - 90 days Greater than 90 days Total

government and agency securities $ 175,657 $ — $ — $ — $ 175,657

government sponsored entities' asset-backed securities $ 317,230 $ — $ — $ — $ 317,230

See Note 14 - Short-Term Borrowings for additional information related to repurchase agreements.

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Paid during the year (1)

0.04 % 0.23 %

Ending balance $ 317,230 $ 25,000

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Paid during the year (1)

0.19 % 0.80 %

(1) Interest rate swaps with notional amounts totaling $ 25.0 million at both December 31, 2021 and December 31, 2020 were designated as cash flow hedges of certain FHLB advances.

Including interest expense related to the swaps, the weighted average interest rate paid during the year on FHLB advances was 2.69 % and 2.38 % for 2021 and 2020, respectively.

During 2020 and 2021, outstanding FHLB advances were collateralized by investment securities owned by PNB and by various loans pledged under a blanket agreement by PNB.

At December 31, 2021 and December 31, 2020, $ 9.5 million and $ 13.9 million, respectively, of investment securities were pledged as collateral for FHLB advances.

At December 31, 2020 and December 31, 2019, $ 1,521 million and $ 1,566 million, respectively, of commercial real estate and residential mortgage loans were pledged

under a blanket agreement to the FHLB by PNB.

At December 31, 2021 and December 31, 2020, $ 1,749.3 million and $ 1,520.5 million, respectively, of commercial real estate and residential mortgage loans were pledged under a blanket agreement to the FHLB by PNB.

See Note 13 - Repurchase Agreement Borrowings for information related to investment securities collateralizing repurchase agreements.

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(In thousands) Outstanding Balance Interest Rate Outstanding Balance Interest Rate

Total Federal Home Loan Bank advances by year of maturity:

2020 $ — — % $ — — %

2021 — — % — — %

2022 — — % 50,000 3.01 %

2023 — — % 100,000 3.40 %

2024 — — % — — %

2025 — — % — — %

Thereafter — — % — — %

Total $ — — % $ 150,000 3.27 %

Bank term note by year of maturity:

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Total $ — — % 32,500 1.84 %

Total combined long-term debt by year of maturity:

2020 $ — — % — — %

2021 — — % — — %

2022 32,500 1.84 % 92,500 3.19 %

2023 — — % 100,000 3.40 %

2024 — — % — — %

2025 — — % — — %

Thereafter — — % — — %

Total $ 32,500 1.84 % $ 192,500 3.30 %

Park had no long-term debt at December 31, 2020 with a contractual maturity longer than five years.

On February 18, 2020, Park prepaid $ 50 million of FHLB advances, incurring a $ 1.8 million prepayment penalty recognized within "FHLB prepayment penalty" on the Consolidated Statement of Income for the year ended December 31, 2020.

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These advances had an interest rate of 3.40 % and a maturity date of December 1, 2023.

At December 31, 2020 and December 31, 2019, FHLB advances were collateralized by investment securities owned by PNB and by various loans pledged under a blanket agreement by PNB.

At December 31, 2020 and December 31, 2019, $ 14 million and $ 18 million, respectively, of investment securities were pledged as collateral for FHLB advances.

At December 31, 2020 and December 31, 2019, $ 1,521 million and $ 1,566 million, respectively, of commercial real estate and residential mortgage loans were pledged under a blanket agreement to the FHLB by PNB.

On June 20, 2019, Park issued a $ 50 million term note to U.S.

Bank National Association.

This term note has a maturity date of June 21, 2022 and accrues interest at a floating rate of one-month LIBOR plus 1.65%.

As of December 31, 2020, Park was in compliance with the covenants in the credit agreement related to the term note.

This term note had a maturity date of June 21, 2022 and accrued interest at a floating rate of one-month LIBOR plus 1.65%.

On August 2, 2021, Park prepaid the outstanding balance of $ 27.5 million of the term note to U.S.

Bank National Association.

Subordinated Notes

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The issuance costs of the Subordinated Notes totaled $ 2.4 million, which is being amortized through the Subordinated Note call date.

The Subordinated Notes, net of unamortized issuance costs, totaled $ 172.8 million at December 31, 2020, and qualifies as Tier 2 capital for Park under the Federal Reserve Board capital adequacy rules.

Park uses certain derivative financial instruments (or "derivatives") to meet the needs of its clients while managing the interest

rate risk associated with certain transactions.

At December 31, 2021 and 2020, the Subordinated Notes, net of unamortized issuance costs, totaled $ 173.2 million and $ 172.8 million, and qualify as Tier 2 capital for Park under the Federal Reserve Board capital adequacy rules.

Park uses certain derivative financial instruments (or "derivatives") to meet the needs of Park's clients while managing the interest rate risk associated with certain transactions.

Park does not use derivatives for speculative purposes.

A summary of derivative

instruments utilized by Park follows.

A summary of derivative financial instruments utilized by Park follows.

Interest Rate Swaps

Park utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk

position and as a means to meet the financing, interest rate and other risk management needs of qualifying commercial banking

Park utilizes interest rate swap agreements as part of Park's asset liability management strategy to help manage Park's interest rate risk position and as a means to meet the financing, interest rate and other risk management needs of qualifying commercial banking customers.

The notional amount of the interest rate swaps does not represent the amount exchanged by the parties.

exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap

The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap

Borrowing Derivatives :

2 unchanged sentences

In conjunction with the Carolina Alliance acquisition, Park acquired interest rate swaps related to certain commercial loans.

These interest rate swaps were simultaneously hedged by offsetting interest rate swaps that Carolina Alliance executed with a third party, such that Carolina Alliance minimized its net interest rate risk exposure resulting from such transactions.

Simultaneously with borrowers entering into interest rate swaps, Carolina Alliance entered into offsetting

interest rate swaps executed with a third party, such that Carolina Alliance minimized its net interest rate risk exposure resulting

from such transactions.

These interest rate swaps had a notional amount totaling $ 29.7 million and $ 33.3 million as of December 31, 2021 and December 31, 2020, respectively.

1 unchanged sentence

As such, no amount of ineffectiveness has been included in net income.

Therefore, the aggregate fair value of the swaps

is recorded in other assets and other liabilities with changes in fair value recorded in other comprehensive income.

Therefore, the aggregate fair value of the swaps is recorded in other assets and other liabilities with changes in fair value recorded in other comprehensive income.

The amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective.

Park expects the hedges to remain fully effective during the remaining respective terms of the swaps.

Park expects the hedges to remain fully effective during the remaining respective terms of the interest rate swaps.

Summary information about Park's interest rate swaps as of December 31, 2021 and December 31, 2020 was as follows:

7 unchanged sentences

Interest expense recorded on swap transactions was $ 614,000 , $ 423,000 and $ 42,000 for the years ended December 31, 2021, 2020, and 2019, respectively.

No interest income or expense related to swap transactions was recorded during the year ended December 31, 2018.

Interest Rate Swaps

The following table presents the net gains (losses), net of income taxes, recorded in AOCI and the Consolidated Statements of Income related to interest rate swaps for the years ended December 31, 2020, 2019 and 2018 .

The following table presents the net gains (losses), net of income taxes, recorded in OCI and the Consolidated Statements of Income related to interest rate swaps for the years ended December 31, 2021, 2020 and 2019 .

Year ended December 31, 2021

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Mortgage Banking Derivatives

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for

the future delivery of these mortgage loans are accounted for as free standing derivatives.

In order to hedge the change in

interest rates resulting from its commitments to fund the loans, the Company enters into forward commitments for the future

delivery of mortgage loans when interest rate locks are entered into.

These mortgage banking derivatives are not designated in

hedge relationships.

The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is

executed and is adjusted for the expected exercise of the commitment before the loan is funded.

Fair values of these mortgage

banking derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked.

In order to hedge the change in interest rates resulting from the Company's commitments to fund the loans, the Company enters into forward commitments for

the future delivery of mortgage loans when interest rate locks are entered into.

These mortgage banking derivatives are not designated in hedge relationships.

The fair value of the interest rate locks is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded.

Fair values of these mortgage banking derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked.

Changes in the fair values of these derivatives are included in "Other service income" in the Consolidated Statements of Income.

At December 31, 2021 and December 31, 2020 , Park had $ 13.3 million and $ 58.2 million, respectively, of interest rate lock commitments.

The fair value of these mortgage banking derivatives was reflected by a derivative asset of $ 1.5 million and $ 221,000 at December 31, 2020 and December 31, 2019 , respectively.

The fair value of these mortgage banking derivatives was reflected by a derivative asset of $ 0.3 million and $ 1.5 million at December 31, 2021 and December 31, 2020 , respectively.

Other Derivatives

4 unchanged sentences

The Park National Corporation 2013 Long-Term Incentive Plan (the "2013 Incentive Plan") was adopted by the Board of Directors of Park on January 28, 2013 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 22, 2013.

The 2013 Incentive Plan made equity-based awards and cash-based awards available for grant to participants (who could have been employees or non-employee directors) in the form of incentive stock options, nonqualified stock options, SARs, restricted common shares (“Restricted Stock”), restricted stock unit awards that may be settled in common shares, cash or a combination of the two (“Restricted Stock Units”), unrestricted common shares (“Other Stock-Based Awards”) and cash-based awards.

The 2013 Incentive Plan made equity-based awards and cash-based awards available for grant to participants (who could have been employees or non-employee directors) in the form of incentive stock options (for employees only), nonqualified stock options, SARs, restricted common shares (“Restricted Stock”), restricted stock unit awards that may be settled in common shares, cash or a combination of the two (“Restricted Stock Units”), unrestricted common shares (“Other Stock-Based Awards”) and cash-based awards.

Under the 2013 Incentive Plan, 600,000 common shares were authorized to be delivered in connection with grants under the 2013 Incentive Plan.

The common shares to be delivered under the 2013 Incentive Plan are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions.

At December 31, 2020, there were 18,695 common shares subject to unvested PBRSUs issued under the 2013 Incentive Plan, which represented the only awards outstanding under the 2013 Incentive Plan.

The common shares to be delivered under the 2013 Incentive Plan were to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions.

At December 31, 2021, there were no common shares available to be issued under the 2013 Incentive Plan.

The Park National Corporation 2017 Long-Term Incentive Plan for Employees (the "2017 Employees LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017.

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The 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP have replaced the provisions of the 2013 Incentive Plan with respect to the grant of future awards.

As a result of the approval of the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP, Park has not granted and will not grant any additional awards under the 2013 Incentive Plan after April 24, 2017.

Awards made under the 2013 Incentive Plan prior to April 24, 2017 will remain in effect in accordance with their respective terms.

As a result of the approval of the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP, Park did not grant any additional awards under the 2013 Incentive Plan after April 24, 2017.

Awards made under the 2013 Incentive Plan have either vested or expired.

During 2021, 2020 and 2019, Park granted 13,400 , 13,450 and 13,500 common shares, respectively, to directors of Park and to directors of PNB (and its divisions) under the 2017 Non-Employee Directors LTIP.

The common shares granted to directors were not subject to a vesting period and resulted in expense of $ 1.7 million, $ 1.3 million, and $ 1.3 million in 2021, 2020, and 2019, respectively, which is included in professional fees and services on the Consolidated Statements of Income.

During 2020, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 62,265 common shares to certain employees of Park and its subsidiaries.

During 2019, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 58,740 of common shares to certain employees of Park and its subsidiaries.

During 2021, 2020 and 2019, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 61,890 , 62,265 and 58,740 common shares, respectively, to certain employees of Park and its subsidiaries.

Additionally, during 2019, Park granted awards of TBRSUs, under the 2017 Employees LTIP, covering an aggregate of 15,700 shares to Carolina Alliance Division employees.

During 2018, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs covering an aggregate of 48,053 common shares, under the 2017 Employees LTIP, to certain employees of Park and its subsidiaries.

Additionally, during 2018, Park granted 13,637 TBRSUs to certain NewDominion Division employees.

The number of PBRSUs earned or settled will depend on the level of achievement with respect to certain performance criteria and are also subject to subsequent service-based vesting.

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As of December 31, 2021, an aggregate of 206,827 PBRSUs and TBRSUs are expected to vest.

During the year ended December 31, 2020, an aggregate of 7,705 of the TBRSUs granted in 2018 and 2019 vested in full due to the satisfaction of the service-based vesting requirement.

A total of 2,392 common shares were withheld to satisfy employee income tax obligations.

This resulted in a net number of 5,313 common shares being issued to employees of Park.

Additionally, during the year ended December 31, 2020, an aggregate of 36,674 of the PBRSUs granted in 2016 and 2017 vested in full due to the level of achievement with respect to certain performance criteria and the satisfaction of the service-based vesting requirement.

A total of 11,646 common shares were withheld to satisfy employee income tax withholding obligations.

This resulted in a net number of 25,028 common shares being issued to employees of Park.

During the three months ended March 31, 2019, 27,719 PBRSUs granted in 2015 and 2016 vested in full due to the level of achievement with respect to certain performance criteria and the satisfaction of the service-based vesting requirement.

A total of 8,736 common shares were withheld to pay employee income taxes.

This resulted in a net number of 18,983 common shares being issued to employees of Park.

A summary of awards vested during the twelve months ended December 31, 2021 and 2020 follows:

Twelve Months Ended

PBRSU and TBRSU vested 48,106 44,379

Common shares withheld to satisfy employee income tax withholding obligations 18,436 14,038

Net common shares issued 29,670 30,341

Share-based compensation expense of $ 6.3 million, $ 6.0 million and $ 5.0 million was recognized for the years ended December 31, 2021, 2020 and 2019, respectively, related to PBRSU and TBRSU awards to employees.

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Benefit Plans

The Corporation has a noncontributory Defined Benefit Pension Plan (the “Pension Plan”) covering substantially all of the employees of the Corporation and its subsidiaries.

The Corporation has a noncontributory Defined Benefit Pension Plan (the “Pension Plan”) covering substantially all of the employees of Park National Corporation and its subsidiaries.

The Pension Plan provides benefits based on an employee’s years of service and compensation.

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Actual return on plan assets 48,138 27,800

Employer contributions — —

Benefits paid ( 15,107 ) ( 7,981 )

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Interest cost 5,359 5,283

Plan amendments — ( 168 )

Actuarial loss ( 1,614 ) 24,370

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Funded status at end of year (fair value of plan assets less benefit obligation) $ 80,509 $ 46,032

The increase in the projected benefit obligation ("PBO") from $ 154.4 million as of December 31, 2019 to $ 184.4 million as of December 31, 2020, was largely the result of a decrease in the discount rate from 3.53 % to 3.00 %.

Additionally, the PBO increased due to updated assumptions for withdrawal rates, retirement rates, optional payment form elections, and salary increases as well as assumptions for lump sum determinations.

These losses were partially offset by the adoption of the MP 2020 mortality projection scale.

The decrease in the projected benefit obligation ("PBO") from $ 184.4 million as of December 31, 2020 to $ 183.0 million as of December 31, 2021, was largely the result of an increase in the discount rate from 3.00 % to 3.23 %.

The decrease in the PBO was partially offset by changes due to mortality assumption updates and demographic losses driven by salary increases greater than assumed.

The asset allocation for the Pension Plan as of each measurement date, by asset category, was as follows:

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The investment policy is reviewed periodically.

The expected long-term rate of return on plan assets used to measure the benefit obligation was 7.00 % at both December 31, 2020 and December 31, 2019.

The expected long-term rate of return on plan assets used to measure the benefit obligation was 6.92 % and 7.00 % at December 31, 2021 and December 31, 2020, respectively.

This return was based on the expected long-term return of each of the asset categories, weighted based on the median of the target allocation for each class.

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Accumulated other comprehensive loss $ ( 5,792 ) $ ( 34,421 )

Using actuarial measurement dates of December 31 for 2020, 2019 and 2018, components of net periodic benefit income and other amounts recognized in other comprehensive income were as follows:

Using actuarial measurement dates of December 31 for 2021, 2020 and 2019, components of net periodic benefit income and other amounts recognized in other comprehensive income (loss) were as follows:

(In thousands) 2021 2020 2019 Affected Line Item in the Consolidated Statements of Income

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Expected return on plan assets 15,731 14,410 12,105 Other components of net periodic benefit income

Recognized net actuarial loss and prior service cost ( 1,175 ) ( 1,882 ) ( 1,361 ) Other components of net periodic benefit income

Net periodic benefit (loss) income $ ( 367 ) $ ( 1,141 ) $ 273

Net actuarial (loss) gain and prior service cost $ ( 10,981 ) $ 1,913 $ ( 5,122 )

Recognized net actuarial loss and prior service credit ( 2,220 ) ( 1,175 ) ( 1,882 ) Other components of net periodic benefit income

Net periodic benefit loss $ ( 1,764 ) $ ( 367 ) $ ( 1,141 )

Net actuarial gain (loss) and prior service credit $ 34,019 $ ( 10,981 ) $ 1,913

Amortization of net loss 2,220 1,175 1,882

Total recognized in other comprehensive (loss) income ( 9,806 ) 3,795 ( 3,761 )

Total recognized in net benefit (loss) income and other comprehensive (loss) income $ ( 10,173 ) $ 2,654 $ ( 3,488 )

There are $ 16,000 in estimated prior service costs for the Pension Plan to be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next year.

The estimated net actuarial loss expected to be recognized in the next year is $ 2.2 million.

The weighted average assumptions used to determine net periodic benefit income (loss) for the years ended December 31, 2020, 2019 and 2018 are listed below:

Total recognized in other comprehensive income (loss) 36,239 ( 9,806 ) 3,795

Total recognized in net benefit income (loss) and other comprehensive income (loss) $ 34,475 $ ( 10,173 ) $ 2,654

The weighted average assumptions used to determine net periodic benefit loss for the years ended December 31, 2021, 2020 and 2019 are listed below:

2021 2020 2019

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Ages 40-49 5.00 % 4.00 % 4.00 %

Ages 50-54 4.25 % 3.00 % 3.00 %

Ages 55-59 3.75 % 3.00 % 3.00 %

Ages 60-64 3.50 % 3.00 % 3.00 %

Ages 65 and over 3.25 % 3.00 % 3.00 %

Expected long-term return on plan assets 7.00 % 7.00 % 7.00 %

The Pension Plan maintains cash in a PNB savings account.

The Pension Plan cash balance was $ 2.5 million at December 31, 2020.

GAAP defines fair value as the price that would be received by Park for an asset or paid by Park to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date, using the most advantageous market for the asset or liability.

The fair values of equity securities, consisting of mutual fund investments and common stock (U.S.

large cap) held by the Pension Plan and the fixed income and cash equivalents, are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs).

The fair value of Pension Plan assets at December 31, 2020 was $ 230.4 million.

At December 31, 2020, $ 195.0 million of equity investments and cash in the Pension Plan were categorized as Level 1 inputs;

$ 35.4 million of Pension Plan investments in corporate (U.S.

large cap), U.S.

Government sponsored entity bonds and marketable CDs were categorized as Level 2 inputs, as fair value was based on quoted market prices of comparable instruments;

and no investments were categorized as Level 3 inputs.

The fair value of Pension Plan assets was $ 210.6 million at December 31, 2019.

At December 31, 2019, $ 180.0 million of investments in the Pension Plan were categorized as Level 1 inputs;

$ 30.6 million were categorized as Level 2;

and no investments were categorized as Level 3.

The fair values of equity securities, consisting of mutual fund investments and common stock held by the Pension Plan, are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs).

Additionally, due to their short-term nature, the fair value of interest bearing demand deposits is determined by reference to their face value (Level 1 inputs).

Interest bearing time deposits, United States Government agency obligations and corporate bonds are valued by the trustee based on yields available on comparable securities of issuers with similar credit ratings as of the end of the year (Level 2 inputs).

No investments were categorized as Level 3 inputs.

The fair value of the plan assets at December 31, 2021 and December 31, 2020, by asset class, is as follows.

Fair Value Measurements Fair Value Measurements

at December 31, 2021, Using at December 31, 2020, Using

(In thousands) (Level 1) (Level 2) (Level 1) (Level 2)

Interest-bearing account $ 3,222 $ 4,731 $ 2,785 $ 4,837

Mutual funds 60,987 — 54,461 —

Government agency obligations — 15,254 — 5,530

Corporate bonds — 16,815 — 24,986

Common stocks 162,464 — 137,843 —

$ 226,673 $ 36,800 $ 195,089 $ 35,353

Salary Deferral Plan

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Supplemental Executive Retirement Plan

The Corporation has entered into Supplemental Executive Retirement Plan Agreements (the "SERP Agreements") with certain key officers of the Corporation and its subsidiaries which provide defined pension benefits in excess of limits imposed by federal income tax law.

The accrued benefit cost for the SERP Agreements totaled $ 12.3 million and $ 11.0 million for 2020 and 2019, respectively.

The expense for the Corporation was $ 2.1 million for 2020, $ 1.3 million for 2019 and $ 1.0 million for 2018.

The Corporation has entered into Supplemental Executive Retirement Plan Agreements (the "SERP Agreements") with certain key officers of Park National Corporation and its subsidiaries which provide defined pension benefits in excess of limits imposed by federal income tax law.

The accrued benefit cost for the SERP Agreements totaled $ 13.4 million and $ 12.3 million for 2021 and 2020, respectively, and is recorded within "Other liabilities" on the Consolidated Balance Sheets .

The expense for the Corporation was as follows:

(In thousands) 2021 2020 2019 Affected Line Item in the Consolidated

Statements of Income

Service cost $ 1,345 $ 1,680 $ 816 Employee benefits

Interest cost 510 403 484 Miscellaneous expense

Total SERP expense $ 1,855 $ 2,083 $ 1,300

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

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Deferred tax assets:

Allowance for loan losses $ 19,512 $ 12,120

Allowance for credit losses $ 18,153 $ 19,512

Accumulated other comprehensive loss – Pension Plan 1,540 9,150

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Net operating loss ("NOL") carryforward 3,197 3,629

Fixed assets 249 —

Operating lease liability 3,111 3,561

Partnership adjustments 69 —

Other 1,854 1,424

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Statutory federal corporate income tax rate 21.0 % 21.0 % 21.0 %

21.0 % 21.0 % 21.0 %

Changes in rates resulting from:

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Bank owned life insurance ( 0.5 ) % ( 0.7 ) % ( 0.8 ) %

( 0.7 ) % ( 0.8 ) % ( 1.1 ) %

Investments in qualified affordable housing projects, net of tax benefits ( 0.8 ) % ( 1.1 ) % ( 1.5 ) %

( 1.1 ) % ( 1.5 ) % ( 1.3 ) %

KSOP dividend deduction ( 0.5 ) % ( 0.6 ) % ( 0.6 ) %

Non-taxable gain on NewDominion common stock

— % — % ( 0.6 ) %

0.2 % 1.6 % 0.3 %

Other 0.2 % 0.2 % 1.6 %

Effective Tax Rate 18.2 % 17.3 % 17.7 %

Park and its subsidiaries do not pay state income tax to the state of Ohio, but pay a franchise tax based on equity.

Park National Corporation and its subsidiaries do not pay state income tax to the state of Ohio, but pay a franchise tax based on equity.

The franchise tax expense is included in "State tax expense" on Park’s Consolidated Statements of Income.

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State income tax expense is included in “Income taxes” on Park’s Consolidated Statements of Income.

Park’s state income tax expense was $ 1.1 million and $ 1.2 million for the years ended December 31, 2020 and 2019, respectively.

Park’s state income tax expense was $ 1.0 million, $ 1.1 million and $ 1.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Unrecognized Tax Benefits

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Park does not expect the total amount of unrecognized tax benefits to significantly increase or decrease during the next year.

The income (expense) related to interest and penalties recorded on unrecognized tax benefits in the Consolidated Statements of Income for the years ended December 31, 2020, 2019, and 2018 was $ 35,000 , $ 7,500 , and $( 79,500 ), respectively.

The income related to interest and penalties recorded on unrecognized tax benefits in the Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019 was $ 45,500 , $ 35,000 , and $ 7,500 , respectively.

The amount accrued for interest and penalties at December 31, 2021, 2020 and 2019 was $ 65,500 , $ 111,000 and $ 146,000 , respectively.

Park and its subsidiaries are subject to U.S.

Park National Corporation and its subsidiaries are subject to U.S.

federal income tax and income tax in various state jurisdictions.

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Other comprehensive income (loss) components, net of income tax, are shown in the following table for the years ended December 31, 2021, 2020 and 2019.

Year ended December 31,

(in thousands) Changes in Pension Plan assets and benefit obligations Unrealized gains (losses) on AFS debt securities Unrealized net holding loss on cash flow hedge Total

Beginning balance at January 1, 2021 $ ( 34,421 ) $ 40,690 $ ( 698 ) $ 5,571

Other comprehensive income (loss) before reclassifications 26,875 ( 19,537 ) 492 $ 7,830

Amounts reclassified from accumulated other comprehensive loss 1,754 — — $ 1,754

Net current period other comprehensive income (loss) income $ 28,629 $ ( 19,537 ) $ 492 $ 9,584

Ending balance at December 31, 2021 $ ( 5,792 ) $ 21,153 $ ( 206 ) $ 15,155

Beginning balance at January 1, 2020 $ ( 26,674 ) $ 17,539 $ ( 454 ) $ ( 9,589 )

Other comprehensive (loss) income before reclassifications ( 8,675 ) 25,747 ( 244 ) $ 16,828

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Ending balance at December 31, 2019 $ ( 26,674 ) $ 17,539 $ ( 454 ) $ ( 9,589 )

Beginning balance at January 1, 2018, as previously presented $ ( 23,526 ) $ ( 2,928 ) $ — $ ( 26,454 )

Cumulative effect of change in accounting principle for marketable equity securities, net of tax — ( 995 ) — ( 995 )

Beginning balance at January 1, 2018, as adjusted ( 23,526 ) ( 3,923 ) — ( 27,449 )

Reclassification of disproportionate income tax effects ( 3,175 ) ( 631 ) — ( 3,806 )

Net current period activity

Other comprehensive loss before reclassifications ( 4,046 ) ( 17,586 ) — ( 21,632 )

Amounts reclassified from accumulated other comprehensive loss 1,075 2,024 — 3,099

Net current period other comprehensive loss ( 2,971 ) ( 15,562 ) — ( 18,533 )

Ending balance at December 31, 2018 $ ( 29,672 ) $ ( 20,116 ) $ — $ ( 49,788 )

(1) During the year ended December 31, 2019, Park transferred HTM securities with a fair value of $ 373.9 million to AFS classification.

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Park awarded 61,890 , 62,265 and 58,740 PBRSUs to certain employees during the years ended December 31, 2021, 2020 and 2019, respectively.

Park awarded 15,700 TBRSUs to Carolina Alliance Division employees during the year ended December 31, 2019 and awarded 13,637 TBRSUs to NewDominion Division employees during the year ended December 31, 2018.

Park awarded 15,700 TBRSUs to Carolina Alliance Division employees during the year ended December 31, 2019.

On April 1, 2019, Park issued 1,037,205 common shares to complete its acquisition of Carolina Alliance.

On July 1, 2018, Park issued 435,457 common shares to complete its acquisition of NewDominion.

These common shares are included in average common shares outstanding beginning on those dates.

During the years ended December 31, 2020, 2019 and 2018, Park repurchased 76,000 , 86,650 and 50,000 common shares, respectively, to fund the PBRSUs, TBRSUs and common shares awarded to directors of Park and to directors of PNB (and its divisions) and repurchased 334,603 common shares during the year ended December 31, 2019 pursuant to Park's previously announced stock repurchase authorizations.

During the years ended December 31, 2021, 2020 and 2019, Park repurchased 75,000 , 76,000 and 86,650 common shares, respectively, to fund the PBRSUs, TBRSUs and common shares awarded to directors of Park and to directors of PNB (and its divisions) and repurchased 62,659 and 334,603 common shares during the years ended December 31, 2021 and 2019, respectively, pursuant to Park's previously announced stock repurchase authorizations.

There were no common shares repurchased during the year ended December 31, 2020 pursuant to Park's previously announced stock repurchase authorizations.

Dividend Restrictions

Bank regulators limit the amount of dividends a subsidiary bank can declare in any calendar year without obtaining prior approval.

At December 31, 2020, approximately $ 101.8 million of the total shareholders’ equity of PNB was available for the payment of dividends to the Corporation, without approval by the applicable regulatory authorities.

At December 31, 2021, approximately $ 116.8 million of the total shareholders’ equity of PNB was available for the payment of dividends to Park National Corporation, without approval by the applicable regulatory authorities.

Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk

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These financial instruments include loan commitments and standby letters of credit.

The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments.

The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements.

The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

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Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and real estate.

Although the Corporation has a diversified loan portfolio, a substantial portion of the borrowers’ ability to honor their contracts is dependent upon the economic conditions the borrowers' respective geographic locations and industries.

Although the Corporation has a diversified loan portfolio, a substantial portion of the borrowers’ ability to honor their contracts is dependent upon the economic conditions of the borrowers' respective geographic locations and industries.

Loan Servicing

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Servicing fees included in other service income were $ 5.3 million, $ 4.1 million and $ 3.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Park is a lessee in several noncancellable operating lease arrangements, primarily for retail branches, administrative and warehouse buildings, ATMs, and certain office equipment within its Ohio, North Carolina, South Carolina, and Kentucky markets.

Certain of these leases contain renewal options for periods ranging from one year to five years.

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Payments due under the lease contracts include fixed payments plus, for many of Park’s real estate leases, variable payments such as Park's proportionate share of property taxes, insurance, and common area maintenance.

The Company adopted ASU 2016-02, Leases (ASC 842), using the modified retrospective method as of the date of adoption, January 1, 2019, as permitted by the amendments in ASU 2018-11.

As a result, the Company was not required to adjust its comparative period financial information for effects of the adoption of the standard or make the new required lease disclosures for periods prior to the effective date.

Upon adoption of this accounting guidance on January 1, 2019, Park recorded an initial ROU asset of $ 11.0 million, and a lease liability of $ 11.8 million, and reclassified an existing deferred rent liability of $ 0.6 million.

The impact to the Company's retained earnings, net of the tax impact, was $ 143,000 .

Management elected to adopt the package of transition practical expedients and, therefore, has not reassessed (1) whether

existing or expired contracts contain a lease, (2) the lease classification for existing or expired leases or (3) the accounting for

initial direct costs that were previously capitalized.

The Company did not elect the practical expedient to use hindsight for

leases existing at the adoption date.

Park elected the practical expedient, by class of underlying asset, to not separate non-lease

components from the associated lease components.

Additionally, Park has elected not to recognize ROU assets and lease

liabilities for short-term leases that have a lease term of 12 months or less.

The Company recognizes the lease payments

associated with its short-term leases as an expense on a cash basis.

Park elected the practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease components.

Additionally, Park has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less.

The Company recognizes the lease payments associated with its short-term leases as an expense on a cash basis.

Management determines if an arrangement is or contains a lease at contract inception.

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Key estimates and judgments related to the lease liability include how management determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) the lease term, and (3) lease payments.

• ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate.

Generally, management cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs.

• ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that interest rate cannot be readily determined, its incremental borrowing rate.Generally, management cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs.

Therefore, Park utilizes its incremental borrowing rate as the discount rate for leases.

Park’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

Park’s incremental borrowing rate for a lease is the rate of interest Park would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

To manage its capital and liquidity needs, Park periodically obtains wholesale funding from the FHLB on an over-collateralized basis.

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• The lease term for all of the Company’s leases includes the noncancellable period of the lease plus any additional periods covered by either Park's option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.

If a lease contract contains multiple renewal options, management generally models lease cash flows through the first renewal option period unless the contract contains economic incentives or other conditions that increase or decrease the likelihood that additional renewals are reasonably certain to be exercised.

If a lease contract contains multiple renewal options, management generally models lease cash flows through the first renewal option period unless the contract contains economic incentives or other conditions that increase the likelihood that additional renewals are reasonably certain to be exercised.

• Lease payments included in the measurement of the lease liability are comprised of the following:

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– Variable lease payments that depend on an index or rate, initially measured using the index or rate at the lease commencement date.

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments

made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received.

operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability,

plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received.

For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

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Other information related to operating leases for the years ended December 31, 2021, 2020 and 2019 follows:

(Dollars in thousands) Year ended December 31, 2020 Year ended December 31, 2019

(in thousands) Year ended December 31, 2021 Year ended December 31, 2020 Year ended December 31, 2019

Operating lease cost $ 2,827 $ 3,463 $ 3,165

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Reductions to ROU assets resulting from reductions to lease obligations $ ( 2,865 ) $ ( 3,084 ) $ ( 2,855 )

At both December 31, 2020 and 2019, Park's operating leases had a weighted average remaining term of 7.2 years.

The weighted average discount rate of Park's operating leases was 2.3 % and 3.1 % at December 31, 2020 and 2019, respectively.

Park's operating leases had a weighted average remaining term of 6.8 years and 7.2 years at December 31, 2021 and 2020, respectively.

At both December 31, 2021 and 2020, the weighted average discount rate of Park's operating leases was 2.3 %.

Undiscounted cash flows included in lease liabilities at December 31, 2021 have expected contractual payments as follows:

4 unchanged sentences

Total lease liabilities $ 14,339

In September 2021, the Company entered into a noncancellable operating lease for an additional retail office for an initial term of 12 years, with two five-year renewal options.

The lease commences on July 1, 2022, and therefore, is not recognized as of December 31, 2021.

The fixed payments due on an undiscounted basis over the noncancellable 12-year period of the lease are $ 3.5 million.

The Company will assess the lease term at the lease commencement date, but does not presently expect that either of the five-year renewal periods will be exercised.

In December 2021, the Company entered into a noncancellable operating lease for an additional retail office for an initial term of 10 years, with two five-year renewal options.

The lease is expected to commence sometime during June 2022 and September 2022, and therefore, is not recognized as of December 31, 2021.

The fixed payments due on an undiscounted basis over the noncancellable 10-year period of the lease are $ 3.5 million.

The Company will assess the lease term at the lease commencement date, but does not presently expect that either of the five-year renewal periods will be exercised.

The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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However, certain assets and liabilities are not traded in observable markets and Park must use other valuation methods to develop a fair value.

The fair value of impaired loans is typically based on the fair value of the underlying collateral, which is estimated through third-party appraisals in accordance with Park's valuation requirements under its commercial and real estate loan policies.

The fair value of individually evaluated collateral dependent loans is typically based on the fair value of the underlying collateral, which is estimated through third-party appraisals in accordance with Park's valuation requirements under its commercial and real estate loan policies.

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

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Government sponsored entities’ asset-backed securities — 854,463 — 854,463

Collateralized loan obligations — 498,674 — 498,674

Corporate debt securities — 11,412 — 11,412

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Government sponsored entities’ asset-backed securities — 752,109 — 752,109

Corporate debt securities — 2,014 — 2,014

Equity securities 2,026 — 485 2,511

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Fair value swap:

The fair value of the swap agreement entered into with the purchaser of the Visa Class B shares represents an internally developed estimate of the exposure based upon probability-weighted potential Visa litigation losses.

Mortgage Interest Rate Lock Commitments:

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Balance at January 1, 2021 $ 485 $ ( 226 )

Total Gains (Losses)

Included in other income 14 —

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Balance at January 1, 2020 $ 456 $ ( 226 )

Total Gains (Losses)

Included in other income 29 —

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

Impaired Loans:

At the time a loan is considered impaired, it is valued at the lower of cost or fair value.

Collateral dependent impaired loans carried at fair value have been partially charged-off or receive specific allocations of the allowance for loan losses.

Individually evaluated collateral dependent loans:

When a loan is individually evaluated, it is valued at the lower of cost or fair value.

Collateral dependent loans which are individually evaluated and carried at fair value have been partially charged off or receive specific allocations of the allowance for credit losses.

For collateral dependent loans, fair value is generally based on real estate appraisals.

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Collateral is then adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’s business, resulting in a Level 3 fair value classification.

Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Additionally, updated independent valuations are obtained annually for all impaired loans in accordance with Company policy.

Individually evaluated loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Additionally, updated independent valuations are obtained annually for all collateral dependent loans in accordance with Company policy.

Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired.

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Such adjustments result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral dependent impaired loans and OREO are performed by licensed appraisers.

Appraisals for both individually evaluated collateral dependent loans and OREO are performed by licensed appraisers.

Appraisals are generally obtained to support the fair value of collateral.

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The following tables present assets and liabilities measured at fair value on a nonrecurring basis.

Collateral dependent impaired loans are carried at fair value if they have been charged down to fair value or if a specific valuation allowance has been established.

As of December 31, 2020 and 2019, there were no PCI loans carried at fair value.

Individually evaluated collateral dependent loans secured by real estate are carried at fair value if they have been charged down to fair value or if a specific valuation allowance has been established.

As of December 31, 2021 and 2020, there were no PCD loans carried at fair value.

A new cost basis is established at the time a property is initially recorded in OREO.

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(In thousands) Level 1 Level 2 Level 3 Balance at December 31, 2021

Impaired loans recorded at fair value:

Individually evaluated collateral dependent loans recorded at fair value:

Commercial real estate $ — $ — $ 831 $ 831

Residential real estate — — 272 272

Total impaired loans recorded at fair value $ — $ — $ 6,924 $ 6,924

Total individually evaluated collateral dependent loans recorded at fair value $ — $ — $ 1,103 $ 1,103

MSRs $ — $ 13,482 $ — $ 13,482

OREO recorded at fair value:

Commercial real estate — — — —

Residential real estate — — 775 775

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OREO recorded at fair value:

Commercial real estate — — 2,295 2,295

Residential real estate — — 735 735

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Other repossessed assets $ — $ — $ 3,164 $ 3,164

The table below provides additional detail on those impaired loans which are recorded at fair value as well as the remaining impaired loan portfolio not included above.

The remaining impaired loans consist of loans which are not collateral dependent as well as loans carried at cost as the fair value of the underlying collateral or the present value of expected future cash flows on each of the loans exceeded the book value for each respective credit.

The table below provides additional detail on those individually evaluated loans which are recorded at fair value as well as the remaining individually evaluated loan portfolio not included above.

The remaining individually evaluated loans consist of 1) loans which are not collateral dependent, 2) loans which are not secured by real estate, and 3) loans carried at cost as the fair value of the underlying collateral or the present value of expected future cash flows on each of the loans exceeded the book value for each respective credit.

December 31, 2021

(In thousands) Recorded Investment Prior Charge-Offs Specific Valuation Allowance Carrying Balance

Impaired loans recorded at fair value $ 8,256 $ 269 $ 1,332 $ 6,924

Remaining impaired loans 100,199 386 4,102 96,097

Total impaired loans $ 108,455 $ 655 $ 5,434 $ 103,021

(In thousands) Loan

Balance Prior Charge-Offs Specific Valuation Allowance Carrying Balance

Total individually evaluated collateral dependent loans recorded at fair value $ 1,291 $ 240 $ 188 $ 1,103

Remaining individually evaluated loans 73,211 384 1,428 71,783

Total individually evaluated loans $ 74,502 $ 624 $ 1,616 $ 72,886

December 31, 2020

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Total impaired loans $ 108,455 $ 655 $ 5,434 $ 103,021

The expense from credit adjustments related to impaired loans carried at fair value for the years ended December 31, 2020, 2019 and 2018 was $ 4.7 million, $ 0.2 million, and $ 0.4 million, respectively.

The income (expense) from credit adjustments related to individually evaluated/impaired loans carried at fair value for the years ended December 31, 2021, 2020 and 2019 was $ 0.5 million, $( 4.7 ) million, and $( 0.2 ) million, respectively.

MSRs totaled $ 15.3 million at December 31, 2021.

Of this $ 15.3 million MSR carrying balance, $ 13.5 million was recorded at fair value and included a valuation allowance of $ 1.6 million.

The remaining $ 31,000 was recorded at cost, as the fair value exceeded cost at December 31, 2020.

The remaining $ 1.8 million was recorded at cost, as the fair value exceeded cost at December 31, 2021.

At December 31, 2020, MSRs totaled $ 12.2 million.

Of this $ 12.2 million MSR carrying balance, $ 12.2 million was recorded at fair value and included a valuation allowance of $ 3.2 million.

T he remaining $ 4.3 million was recorded at cost, as the fair value exceeded cost at December 31, 2019.

The (expense) income related to MSRs carried at fair value for the years ended December 31, 2020, 2019 and 2018 was $( 2.4 ) million, $( 0.6 ) million and $ 0.4 million, respectively.

T he remaining $ 31,000 was recorded at cost, as the fair value exceeded cost at December 31, 2020.

The income (expense) related to MSRs carried at fair value for the years ended December 31, 2021, 2020 and 2019 was $ 1.6 million, $( 2.4 ) million and $( 0.6 ) million, respectively.

Total OREO held by Park at December 31, 2021 and 2020 was $ 0.8 million and $ 1.4 million, respectively.

Approximately 100 % and 51 % of OREO held by Park at December 31, 2021 and 2020, respectively, was carried at fair value due to fair value adjustments made subsequent to the initial OREO measurement.

At December 31, 2020 and 2019, OREO held at fair value, less estimated selling costs, amounted to $ 735,000 and $ 3.0 million, respectively.

The net income (expense) related to OREO

fair value adjustments was $ 0.1 million, $( 0.2 ) million and $( 0.5 ) million for the years ended December 31, 2020, 2019 and 2018, respectively.

At December 31, 2021 and 2020, OREO held at fair value,

less estimated selling costs, amounted to $ 0.8 million and $ 0.7 million, respectively.

The net (expense) income related to OREO fair value adjustments was $( 32,000 ) , $ 0.1 million and $( 0.2 ) million for the years ended December 31, 2021, 2020 and 2019, respectively.

Other repossessed assets totaled $ 3.3 million at December 31, 2021, of which $ 2.8 million were recorded at fair value.

Other repossessed asset totaled $ 3.6 million at December 31, 2020, of which $ 3.2 million were recorded at fair value.

The net expense related to other repossessed asset fair value adjustments was $ 435,000 for th e year ended December 31, 2020.

The net expense related to fair value adjustments on other repossessed assets was $ 414,000 and $ 435,000 for the years ended December 31, 2021 and 2020, respectively.

There was no expense related to fair value adjustments on other repossessed assets for the year ended December 31, 2019.

The net expense related to other repossessed asset fair value adjustments was $ 269,000 for the year ended December 31, 2018.

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2021 and December 31, 2020:

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(In thousands) Fair Value Valuation Technique Unobservable Input(s) Range (Weighted Average)

Impaired loans:

Individually evaluated collateral dependent loans:

Commercial real estate $ 831 Sales comparison approach Adj to comparables 0.0 % - 232.0 % ( 28.3 %)

Income approach Capitalization rate 9.3 % - 20.0 % ( 10.3 %)

Cost approach Entrepreneurial profit 10.0 % ( 10.0 %)

Cost approach Accumulated depreciation 2.6 % ( 2.6 %)

Residential real estate $ 272 Sales comparison approach Adj to comparables 0.5 % - 78.6 % ( 11.6 %)

Cost approach Accumulated depreciation 8.3 % ( 8.3 %)

Other real estate owned:

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Commercial real estate $ 6,749 Sales comparison approach Adj to comparables 0.0 % - 139.0 % ( 11.8 %)

Income approach Capitalization rate 9.3 % - 20.0 % ( 10.3 %)

Cost approach Entrepreneurial profit 10.0 % ( 10.0 %)

Cost approach Accumulated depreciation 2.6 % ( 2.6 %)

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Other real estate owned:

Commercial real estate $ 2,295 Sales comparison approach Adj to comparables 0.9 % - 68.4 % ( 34.7 %)

Income approach Capitalization rate 13.0 % ( 13.0 %)

Residential real estate $ 735 Sales comparison approach Adj to comparables 7.8 % - 9.9 % ( 8.9 %)

Assets Measured at Net Asset Value:

Park's portfolio of equity investments in limited partnerships which provide mezzanine funding ("Partnership Investments") are

valued using the NAV practical expedient in accordance with ASC 820.

Park's portfolio of equity investments in limited partnerships which provide mezzanine funding ("Partnership Investments") are valued using the NAV practical expedient in accordance with ASC 820.

As of December 31, 2021 and December 31, 2020, Park had Partnerships Investments with a NAV of $ 18.0 million and $ 15.4 million, respectively.

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Mortgage IRLCs 333 — 333 — 333

Impaired loans carried at fair value 6,924 — — 6,924 6,924

Individually evaluated loans carried at fair value 1,103 — — 1,103 1,103

Other loans, net 6,777,102 — — 6,783,848 6,783,848

5 unchanged sentences

Short-term borrowings $ 238,786 $ — $ 238,786 $ — $ 238,786

Long-term debt 32,500 — 31,376 — 31,376

Subordinated notes 188,210 — 207,912 — 207,912

5 unchanged sentences

Loan interest rate swaps 1,952 — 1,952 — 1,952

(1) Includes AFS debt securities.

(1) Includes debt securities AFS.

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

26 unchanged sentences

Loan interest rate swaps 3,934 — 3,934 — 3,934

(1) Includes AFS debt securities and HTM debt securities.

(1) Includes debt securities AFS.

3 unchanged sentences

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 above the adequately capitalized risk-based capital ratios.

The capital conservation buffer was fully phased in at 2.50 % on January 1, 2019.

The following amount shown as the adequately capitalized ratio plus the capital conservation buffer includes the 2.50% buffer.

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.

58 unchanged sentences

The Corporation is a financial holding company headquartered in Newark, Ohio.

The operating segments for the Corporation are PNB and GFSC.

"All Other", which primarily consists of Park as the "Parent Company" and SEPH, is shown to reconcile the segment totals to the consolidated statements of income.

The reportable segment for the Corporation is its chartered national bank subsidiary, PNB (headquartered in Newark, Ohio).

"All Other", which primarily consists of Park as the "Parent Company", SEPH and GFSC, is shown to reconcile the segment totals to the Consolidated Statements of Income.

GAAP requires management to disclose information about the different types of business activities in which a company engages and also information on the different economic environments in which a company operates, so that the users of the financial statements can better understand a company’s performance, better understand the potential for future cash flows, and make more informed judgments about the company as a whole.

Park’s current operating segments are in line with U.S.

(i) discrete financial information is available for each operating segment and (ii) the segments are aligned with internal reporting to Park’s Chief Executive Officer, who is the chief operating decision-maker.

Park has one reportable segment as:

(i) discrete financial information is available for this reportable segment and (ii) this segment is aligned with internal reporting to Park’s Chief Executive Officer, who is the chief operating decision-maker.

Operating results for the year ended December 31, 2021 (In thousands)

PNB GFSC All Other Total

Net interest income (expense) $ 326,375 $ 3,785 $ ( 2,530 ) $ 327,630

Provision for (recovery of) loan losses 30,813 196 ( 18,955 ) 12,054

PNB All Other Total

Net interest income $ 328,398 $ 1,495 $ 329,893

Recovery of credit losses ( 8,554 ) ( 3,362 ) ( 11,916 )

Other income 126,802 3,142 129,944

2 unchanged sentences

Income tax expense (benefit) 37,615 ( 3,325 ) 34,290

Net income $ 123,730 $ 1,139 $ 3,054 $ 127,923

Net income (loss) $ 159,461 $ ( 5,516 ) $ 153,945

Balances at December 31, 2021

3 unchanged sentences

Operating results for the year ended December 31, 2020 (In thousands)

PNB GFSC All Other Total

Net interest income (expense) $ 293,130 $ 5,013 $ ( 406 ) $ 297,737

Provision for (recovery of) loan losses 8,356 754 ( 2,939 ) 6,171

PNB All Other Total

Net interest income $ 326,375 $ 1,255 $ 327,630

Provision for (recovery of) credit losses 30,813 ( 18,759 ) 12,054

Other income 124,231 1,433 125,664

Other expense 268,938 17,657 286,595

Income (loss) before income taxes 139,733 951 ( 15,913 ) 124,771

Income before income taxes 150,855 3,790 154,645

Income tax expense (benefit) 27,125 ( 403 ) 26,722

Net income (loss) $ 113,600 $ 762 $ ( 11,662 ) $ 102,700

Net income $ 123,730 $ 4,193 $ 127,923

Balances at December 31, 2020

3 unchanged sentences

Operating results for the year ended December 31, 2019 (In thousands)

PNB GFSC All Other Total

PNB All Other Total

Net interest income $ 293,130 $ 4,607 $ 297,737

Provision for (recovery of) loan losses 7,569 1,328 ( 952 ) 7,945

Provision for (recovery of) credit losses 8,356 ( 2,185 ) 6,171

Other income 92,392 4,801 97,193

2 unchanged sentences

Income tax expense (benefit) 26,133 ( 4,062 ) 22,071

Net income $ 109,472 $ 521 $ 394 $ 110,387

Net income (loss) $ 113,600 $ ( 10,900 ) $ 102,700

Balances at December 31, 2019

3 unchanged sentences

The operating results in the "All Other" column are used to reconcile the segment totals to the Consolidated Statements of Income.

The reconciling amounts for consolidated total assets, loans and deposits consist of the elimination of intersegment borrowings, intersegment loans, intersegment deposits, and the assets of the Parent Company and SEPH which were not eliminated.

The following is a reconciliation of financial information for the reportable segments to the Corporation’s consolidated totals:

18 unchanged sentences

Cash represents non-interest bearing deposits with PNB.

Net cash provided by operating activities reflects cash payments (received from subsidiaries) for income taxes of $ 6.8 million, $ 4.1 million and $ 3.9 million in 2020, 2019 and 2018, respectively.

Net cash provided by operating activities reflects cash payments (received from subsidiaries) partially offset by cash payments to government entities for income taxes of $ 4.3 million, $ 5.6 million and $ 5.3 million in 2021, 2020 and 2019, respectively.

Condensed Balance Sheets

30 unchanged sentences

Net income $ 153,945 $ 127,923 $ 102,700

Other comprehensive income (loss) (1)

Other comprehensive income (1)

9,584 15,160 40,199

10 unchanged sentences

Share-based compensation expense 6,345 5,998 4,999

Gain (loss) on equity securities, net 245 ( 4,204 ) ( 3,267 )

(Loss) gain on equity securities, net ( 1,218 ) 245 ( 4,204 )

Decrease (increase) in other assets 8,249 6,632 ( 8,544 )

2 unchanged sentences

Investing activities:

Proceeds from sales of securities 934 — —

Outlays for business acquisitions — — ( 28,630 )

Other, net 2,332 ( 2,621 ) 5,723

Net cash used in investing activities ( 2,621 ) ( 22,907 ) ( 30,624 )

Net cash provided by (used in) investing activities 3,266 ( 2,621 ) ( 22,907 )

Financing activities:

5 unchanged sentences

Value of common shares withheld to pay employee income taxes ( 2,403 ) ( 1,002 ) ( 827 )

Net cash provided by (used) in financing activities 83,755 ( 67,978 ) ( 69,411 )

Increase (decrease) in cash 175,151 ( 1,431 ) ( 4,358 )

Net cash (used in) provided by financing activities ( 125,263 ) 83,755 ( 67,978 )

(Decrease) increase in cash ( 5,283 ) 175,151 ( 1,431 )

Cash at beginning of year 248,814 73,663 75,094

2 unchanged sentences

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

The following table presents the Corporation's sources of other income by revenue stream and operating segment for the years ended December 31, 2020, December 31, 2019 and December 31, 2018.

The following table presents the Corporation's sources of other income by revenue stream and operating segment for the years ended December 31, 2021, 2020, and 2019

Year ended December 31, 2021

Revenue by Operating Segment (in thousands) PNB GFSC All Other Total

Revenue by Operating Segment (in thousands) PNB All Other Total

Income from fiduciary activities

17 unchanged sentences

ATM fees 2,379 — 2,379

Gain on the sale of OREO, net 836 — 371 1,207

Net gain on the sale of investment securities (2)

3,286 — — 3,286

Gain (loss) on equity securities, net (2)

Loss on the sale of OREO, net ( 4 ) — ( 4 )

Gain on equity securities, net (2)

3,793 1,218 5,011

8 unchanged sentences

Year ended December 31, 2020

Revenue by Operating Segment (in thousands) PNB GFSC All Other Total

Revenue by Operating Segment (in thousands) PNB All Other Total

Income from fiduciary activities

17 unchanged sentences

ATM fees 1,773 — 1,773

Loss on the sale of OREO, net ( 110 ) — ( 112 ) ( 222 )

Net loss on sale of investment securities (2)

Gain on the sale of OREO, net 836 371 1,207

Net gain on sale of investment securities (2)

3,286 — 3,286

Gain on equity securities, net (2)

Gain (loss) on equity securities, net (2)

2,429 ( 247 ) 2,182

8 unchanged sentences

Year ended December 31, 2019

Revenue by Operating Segment (in thousands) PNB GFSC All Other Total

Revenue by Operating Segment (in thousands) PNB All Other Total

Income from fiduciary activities

17 unchanged sentences

ATM fees 1,828 — 1,828

Gain on the sale of OREO, net 1,440 — 2,795 4,235

Net gain on sale of investment securities (2)

Loss on the sale of OREO, net ( 110 ) ( 112 ) ( 222 )

Net loss on sale of investment securities (2)

( 421 ) — ( 421 )

3 unchanged sentences

4,587 145 4,732

Gain on sale of non-performing loans 660 — 2,166 2,826

Miscellaneous (3)

6 unchanged sentences

Income from fiduciary activities (gross) :

Park earns fiduciary fee income and investment brokerage fees from its contracts with trust customers for various fiduciary and investment-related services.

Park earns fiduciary fee income and investment brokerage fees from Park's contracts with trust customers for various fiduciary and investment-related services.

These fees are earned over time as the Company provides the contracted monthly and quarterly services and are generally assessed based on the market value of the trust assets.

Service charges on deposit accounts and ATM fees :

The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services.

The Corporation earns fees from the Corporation's deposit customers for transaction-based, account maintenance, and overdraft services.

Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's request.

5 unchanged sentences

Income related to the sale and servicing of loans sold to the secondary market is included within Other service income, but is not within the scope of ASC 606.

Services that fall within the scope of ASC 606 are recognized as revenue when the Company satisfies its performance obligation to the customer.

Services that fall within the scope of ASC 606 are recognized as revenue when the Company satisfies the Company's performance obligation to the customer.

Debit card fee income :

4 unchanged sentences

When Park finances the sale of OREO to the buyer, the Corporation assesses whether the buyer is committed to perform the buyer's obligation under the contract and whether collectability of the transaction price is probable.

Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.

In determining the gain or loss on the sale, the Corporation adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

Quarterly Financial Data (Unaudited)

The following table is a summary of selected quarterly results of operations for the years ended December 31, 2020 and 2019.

Three Months Ended

(Dollars in thousands, except share data) March 31 June 30 Sept.

Interest income $ 88,909 $ 87,445 $ 89,566 $ 91,800

Interest expense 12,626 6,259 5,726 5,479

Net interest income 76,283 81,186 83,840 86,321

Provision for (recovery of) loan losses 5,153 12,224 13,836 ( 19,159 )

Income before income taxes 27,340 35,127 36,703 55,475

Net income 22,372 29,505 30,846 45,200

Per common share data:

Net income per common share - basic 1.37 1.81 1.89 2.77

Net income per common share - diluted 1.36 1.80 1.88 2.75

Weighted-average common shares outstanding - basic 16,303,602 16,296,427 16,300,720 16,310,551

Weighted-average common shares equivalent - diluted 16,425,881 16,375,434 16,393,792 16,434,812

Interest income $ 81,856 $ 92,226 $ 94,589 $ 91,829

Interest expense 14,080 16,375 17,488 14,820

Net interest income 67,776 75,851 77,101 77,009

Provision for (recovery of) loan losses 2,498 1,919 1,967 ( 213 )

Income before income taxes 30,476 26,548 37,532 30,215

Net income 25,455 22,163 31,146 23,936

Per common share data:

Net income per common share - basic 1.63 1.34 1.90 1.46

Net income per common share - diluted 1.62 1.33 1.89 1.45

Weighted-average common shares outstanding - basic 15,651,541 16,560,545 16,382,798 16,342,485

Weighted-average common shares equivalent - diluted 15,744,777 16,642,571 16,475,741 16,454,553

The sum of the quarterly earnings per share data presented in the table may not equal the annual results due to rounding and the impact of dilutive common shares on the annual versus the quarterly earnings per share calculation.

Once these criteria are met, the OREO asset is derecognized and the gain is recorded upon the transfer of control of the property to the buyer.

In determining the gain on the sale, the Corporation adjusts the transaction price and related gain on sale if a significant financing component is present.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

1 unchanged sentence

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 8. Financial Statements and Supplementary Data