PARK NATIONAL CORP /OH/ 10-Q

prk-20220331 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to __________________________ Commission File Number 1-13006 PARK NATIONAL CORPORATION (Exact name of registrant as specified in its charter) Ohio 31-1179518 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 50 North Third Street, P.O. Box 3500 Newark, Ohio 43058-3500 (Address of principal executive offices) (Zip Code) (740) 349-8451 (Registrant’s telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common shares, without par value PRK NYSE American Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 16,249,306 Common Shares, no par value per share, outstanding at May 2, 2022. PARK NATIONAL CORPORATION CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets a t March 31, 2022 and December 31, 20 2 1 (unaudited) 5 Consolidated Condensed Statements of Income for the three months ended March 31, 2022 and 20 2 1 (unaudited) 7 Consolidated Condensed Statements of Comprehensive ( Loss) Income for the three months ended March 31, 2022 and 20 2 1 (unaudited) 9 Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2022 and 20 2 1 (unaudited) 10 Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2022 and 20 2 1 (unaudited) 11 Notes to Unaudited Consolidated Condensed Financial Statements 13 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 61 Item 3. Quantitative and Qualitative Disclosures About Market Risk 88 Item 4. Controls and Procedures 88 PART II. OTHER INFORMATION 90 Item 1. Legal Proceedings 90 Item 1A. Risk Factors 90 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 90 Item 3. Defaults Upon Senior Securities 91 Item 4. Mine Safety Disclosures 91 Item 5. Other Information 91 Item 6. Exhibits 91 SIGNATURES 94 3 Glossary of Abbreviations and Acronyms Park has identified the following list of abbreviations and acronyms that are used in the Notes to Unaudited Consolidated Condensed Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. AFS Available-for-sale LIBOR London Inter-Bank Offered Rate ACL Allowance for credit losses MSRs Mortgage servicing rights Allowance Allowance for credit losses NAV Net asset value AOCI Accumulated other comprehensive (loss) income NewDominion NewDominion Bank ASC Accounting Standards Codification OCI Other comprehensive (loss) income ASU Accounting Standards Update OREO Other real estate owned AUCL Allowance for unfunded credit losses OWS One-way sell CARES Act Coronavirus Aid, Relief, and Economic Security Act Park Park National Corporation and its subsidiaries Carolina Alliance CAB Financial Corporation and its subsidiaries PBRSUs Performance-based restricted stock units CECL Current expected credit loss PCD Purchased credit deteriorated COVID-19 Novel coronavirus PD Probability of default DCF Discounted cash flow PNB The Park National Bank FASB Financial Accounting Standards Board PPP CARES Act Paycheck Protection Program FHLB Federal Home Loan Bank ROU Right-of-use FRB Federal Reserve Bank SARs Stock appreciation rights GDP Gross domestic product SBA Small Business Administration GFSC Guardian Financial Services Company SEC U.S. Securities and Exchange Commission HPI Home price index SEPH SE Property Holdings, LLC HTM Held-to-maturity TBRSUs Time-based restricted stock units IRLC Interest rate lock commitment TDRs Troubled debt restructurings LDA Loss driver analysis U.S. GAAP United States Generally Accepted Accounting Principles LGD Loss given default U.S. United States 4 Table of Contents PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Balance Sheets (Unaudited) (in thousands, except share and per share data) March 31, 2022 December 31, 2021 Assets: Cash and due from banks $ 159,858 $ 144,507 Money market instruments 87,034 74,673 Cash and cash equivalents 246,892 219,180 Investment securities: Debt securities available-for-sale, at fair value (amortized cost of $ 1,800,956 and $ 1,727,363 at March 31, 2022 and December 31, 2021, respectively, and no allowance for credit losses at March 31, 2022 and December 31, 2021) 1,757,147 1,754,140 Other investment securities 75,127 61,268 Total investment securities 1,832,274 1,815,408 Loans 6,821,606 6,871,122 Allowance for credit losses ( 78,861 ) ( 83,197 ) Net loans 6,742,745 6,787,925 Bank owned life insurance 224,100 215,792 Prepaid assets 147,486 144,124 Goodwill 159,595 159,595 Other intangible assets 7,060 7,462 Premises and equipment, net 87,423 89,008 Affordable housing tax credit investments 56,731 58,711 OREO 760 775 Accrued interest receivable 23,054 23,413 Operating lease right-of-use asset 12,797 13,446 Mortgage loan servicing rights 15,704 15,264 Other 19,731 10,151 Total assets $ 9,576,352 $ 9,560,254 5 Table of Contents PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Balance Sheets (Unaudited) (Continued) (in thousands, except share and per share data) March 31, 2022 December 31, 2021 Liabilities and Shareholders' Equity: Deposits: Non-interest bearing $ 3,055,614 $ 3,066,419 Interest bearing 4,940,704 4,838,109 Total deposits 7,996,318 7,904,528 Short-term borrowings 205,927 238,786 Subordinated notes 188,322 188,210 Unfunded commitments in affordable housing tax credit investments 21,232 28,484 Operating lease liability 13,568 14,339 Allowance for credit losses on off-balance sheet commitments 3,771 4,282 Accrued interest payable 1,147 3,116 Other 69,701 67,750 Total liabilities $ 8,499,986 $ 8,449,495 Shareholders' equity: Preferred shares ( 200,000 shares authorized; 0 shares issued) $ — $ — Common shares (No par value; 20,000,000 shares authorized; 17,623,106 shares issued at March 31, 2022 and 17,623,118 shares issued at December 31, 2021) 459,271 461,800 Retained earnings 797,033 776,294 Treasury shares ( 1,373,798 shares at March 31, 2022 and 1,403,555 shares at December 31, 2021) ( 139,469 ) ( 142,490 ) Accumulated other comprehensive (loss) income, net of taxes ( 40,469 ) 15,155 Total shareholders' equity 1,076,366 1,110,759 Total liabilities and shareholders’ equity $ 9,576,352 $ 9,560,254 SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 6 Table of Contents PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Income (Unaudited) (in thousands, except share and per share data) Three Months Ended March 31, 2022 2021 Interest and dividend income: Interest and fees on loans $ 72,416 $ 78,737 Interest and dividends on: Debt securities - taxable 6,130 4,256 Debt securities - tax-exempt 2,447 2,037 Other interest income 153 143 Total interest and dividend income 81,146 85,173 Interest expense: Interest on deposits: Demand and savings deposits 351 386 Time deposits 720 1,584 Interest on borrowings: Short-term borrowings 244 183 Long-term debt 2,145 2,286 Total interest expense 3,460 4,439 Net interest income 77,686 80,734 Recovery of credit losses ( 4,605 ) ( 4,855 ) Net interest income after recovery of credit losses $ 82,291 $ 85,589 Other income: Income from fiduciary activities $ 8,797 $ 8,173 Service charges on deposit accounts 2,074 2,054 Other service income 4,819 9,617 Debit card fee income 6,126 6,086 Bank owned life insurance income 1,175 1,165 ATM fees 532 530 Loss on sale of OREO, net — ( 33 ) Gain on equity securities, net 2,353 1,810 Other components of net periodic pension benefit income 3,027 2,038 Miscellaneous 2,753 2,649 Total other income $ 31,656 $ 34,089 7 Table of Contents PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Income (Unaudited) (Continued) (in thousands, except share and per share data) Three Months Ended March 31, 2022 2021 Other expense: Salaries $ 30,521 $ 29,896 Employee benefits 10,499 10,201 Occupancy expense 3,214 3,640 Furniture and equipment expense 2,937 2,610 Data processing fees 7,504 7,712 Professional fees and services 5,858 5,664 Marketing 1,317 1,491 Insurance 1,405 1,691 Communication 890 1,122 State tax expense 1,192 1,108 Amortization of intangible assets 402 479 Miscellaneous 1,634 2,251 Total other expense $ 67,373 $ 67,865 Income before income taxes $ 46,574 $ 51,813 Income taxes 7,699 8,982 Net income $ 38,875 $ 42,831 Earnings per common share: Basic $ 2.40 $ 2.63 Diluted $ 2.38 $ 2.61 Weighted average common shares outstanding: Basic 16,219,889 16,314,987 Diluted 16,331,031 16,439,920 Quarterly cash dividends declared per common share $ 1.04 $ 1.03 Special cash dividends declared per common share $ — $ 0.20 SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 8 Table of Contents PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Comprehensive (Loss) Income (Unaudited) (in thousands) Three Months Ended March 31, 2022 2021 Net income $ 38,875 $ 42,831 Other comprehensive (loss) income, net of tax: Unrealized net holding loss on debt securities available-for-sale, net of income tax effect of $( 14,823 ) and $( 3,614 ) for the three months ended March 31, 2022 and 2021, respectively ( 55,763 ) ( 13,597 ) Unrealized gain on cash flow hedging derivatives, net of income tax effect of $ 37 and $ 33 for the three months ended March 31, 2022 and 2021, respectively 139 125 Other comprehensive loss $ ( 55,624 ) $ ( 13,472 ) Comprehensive (loss) income $ ( 16,749 ) $ 29,359 SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 9 Table of Contents PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited) (in thousands, except share and per share data) Preferred Shares Common Shares Retained Earnings Treasury Shares Accumulated Other Comprehensive Income (Loss) Balance at December 31, 2021 $ — $ 461,800 $ 776,294 $ ( 142,490 ) $ 15,155 Net income 38,875 Other comprehensive loss, net of tax ( 55,624 ) Dividends on common shares at $ 1.04 per share ( 17,172 ) Cash payment for fractional common shares in dividend reinvestment plan ( 2 ) Issuance of 29,757 common shares under share-based compensation awards, net of 18,658 common shares withheld to pay employee income taxes ( 4,508 ) ( 964 ) 3,021 Share-based compensation expense 1,981 Balance at March 31, 2022 $ — $ 459,271 $ 797,033 $ ( 139,469 ) $ ( 40,469 ) Preferred Shares Common Shares Retained Earnings Treasury Shares Accumulated Other Comprehensive Income (Loss) Balance at December 31, 2020 $ — $ 460,687 $ 704,764 $ ( 130,766 ) $ 5,571 Cumulative change in accounting principle ( 7,956 ) Balance at January 1, 2021 $ — $ 460,687 $ 696,808 $ ( 130,766 ) $ 5,571 Net income 42,831 Other comprehensive loss, net of tax ( 13,472 ) Dividends on common shares at $ 1.23 per share ( 20,365 ) Cash payment for fractional common shares in dividend reinvestment plan ( 1 ) Issuance of 21,764 common shares under share-based compensation awards, net of 14,108 common shares withheld to pay employee income taxes ( 3,988 ) ( 44 ) 2,174 Share-based compensation expense 1,836 Balance at March 31, 2021 $ — $ 458,534 $ 719,230 $ ( 128,592 ) $ ( 7,901 ) SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 10 Table of Contents PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Unaudited) (in thousands) Three Months Ended March 31, 2022 2021 Operating activities: Net income $ 38,875 $ 42,831 Adjustments to reconcile net income to net cash provided by operating activities: Recovery of credit losses ( 4,605 ) ( 4,855 ) Accretion of loan fees and costs, net ( 3,772 ) ( 6,334 ) Depreciation of premises and equipment 3,482 3,216 Amortization of investment securities, net 875 354 Net accretion of purchase accounting adjustments ( 86 ) ( 655 ) Gain on equity securities, net ( 2,353 ) ( 1,810 ) Loan originations to be sold in secondary market ( 73,713 ) ( 192,382 ) Proceeds from sale of loans in secondary market 77,189 212,880 Gain on sale of loans in secondary market ( 1,941 ) ( 6,598 ) Share-based compensation expense 1,981 1,836 Loss on sale of OREO, net — 33 Bank owned life insurance income ( 1,175 ) ( 1,165 ) Investment in qualified affordable housing tax credits amortization 1,980 1,856 Changes in assets and liabilities: Decrease (increase) in prepaid dealer premiums 94 ( 508 ) Decrease (increase) in other assets 1,253 ( 13,000 ) (Decrease) increase in other liabilities ( 9,742 ) 10,166 Net cash provided by operating activities $ 28,342 $ 45,865 Investing activities: Proceeds from the redemption/repurchase of Federal Home Loan Bank stock $ — $ 4,283 Proceeds from sales of investment securities — 934 Proceeds from calls and maturities of: Debt securities AFS 54,263 58,344 Purchases of: Debt securities AFS ( 128,731 ) ( 131,852 ) Equity securities ( 1,630 ) — Net decrease in other investments 124 1,102 Net loan paydowns (originations), portfolio loans 52,444 ( 2,922 ) Proceeds from the sale of non-mortgage loans — 3,538 Investment in qualified affordable housing tax credits ( 7,252 ) ( 6,094 ) Proceeds from the sale of OREO 38 626 Life insurance death benefits 367 674 Purchases of bank owned life insurance ( 7,500 ) — Purchases of premises and equipment ( 2,127 ) ( 4,114 ) Net cash used in investing activities $ ( 40,004 ) $ ( 75,481 ) 11 Table of Contents PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued) (in thousands) Three Months Ended March 31, 2022 2021 Financing activities: Net increase in deposits $ 257,927 $ 762,896 Net increase in off-balance sheet deposits ( 166,134 ) ( 99,034 ) Net decrease in short-term borrowings ( 32,859 ) ( 36,845 ) Repayment of long-term debt — ( 2,500 ) Value of common shares withheld to pay employee income taxes ( 2,451 ) ( 1,858 ) Cash dividends paid ( 17,109 ) ( 20,242 ) Net cash provided by financing activities $ 39,374 $ 602,417 Increase in cash and cash equivalents 27,712 572,801 Cash and cash equivalents at beginning of year 219,180 370,474 Cash and cash equivalents at end of period $ 246,892 $ 943,275 Supplemental disclosures of cash flow information: Cash paid for: Interest $ 5,429 $ 6,745 Non-cash items: Loans transferred to OREO $ 55 $ 78 New commitments in other investment securities $ 10,000 $ — SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 12 Table of Contents PARK NATIONAL CORPORATION NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Note 1 – Basis of Presentation The accompanying unaudited consolidated condensed financial statements included in this report have been prepared for Park National Corporation (sometimes also referred to as the “Registrant”) and its subsidiaries. Unless the context otherwise requires, references to "Park", the "Corporation" or the "Company" and similar terms mean Park National Corporation and its subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the interim periods included herein have been made. The results of operations for the three-month period ended March 31, 2022 are not necessarily indicative of the operating results to be anticipated for the year ending December 31, 2022. The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of the consolidated condensed balance sheets, consolidated condensed statements of income, consolidated condensed statements of comprehensive (loss) income, consolidated condensed statements of changes in shareholders’ equity and consolidated condensed statements of cash flows in conformity with U.S. GAAP. These financial statements should be read in conjunction with the consolidated financial statements included in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA in the Annual Report on Form 10-K of Park National Corporation for the fiscal year ended December 31, 2021 ("Park's 2021 Form 10-K"). Park’s significant accounting policies are described in Note 1. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 2021 Form 10-K. For interim reporting purposes, Park follows the same basic accounting policies, as updated by the information contained in this report, and considers each interim period an integral part of an annual period. The COVID-19 pandemic has caused significant, unprecedented disruption around the world that has affected daily living and negatively impacted the global economy. Additionally, geopolitical conflict (including the conflict in Ukraine) has added uncertainty to the overall economic environment. The effects of the COVID-19 pandemic and geopolitical conflict 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 has particularly impacted certain loan concentrations in the hotels and accommodations, restaurants and food service, and strip shopping centers industries. Note 2 - Adoption of New Accounting Pronouncements and Issued But Not Yet Effective Accounting Standards The following is a summary of new accounting pronouncements impacting Park's consolidated financial statements: Adoption of New Accounting Pronouncements There were no new accounting pronouncements adopted by Park during the three-month period ended March 31, 2022. Issued But Not Yet Effective Accounting Standards ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures: In March 2022, FASB issued ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures . ASU 2022-02 eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the amendments in this ASU require that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. For entities, like Park, that have adopted the amendments in ASU 2016-13, the amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted, including adoption in an interim period. An entity may elect to adopt the loan modification guidance and related disclosure enhancements separately from the amendments related to vintage disclosures. The amendments in this ASU should be applied prospectively, except for the amendments related to the recognition and measurement of TDRs which may be applied prospectively, or using a 13 Table of Contents modified retrospective transition method. Management is currently considering the timing of adoption. The adoption of ASU 2022-02 is not expected to have a material impact on the financial statements but will impact disclosure requirements and reduce individually evaluated loan totals. Note 3 – Investment Securities Investment securities at March 31, 2022 and December 31, 2021, were as follows: Debt securities AFS (In thousands) Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value March 31, 2022: Obligations of U.S. Treasury and other U.S. Government sponsored entities $ 39,000 $ — $ 438 $ 38,562 Obligations of states and political subdivisions 374,101 6,572 9,032 371,641 U.S. Government sponsored entities' asset-backed securities 870,576 1,185 36,959 834,802 Collateralized loan obligations 500,029 — 5,112 494,917 Corporate debt securities 17,250 125 150 17,225 Total $ 1,800,956 $ 7,882 $ 51,691 $ 1,757,147 Debt securities AFS (In thousands) Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value December 31, 2021: Obligations of states and political subdivisions $ 366,933 $ 22,682 $ 24 $ 389,591 U.S. 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 Total $ 1,727,363 $ 36,291 $ 9,514 $ 1,754,140 Investment securities in an unrealized loss position at March 31, 2022, were as follows: Unrealized loss position for less than 12 months Unrealized loss position for 12 months or longer Total (In thousands) Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Debt securities AFS: Obligations of U.S. Treasury and other U.S. Government sponsored entities $ 24,562 $ 438 $ — $ — $ 24,562 $ 438 Obligations of states and political subdivisions 91,029 9,032 — — 91,029 9,032 U.S. Government sponsored entities' asset-backed securities 532,506 21,675 149,376 15,284 681,882 36,959 Collateralized loan obligations 494,917 5,112 — — 494,917 5,112 Corporate debt securities 4,100 150 — — 4,100 150 Total $ 1,147,114 $ 36,407 $ 149,376 $ 15,284 $ 1,296,490 $ 51,691 14 Table of Contents Investment securities in an unrealized loss position at December 31, 2021, were as follows: Unrealized loss position for less than 12 months Unrealized loss position for 12 months or longer Total (In thousands) Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Debt securities AFS: Obligations of states and political subdivisions $ 1,834 $ 24 $ — $ — $ 1,834 $ 24 U.S. Government sponsored entities' asset-backed securities 333,653 4,996 73,431 3,092 407,084 8,088 Collateralized loan obligations 429,671 1,395 — — 429,671 1,395 Corporate debt securities 2,243 7 — — 2,243 7 Total $ 767,401 $ 6,422 $ 73,431 $ 3,092 $ 840,832 $ 9,514 At March 31, 2022, Park’s debt securities portfolio consisted of $ 1.8 billion of securities, $ 1.3 billion of which were in an unrealized loss position with unrealized losses of $ 51.7 million. Of the $ 1.3 billion of securities in an unrealized loss position, $ 149.4 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. For non-agency debt securities, Park verified that the current credit ratings remain above investment grade. 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 in respect of the unrealized losses. Management believes the value will recover as the securities approach maturity or market rates change. There was no allowance for credit losses recorded for debt securities AFS at either March 31, 2022 or December 31, 2021. Additionally, for the three months ended March 31, 2022 and 2021, there were no credit-related investment impairment losses recognized. The amortized cost and estimated fair value of investments in debt securities AFS at March 31, 2022, are shown in the following table by contractual maturity, except for asset-backed securities and collateral loan obligations, which are shown as a 15 Table of Contents single total, due to the unpredictability of the timing of principal repayments. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. (In thousands) Amortized cost Fair value Tax equivalent yield (1) Debt Securities AFS Obligations of U.S. Treasury and other U.S. Government sponsored entities Due one through five years $ 39,000 $ 38,562 2.37 % Obligations of state and political subdivisions: Due five through ten years $ 245,269 $ 250,847 3.68 % Due over ten years 128,832 120,794 2.67 % Total (1) $ 374,101 $ 371,641 3.33 % U.S. Government sponsored entities' asset-backed securities $ 870,576 $ 834,802 1.75 % Collateralized loan obligations $ 500,029 $ 494,917 1.96 % Corporate debt securities Due five through ten years $ 17,250 $ 17,225 3.79 % (1) The tax equivalent yield for certain obligations of state and political subdivisions includes the effects of a taxable equivalent adjustment using a 21 % federal corporate income tax rate. There were no sales of debt securities AFS during the three-month periods ended March 31, 2022 or 2021. Investment securities having an amortized cost of $ 690.4 million and $ 733.7 million at March 31, 2022 and December 31, 2021, respectively, were pledged to collateralize government and trust department deposits in accordance with federal and state requirements, to secure repurchase agreements sold and as collateral for FHLB advance borrowings. Note 4 – Other Investment Securities Other investment securities consist of restricted stock investments in the FHLB, the FRB, and equity securities. The restricted FHLB and FRB stock investments are carried at their redemption value. Equity securities with a readily determinable fair value are carried at fair value. Equity securities without a readily determinable fair value are recorded at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions ("modified cost"). Park's portfolio of equity investments in limited partnerships which provide mezzanine funding ("Partnership Investments") are valued using the NAV practical expedient in accordance with ASC 820. The carrying amounts of other investment securities at March 31, 2022 and December 31, 2021 were as follows: (In thousands) March 31, 2022 December 31, 2021 FHLB stock $ 13,413 $ 13,413 FRB stock 14,653 14,653 Equity investments carried at fair value 2,037 2,129 Equity investments carried at modified cost (1) 6,319 4,689 Equity investments carried at NAV 38,705 26,384 Total other investment securities $ 75,127 $ 61,268 (1) There have been no impairments, downward adjustments, or upward adjustments made to equity investments carried at modified cost. 16 Table of Contents No shares of FHLB stock were repurchased during the three months ended March 31, 2022. During the three months ended March 31, 2021, the FHLB repurchased 42,833 shares of FHLB stock with a book value of $ 4.3 million. No shares of FRB stock were purchased or sold during the three months ended March 31, 2022 or 2021. During the three months ended March 31, 2022 and 2021, $( 92,000 ) and $ 435,000 , respectively, of (losses) gains on equity investments carried at fair value were recorded within "Gain on equity securities, net" on the Consolidated Condensed Statements of Income. During the three months ended March 31, 2022 and 2021, $ 2.4 million and $ 1.4 million, respectively, of gains on equity investments carried at NAV were recorded within “Gain on equity securities, net” on the Consolidated Condensed Statements of Income. Note 5 – Loans The composition of the loan portfolio at March 31, 2022 and December 31, 2021 was as follows: March 31, 2022 December 31, 2021 (In thousands) Amortized Cost Amortized Cost Commercial, financial and agricultural: (1) Commercial, financial and agricultural (1) $ 1,260,840 $ 1,223,079 PPP loans 37,424 74,420 Overdrafts 2,055 1,127 Commercial real estate (1) 1,780,605 1,801,792 Construction real estate: Commercial 201,184 214,561 Retail 103,174 107,225 Residential real estate: Commercial 542,945 533,802 Mortgage 1,020,857 1,033,658 HELOC 159,582 165,605 Installment 5,157 5,642 Consumer: Consumer 1,685,217 1,685,793 GFSC 1,156 1,793 Check loans 2,033 2,093 Leases 19,377 20,532 Total $ 6,821,606 $ 6,871,122 Allowance for credit losses ( 78,861 ) ( 83,197 ) Net loans $ 6,742,745 $ 6,787,925 (1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that were not broken out by class. In order to support customers, Park participated in the CARES Act Paycheck Protection Program ("PPP"). For its assistance in 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 three months ended March 31, 2022 and March 31, 2021, $ 1.5 million and $ 4.6 million, respectively, of PPP fee income were recognized within loan interest income. Loans are shown net of deferred origination fees, costs and unearned income of $ 18.1 million at March 31, 2022, and of $ 19.5 million at December 31, 2021, which represented a net deferred income position in both years. At March 31, 2022 and December 31, 2021, included in the net deferred origination fees, costs and unearned income were $ 1.4 million and $ 2.8 million, respectively, in net origination fees related to PPP loans. At March 31, 2022 and December 31, 2021, loans included purchase accounting adjustments of $ 3.8 million and $ 4.2 million, respectively, which represented a net deferred 17 Table of Contents income position at each date. This fair market value purchase accounting adjustment is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans. Overdrawn deposit accounts of $ 2.1 million and $ 1.1 million were reclassified to loans at March 31, 2022 and December 31, 2021, respectively. Credit Quality The following tables present the amortized cost of nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing, by class of loan, at March 31, 2022 and December 31, 2021: March 31, 2022 (In thousands) Nonaccrual Loans Accruing TDRs Loans Past Due 90 Days or More and Accruing Total Nonperforming Loans Commercial, financial and agricultural: Commercial, financial and agricultural $ 12,731 $ 9,474 $ — $ 22,205 PPP loans — — 66 66 Overdrafts — — — — Commercial real estate 24,613 12,933 — 37,546 Construction real estate: Commercial 50 158 — 208 Retail 710 8 — 718 Residential real estate: Commercial 2,018 296 — 2,314 Mortgage 9,951 6,904 120 16,975 HELOC 1,572 610 4 2,186 Installment 81 1,390 — 1,471 Consumer: Consumer 1,187 652 250 2,089 GFSC 54 3 5 62 Check loans — — — — Leases 1,051 — — 1,051 Total loans $ 54,018 $ 32,428 $ 445 $ 86,891 18 Table of Contents December 31, 2021 (In thousands) Nonaccrual Loans Accruing TDRs Loans Past Due 90 Days or More and Accruing Total Nonperforming Loans Commercial, financial and agricultural Commercial, financial and agricultural $ 13,271 $ 9,396 $ — $ 22,667 PPP loans — — 793 793 Overdrafts — — — — Commercial real estate 40,142 7,713 — 47,855 Construction real estate: Commercial 52 169 — 221 Retail 716 9 — 725 Residential real estate: 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 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 19 Table of Contents The following tables provide additional detail on nonaccrual loans and the related ACL, by class of loan, at March 31, 2022 and December 31, 2021: March 31, 2022 (In thousands) Nonaccrual Loans With No ACL Nonaccrual Loans With an ACL Related ACL Commercial, financial and agricultural: Commercial, financial and agricultural $ 11,193 $ 1,538 $ 1,212 PPP loans — — — Overdrafts — — — Commercial real estate 23,927 686 144 Construction real estate: Commercial 50 — — Retail — 710 65 Residential real estate: Commercial 2,018 — — Mortgage — 9,951 62 HELOC — 1,572 66 Installment — 81 36 Consumer Consumer — 1,187 316 GFSC — 54 7 Check loans — — — Leases 882 169 24 Total loans $ 38,070 $ 15,948 $ 1,932 20 Table of Contents 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: Commercial 52 — — Retail — 716 67 Residential real estate: Commercial 2,366 — — Mortgage — 11,718 73 HELOC — 1,590 99 Installment — 82 24 Consumer Consumer — 1,518 393 GFSC — 79 10 Check loans — — — Leases 914 274 43 Total $ 53,977 $ 18,745 $ 2,240 Nonaccrual commercial loans are evaluated on an individual basis and are excluded from the collective evaluation. Management’s general practice is to proactively charge down loans individually evaluated to the fair value of the underlying collateral. Nonaccrual consumer loans are collectively evaluated based on similar risk characteristics. The following tables provide the amortized cost basis of collateral-dependent loans by class of loan, as of March 31, 2022 and December 31, 2021: March 31, 2022 (In thousands) Real Estate Business Assets Other Total Commercial, financial and agricultural Commercial, financial and agricultural $ 8,343 $ 13,742 $ 201 $ 22,286 Commercial real estate 42,534 35 — 42,569 Construction real estate: Commercial 1,152 — — 1,152 Residential real estate: Commercial 2,620 20 — 2,640 Mortgage 366 — — 366 HELOC 124 — — 124 Leases — 1,059 — 1,059 Total loans $ 55,139 $ 14,856 $ 201 $ 70,196 21 Table of Contents 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 Construction real estate: Commercial 1,178 — — 1,178 Residential real estate: Commercial 2,906 — 57 2,963 Mortgage 370 — — 370 HELOC 148 — — 148 Leases — 1,211 — 1,211 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 three-month periods ended March 31, 2022 and 2021: Interest Income Recognized (In thousands) Three Months Ended March 31, 2022 Three Months Ended March 31, 2021 Commercial, financial and agricultural: Commercial, financial and agricultural $ 17 $ 57 PPP loans — — Overdrafts — — Commercial real estate 257 515 Construction real estate: Commercial 1 33 Retail 4 1 Residential real estate: Commercial 20 46 Mortgage 33 79 HELOC 4 4 Installment 2 1 Consumer: Consumer 14 23 GFSC 2 5 Check loans — — Leases 14 20 Total loans $ 368 $ 784 22 Table of Contents The following tables present the aging of the amortized cost in past due loans at March 31, 2022 and December 31, 2021 by class of loan: March 31, 2022 (In thousands) Accruing Loans Past Due 30-89 Days Past Due Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing (1) Total Past Due Total Current (2) Total Amortized Cost Commercial, financial and agricultural: Commercial, financial and agricultural $ 686 $ 9,500 $ 10,186 $ 1,250,654 $ 1,260,840 PPP loans — 66 66 37,358 37,424 Overdrafts — — — 2,055 2,055 Commercial real estate 158 801 959 1,779,646 1,780,605 Construction real estate: Commercial — — — 201,184 201,184 Retail 314 654 968 102,206 103,174 Residential real estate: Commercial 85 397 482 542,463 542,945 Mortgage 4,551 5,319 9,870 1,010,987 1,020,857 HELOC 833 849 1,682 157,900 159,582 Installment 71 16 87 5,070 5,157 Consumer: Consumer 2,894 417 3,311 1,681,906 1,685,217 GFSC 101 28 129 1,027 1,156 Check loans 9 — 9 2,024 2,033 Leases — — — 19,377 19,377 Total loans $ 9,702 $ 18,047 $ 27,749 $ 6,793,857 $ 6,821,606 ( 1) Includes an aggregate of $ 0.4 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans. (2) Includes an aggregate of $ 36.4 million of nonaccrual loans which were current in regards to contractual principal and interest payments . 23 Table of Contents December 31, 2021 (in thousands) Accruing Loans Past Due 30-89 Days Past Due Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing (1) Total Past Due Total Current (2) Total Amortized Cost Commercial, financial and agricultural Commercial, financial and agricultural $ 2,908 $ 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 Construction real estate: Commercial — — — 214,561 214,561 Retail 346 660 1,006 106,219 107,225 Residential real estate: Commercial 283 438 721 533,081 533,802 Mortgage 6,170 5,933 12,103 1,021,555 1,033,658 HELOC 565 1,011 1,576 164,029 165,605 Installment 49 31 80 5,562 5,642 Consumer 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 Total loans $ 13,465 $ 21,070 $ 34,535 $ 6,836,587 $ 6,871,122 ( 1) Includes an aggregate of $ 1.6 million of loans past due 90 days or more and accruing. 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. Credit Quality Indicators Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information at March 31, 2022 and December 31, 2021 is included in the previous tables. The past due information is the primary credit quality indicator within the following classes of loans: (1) overdrafts in the commercial, financial and agricultural portfolio segment; (2) retail loans in the construction real estate portfolio segment; (3) mortgage loans, HELOC and installment loans in the residential real estate portfolio segment; and (4) consumer loans, GFSC loans, and check loans in the consumer portfolio segment. The primary credit indicator for commercial loans is based on an internal grading system that grades all commercial loans on a scale from 1 to 8. Credit grades are continuously monitored by the responsible loan officer and adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded a 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher PD is applied to these loans. Loans classified as special mention have potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of Park’s credit position at some future date. Commercial loans graded a 6 (substandard), also considered watch list credits, are considered to represent higher credit risk and, as a result, a higher PD is applied to these loans. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or the value of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that Park will sustain some loss if the deficiencies are not corrected. Commercial loans graded a 7 (doubtful) are shown as nonaccrual and Park generally charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and included within the individually evaluated category. A commercial loan is deemed nonaccrual, and is individually evaluated, when management 24 Table of Contents determines the borrower's ability to perform in accordance with the contractual loan agreement is in doubt. Any commercial loan graded an 8 (loss) is completely charged off. Based on the most recent analysis performed, the risk category of loans by class of loans as of March 31, 2022 and December 31, 2021 were as follows: March 31, 2022 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total Commercial, financial and agricultural: Commercial, financial and agricultural (1) Risk rating Pass $ 94,782 $ 249,967 $ 195,914 $ 85,396 $ 45,140 $ 73,989 $ 486,123 $ 1,231,311 Special Mention — 1,654 873 631 61 243 13,213 16,675 Substandard 50 181 219 363 1,339 8,265 1,160 11,577 Doubtful — — 22 144 179 448 484 1,277 Total $ 94,832 $ 251,802 $ 197,028 $ 86,534 $ 46,719 $ 82,945 $ 500,980 $ 1,260,840 Commercial, financial and agricultural: PPP Risk rating Pass $ — $ 34,269 $ 3,155 $ — $ — $ — $ — $ 37,424 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ — $ 34,269 $ 3,155 $ — $ — $ — $ — $ 37,424 Commercial real estate (1) Risk rating Pass $ 70,391 $ 383,420 $ 436,952 $ 251,262 $ 126,209 $ 396,986 $ 13,412 $ 1,678,632 Special Mention 407 968 4,391 28,352 17,896 23,636 997 76,647 Substandard — 2,806 2,195 1,500 5,649 12,118 409 24,677 Doubtful — — — — — 649 — 649 Total $ 70,798 $ 387,194 $ 443,538 $ 281,114 $ 149,754 $ 433,389 $ 14,818 $ 1,780,605 Construction real estate: Commercial Risk rating Pass $ 17,339 $ 92,262 $ 52,548 $ 5,859 $ 3,312 $ 4,090 $ 23,824 $ 199,234 Special Mention — 956 — — 683 — — 1,639 Substandard — — 50 — 261 — — 311 Doubtful — — — — — — — — Total $ 17,339 $ 93,218 $ 52,598 $ 5,859 $ 4,256 $ 4,090 $ 23,824 $ 201,184 Residential Real Estate: Commercial Risk rating Pass $ 27,402 $ 136,059 $ 160,097 $ 64,936 $ 42,159 $ 89,919 $ 16,616 $ 537,188 Special Mention — 95 1,519 697 — 1,017 145 3,473 Substandard — 831 22 92 318 1,021 — 2,284 Doubtful — — — — — — — — Total $ 27,402 $ 136,985 $ 161,638 $ 65,725 $ 42,477 $ 91,957 $ 16,761 $ 542,945 25 Table of Contents March 31, 2022 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total Leases Risk rating Pass $ 2,595 $ 5,190 $ 4,994 $ 2,282 $ 1,686 $ 1,055 $ — $ 17,802 Special Mention 20 143 133 156 58 14 — 524 Substandard — — 660 90 — 81 — 831 Doubtful — — — 186 15 19 — 220 Total $ 2,615 $ 5,333 $ 5,787 $ 2,714 $ 1,759 $ 1,169 $ — $ 19,377 Total Commercial Loans Risk rating Pass $ 212,509 $ 901,167 $ 853,660 $ 409,735 $ 218,506 $ 566,039 $ 539,975 $ 3,701,591 Special Mention 427 3,816 6,916 29,836 18,698 24,910 14,355 98,958 Substandard 50 3,818 3,146 2,045 7,567 21,485 1,569 39,680 Doubtful — — 22 330 194 1,116 484 2,146 Total $ 212,986 $ 908,801 $ 863,744 $ 441,946 $ 244,965 $ 613,550 $ 556,383 $ 3,842,375 (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. 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) Risk rating 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: PPP Risk rating Pass $ 69,588 $ 4,832 $ — $ — $ — $ — $ — $ 74,420 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 69,588 $ 4,832 $ — $ — $ — $ — $ — $ 74,420 Commercial real estate (1) Risk rating 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 26 Table of Contents 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 Construction real estate: Commercial Risk rating 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 Risk rating 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 Leases Risk rating 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 Total Commercial Loans Risk rating 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 27 Table of Contents 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. March 31, 2022 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total Commercial, financial and agricultural: Overdrafts Performing $ 2,055 $ — $ — $ — $ — $ — $ — $ 2,055 Nonperforming — — — — — — — — Total $ 2,055 $ — $ — $ — $ — $ — $ — $ 2,055 Construction Real Estate: Retail Performing $ 8,712 $ 70,522 $ 12,341 $ 5,222 $ 2,514 $ 3,067 $ 78 $ 102,456 Nonperforming — — 642 56 — 20 — 718 Total $ 8,712 $ 70,522 $ 12,983 $ 5,278 $ 2,514 $ 3,087 $ 78 $ 103,174 Residential Real Estate: Mortgage Performing $ 50,958 $ 215,287 $ 210,169 $ 105,211 $ 63,167 $ 359,090 $ — $ 1,003,882 Nonperforming — — — 290 799 15,886 — 16,975 Total $ 50,958 $ 215,287 $ 210,169 $ 105,501 $ 63,966 $ 374,976 $ — $ 1,020,857 Residential Real Estate: HELOC Performing $ — $ 322 $ 25 $ 160 $ 43 $ 3,018 $ 153,828 $ 157,396 Nonperforming — — 38 — 36 1,825 287 2,186 Total $ — $ 322 $ 63 $ 160 $ 79 $ 4,843 $ 154,115 $ 159,582 Residential Real Estate: Installment Performing $ — $ — $ 2 $ 356 $ 96 $ 3,232 $ — $ 3,686 Nonperforming — — 11 5 24 1,431 — 1,471 Total $ — $ — $ 13 $ 361 $ 120 $ 4,663 $ — $ 5,157 Consumer: Consumer Performing $ 158,137 $ 606,826 $ 455,469 $ 227,119 $ 101,270 $ 111,977 $ 22,330 $ 1,683,128 Nonperforming — 136 421 611 332 589 — 2,089 Total $ 158,137 $ 606,962 $ 455,890 $ 227,730 $ 101,602 $ 112,566 $ 22,330 $ 1,685,217 Consumer: GFSC Performing $ — $ — $ 170 $ 621 $ 181 $ 35 $ 87 $ 1,094 Nonperforming — — — 52 7 3 — 62 Total $ — $ — $ 170 $ 673 $ 188 $ 38 $ 87 $ 1,156 Consumer: Check loans Performing $ — $ — $ — $ — $ — $ — $ 2,033 $ 2,033 Nonperforming — — — — — — — — Total $ — $ — $ — $ — $ — $ — $ 2,033 $ 2,033 Total Consumer Loans Performing $ 219,862 $ 892,957 $ 678,176 $ 338,689 $ 167,271 $ 480,419 $ 178,356 $ 2,955,730 Nonperforming — 136 1,112 1,014 1,198 19,754 287 23,501 Total $ 219,862 $ 893,093 $ 679,288 $ 339,703 $ 168,469 $ 500,173 $ 178,643 $ 2,979,231 28 Table of Contents 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: Overdrafts Performing $ 1,127 $ — $ — $ — $ — $ — $ — $ 1,127 Nonperforming — — — — — — — — Total 1,127 $ — $ — $ — $ — $ — $ — $ 1,127 Construction Real Estate: Retail 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: Mortgage 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: HELOC 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: Installment 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 Consumer: Consumer 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 Consumer: GFSC 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 Consumer: Check loans 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. These loans were recorded at the initial fair value of $ 272.8 million. Loans acquired with deteriorated credit quality (ASC 310-30) with a book value of $ 5.1 million were recorded at the initial fair value of $ 4.9 million. In conjunction with the Carolina Alliance acquisition, Park acquired loans and leases with a book value of $ 589.7 million as of the April 1, 2019 acquisition date. These loans and leases were recorded at the initial fair value of $ 578.6 million. Loans and leases 29 Table of Contents 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 March 31, 2022, there was no allowance for credit losses on PCD loans. The carrying amount of loans acquired with deteriorated credit quality at March 31, 2022 and December 31, 2021 was $ 7.0 million and $ 7.1 million, respectively. Troubled Debt Restructurings Management typically classifies loans as TDRs when a borrower is experiencing financial difficulties and Park has granted a concession to the borrower as part of a modification or in the loan renewal process. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of the borrower's debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy. Management’s policy is to modify loans by extending the term or by granting a temporary or permanent contractual interest rate below the market rate, not by forgiving debt. 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. 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 the TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. The modified loans were considered current and continued to accrue interest during the deferral period. Certain other loans which were modified during the three-month periods ended March 31, 2022 and 2021 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. TDRs may be classified as accruing if the borrower has been current for a period of at least six months with respect to loan payments and management expects that the borrower will be able to continue to make payments in accordance with the terms of the restructured note. Management reviews all accruing TDRs quarterly to ensure payments continue to be made in accordance with the modified terms. At March 31, 2022 and December 31, 2021, there were $ 16.2 million and $ 20.9 million, respectively, of TDRs included in the nonaccrual loan totals. At March 31, 2022 and December 31, 2021, $ 6.1 million and $ 10.5 million, respectively, of these nonaccrual TDRs were performing in accordance with the terms of the restructured notes. At March 31, 2022 and December 31, 2021, loans totaling $ 32.4 million and $ 28.3 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. At March 31, 2022 and December 31, 2021, Park had commitments to lend $ 3.2 million and $ 3.0 million, respectively, of additional funds to borrowers whose outstanding loan terms had been modified in a TDR. At March 31, 2022 and December 31, 2021, there were $ 0.2 million and $ 0.3 million, respectively, of specific reserves related to TDRs. Modifications made in 2022 and 2021 were largely the result of renewals and extending the maturity date of the loans at terms consistent with the original notes. These modifications were deemed to be TDRs primarily due to Park’s conclusion that the respective borrowers would likely not have qualified for similar terms through another lender. Many of the modifications deemed to be TDRs were previously identified as impaired loans, and thus were also previously evaluated for impairment under ASC 310. There were no additional specific reserves recorded during the three-month periods ended March 31, 2022 or March 31, 2021, respectively, as a result of TDRs identified in the period. 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 will continue to comply with the terms of the loan subsequent to the date of the renewal/modification. The majority of these TDRs were originally 30 Table of Contents 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. There were $ 171,000 of TDR classifications removed during the three months ended March 31, 2022. The TDR classification was removed on $ 3.9 million of loans during the three-month period ended March 31, 2021. The terms of certain other loans were modified during the three-month periods ended March 31, 2022 and 2021 that did not meet the definition of a TDR. Excluding COVID-19 related modifications, there were no substandard commercial loans modified during either of the three-month periods ended March 31, 2022 and March 31, 2021, which did not meet the definition of a TDR. Excluding COVID-19 related modifications, consumer loans modified during the three-month periods ended March 31, 2022 and March 31, 2021, which did not meet the definition of a TDR, had a total amortized cost of $ 12.0 million and $ 9.8 million, respectively. Many of these loans were to borrowers who were not experiencing financial difficulties but who were looking to reduce their cost of funds. The following tables detail the number of contracts modified as TDRs during the three-month periods ended March 31, 2022 and 2021, as well as the amortized cost of these contracts at March 31, 2022 and 2021. The amortized cost pre-and post-modification is generally the same due to the fact that Park does not typically forgive principal. Three Months Ended March 31, 2022 (In thousands) Number of Contracts Accruing Nonaccrual Total Amortized Cost Commercial, financial and agricultural Commercial, financial and agricultural 2 $ — $ 752 $ 752 PPP loans — — — — Overdrafts — — — — Commercial real estate 4 600 174 774 Construction real estate: Commercial — — — — Retail — — — — Residential real estate: Commercial 1 — 107 107 Mortgage 3 — 81 81 HELOC 1 — 20 20 Installment 4 28 27 55 Consumer: Consumer 24 35 215 250 GFSC — — — — Check loans — — — — Leases — — — — Total loans 39 $ 663 $ 1,376 $ 2,039 31 Table of Contents Three Months Ended March 31, 2021 (In thousands) Number of Contracts Accruing Nonaccrual Total Amortized Cost Commercial, financial and agricultural Commercial, financial and agricultural 1 $ — $ 200 $ 200 PPP loans — — — — Overdrafts — — — — Commercial real estate 5 272 1,353 1,625 Construction real estate: Commercial — — — — Retail — — — — Residential real estate: Commercial — — — — Mortgage 6 137 139 276 HELOC — — — — Installment 5 118 28 146 Consumer: Consumer 34 72 287 359 GFSC — — — — Check loans — — — — Leases — — — — Total loans 51 599 2,007 2,606 Of those loans which were modified and determined to be a TDR during the three-month period ended March 31, 2022, $ 0.6 million were on nonaccrual status at December 31, 2021. Of those loans which were modified and determined to be a TDR during the three-month period ended March 31, 2021, $ 1.7 million were on nonaccrual status at December 31, 2020. 32 Table of Contents The following table presents the amortized cost in loans which were modified as TDRs within the previous 12 months and for which there was a payment default during the three-month periods ended March 31, 2022 and 2021, respectively. 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 ACL resulting from the defaults on TDR loans was immaterial. Three Months Ended March 31, 2022 Three Months Ended March 31, 2021 (In thousands) Number of Contracts Amortized Cost Number of Contracts Amortized Cost Commercial, financial and agricultural: Commercial, financial and agricultural — $ — — $ — PPP loans — — — — Overdrafts — — — — Commercial real estate — — — — Construction real estate: Commercial — — — — Retail 1 643 — — Residential real estate: Commercial — — — — Mortgage 3 194 10 763 HELOC 2 58 — — Installment — — 2 36 Consumer Consumer 16 128 19 210 GFSC — — 5 25 Check loans — — — — Leases — — — — Total loans 22 $ 1,023 36 $ 1,034 Of the $ 1.0 million in modified TDRs which defaulted during the three-month period ended March 31, 2022, $ 4,000 were accruing loans and $ 1.0 million were nonaccrual loans. Of the $ 1.0 million in modified TDRs which defaulted during the three-month period ended March 31, 2021, $ 0.3 million were accruing loans and $ 0.7 million were nonaccrual loans. Note 6 – Allowance for Credit Losses The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors. During the first quarter of 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. 33 Table of Contents 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 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 December 31, 2021, the "most likely" scenario forecasted Ohio unemployment 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 current weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2021. ◦ As of March 31, 2022, the "most likely" scenario forecasted Ohio unemployment between 3.36% and 3.75%, during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2022, management considered the range of forecasted unemployment as well as a number of economic indicators. While some economic indications were optimistic, the surging inflation, volatility in consumer confidence, workforce challenges, and geopolitical conflict (including the conflict in Ukraine) 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 March 31, 2022. Qualitative Considerations Park reviews various internal and external factors to consider the need for any qualitative adjustments to the quantitative model. Factors considered include the following : • The nature and volume of Park’s financial assets; the existence, growth, and effect of any concentrations of credit and the volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets. Specifically, management considers: ◦ Trends (e.g., growth, reduction) in specific categories of the loan portfolio, as well as adjustments to the types of loans offered by Park. ◦ Level of and trend in loan delinquencies, troubled loans, commercial watch list loans and nonperforming loans. ◦ Level of and trend in new nonaccrual loans. ◦ Level of and trend in loan charge-offs and recoveries. • Park's lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, write-offs, and recoveries. • 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. 34 Table of Contents • 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). 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 Even though COVID-19 case numbers have declined since December 31, 2021, these industries are still recovering from the pandemic effects. As of March 31, 2022, additional reserves totaling $ 3.8 million were added for these portfolios on top of the quantitative reserve already calculated. This is a decrease from $ 5.2 million as of December 31, 2021 and reflects improvement in COVID-19 cases and eased COVID-19 health department precautions. Management believes there is still residual risk in these portfolios related to pandemic effects and uncertainty in future COVID-19 strains and related impacts. A breakout of the 4-rated balances within these portfolios and the additional reserve related to these portfolios is detailed in the following table. March 31, 2022 December 31, 2021 (in thousands) 4-Rated Balance Additional Reserve 4-Rated Balance Additional Reserve Hotels and accommodations $ 148,108 $ 1,670 $ 148,018 $ 2,226 Restaurants and food service 44,606 754 40,648 917 Strip shopping centers 167,099 1,384 184,171 2,033 Total $ 359,813 $ 3,808 $ 372,837 $ 5,176 Additionally, at March 31, 2022, management applied a 1.00% reserve to all hotels and accommodations loans in the collectively evaluated population to account for increased valuation risk. This 1.00% reserve was maintained from December 31, 2021. At March 31, 2022, Park's originated hotels and accommodation loans had a balance of $ 206.2 million with an additional reserve related to valuation risks of $ 2.1 million. At December 31, 2021, Park's originated hotels and accommodation loans had a balance of $ 203.9 million with an additional reserve related to valuation risks of $ 2.0 million. There is still a significant amount of uncertainty related to the long-term 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. economy. Management will continue to evaluate its estimate of expected credit losses as new information becomes available. As of March 31, 2022, Park had $ 37.4 million 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. 35 Table of Contents ACL Activity The activity in the ACL for the three-month periods ended March 31, 2022 and March 31, 2021 is summarized in the following tables. Three Months Ended March 31, 2022 (In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total ACL: Beginning balance $ 14,025 $ 25,466 $ 5,758 $ 11,424 $ 26,286 $ 238 $ 83,197 Charge-offs 190 — — 35 1,116 6 1,347 Recoveries 118 48 501 32 917 — 1,616 Net charge-offs/(recoveries) $ 72 $ ( 48 ) $ ( 501 ) $ 3 $ 199 $ 6 $ ( 269 ) (Recovery of) provision for credit loss ( 665 ) ( 1,783 ) ( 2,029 ) 163 ( 290 ) ( 1 ) ( 4,605 ) Ending balance $ 13,288 $ 23,731 $ 4,230 $ 11,584 $ 25,797 $ 231 $ 78,861 Three Months Ended March 31, 2021 (In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total ACL: Beginning balance, prior to adoption of ASC 326 $ 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 146 — — 11 1,544 — 1,701 Recoveries 123 86 252 62 1,154 — 1,677 Net charge-offs/(recoveries) $ 23 $ ( 86 ) $ ( 252 ) $ ( 51 ) $ 390 $ — $ 24 (Recovery of) provision for credit loss ( 1,049 ) ( 1,198 ) 171 ( 498 ) ( 2,224 ) ( 57 ) ( 4,855 ) Ending balance $ 16,279 $ 24,487 $ 5,813 $ 14,037 $ 25,729 $ 541 $ 86,886 ACL Summary Loans collectively evaluated for impairment in the following tables include all performing loans at March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, which are evaluated for impairment in accordance with U.S. GAAP (see Note 1 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 2021 Form 10-K). 36 Table of Contents The composition of the ACL at March 31, 2022 and December 31, 2021 was as follows: March 31, 2022 (In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total ACL: Ending allowance balance attributed to loans: Individually evaluated for impairment $ 1,346 $ 143 $ — $ — $ — $ 24 $ 1,513 Collectively evaluated for impairment 11,942 23,588 4,230 11,584 25,797 207 77,348 Acquired with deteriorated credit quality — — — — — — — Total ending allowance balance $ 13,288 $ 23,731 $ 4,230 $ 11,584 $ 25,797 $ 231 $ 78,861 Loan balance: Loans individually evaluated for impairment $ 22,129 $ 37,507 $ 208 $ 2,314 $ — $ 1,051 $ 63,209 Loans collectively evaluated for impairment 1,278,033 1,738,036 303,206 1,725,411 1,688,406 18,318 6,751,410 Loans acquired with deteriorated credit quality 157 5,062 944 816 — 8 6,987 Total ending loan balance $ 1,300,319 $ 1,780,605 $ 304,358 $ 1,728,541 $ 1,688,406 $ 19,377 $ 6,821,606 ACL as a percentage of loan balance: Loans individually evaluated for impairment 6.08 % 0.38 % — % — % — % 2.28 % 2.39 % Loans collectively evaluated for impairment 0.93 % 1.36 % 1.40 % 0.67 % 1.53 % 1.13 % 1.15 % Loans acquired with deteriorated credit quality — % — % — % — % — % — % — % Total 1.02 % 1.33 % 1.39 % 0.67 % 1.53 % 1.19 % 1.16 % 37 Table of Contents December 31, 2021 (In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total ACL: Ending allowance balance attributed to loans: Individually evaluated for impairment $ 1,385 $ 188 $ — $ — $ — $ 43 $ 1,616 Collectively evaluated for impairment 12,640 25,278 5,758 11,424 26,286 195 81,581 Acquired with deteriorated credit quality — — — — — — — Total ending allowance balance $ 14,025 $ 25,466 $ 5,758 $ 11,424 $ 26,286 $ 238 $ 83,197 Loan balance: Loans individually evaluated for impairment $ 22,666 $ 47,820 $ 222 $ 2,606 $ — $ 1,188 $ 74,502 Loans collectively evaluated for impairment 1,275,783 1,748,854 320,608 1,735,226 1,689,679 19,321 6,789,471 Loans acquired with deteriorated credit quality 177 5,118 956 875 — 23 7,149 Total ending loan balance $ 1,298,626 $ 1,801,792 $ 321,786 $ 1,738,707 $ 1,689,679 $ 20,532 $ 6,871,122 ACL as a percentage of loan balance: Loans individually evaluated for impairment 6.11 % 0.39 % — % — % — % 3.62 % 2.17 % Loans collectively evaluated for impairment 0.99 % 1.45 % 1.80 % 0.66 % 1.56 % 1.01 % 1.20 % Loans acquired with deteriorated credit quality — % — % — % — % — % — % — % Total 1.08 % 1.41 % 1.79 % 0.66 % 1.56 % 1.16 % 1.21 % Note 7 – Loans Held For Sale Mortgage loans held for sale are carried at their fair value. At March 31, 2022 and December 31, 2021, respectively, Park had $ 7.9 million and $ 9.4 million in mortgage loans held for sale. These amounts are included in loans on the Consolidated Condensed Balance Sheets and in the residential real estate loan portfolio segment in Note 5 - Loans, and Note 6 - Allowance for Credit Losses. The contractual balance was $ 7.7 million and $ 9.2 million at March 31, 2022 and December 31, 2021, respectively. The gain expected upon sale was $ 130,000 and $ 166,000 at March 31, 2022 and December 31, 2021, respectively. None of these loans were 90 days or more past due or on nonaccrual status at March 31, 2022 or December 31, 2021. Note 8 – Goodwill and Other Intangible Assets The following tables show the activity in goodwill and other intangible assets for the three-month periods ended March 31, 2022 and 2021. (in thousands) Goodwill Other intangible assets Total December 31, 2020 $ 159,595 $ 9,260 $ 168,855 Amortization — 479 479 March 31, 2021 $ 159,595 $ 8,781 $ 168,376 December 31, 2021 $ 159,595 $ 7,462 $ 167,057 Amortization — 402 402 March 31, 2022 $ 159,595 $ 7,060 $ 166,655 38 Table of Contents Park evaluates goodwill for impairment during the second quarter of each year, with financial data as of March 31. Based on the qualitative analysis performed as of April 1, 2021, the Company determined that goodwill for Park's reporting unit, PNB, was not impaired. Management continues to monitor economic factors, including economic conditions as a result of the COVID-19 pandemic and responses thereto, and geopolitical conflict (including the conflict in Ukraine), to evaluate goodwill impairment. Acquired Intangible Assets The following table shows the balance of acquired intangible assets as of March 31, 2022 and December 31, 2021. March 31, 2022 December 31, 2021 (in thousands) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Other intangible assets: Core deposit intangible assets $ 14,456 $ 7,396 $ 14,456 $ 6,994 Trade name intangible assets 1,300 1,300 1,300 1,300 Total $ 15,756 $ 8,696 $ 15,756 $ 8,294 Core deposit intangible assets are being amortized, on an accelerated basis, over a period of ten years. Aggregate amortization expense was $ 402,000 and $ 479,000 for the three months ended March 31, 2022 and 2021, respectively. Estimated amortization expense related to core deposit intangible assets for each of the next five years follows: (in thousands) Total Nine months ending December 31, 2022 $ 1,085 2023 1,323 2024 1,215 2025 1,042 2026 887 Note 9 – Investment in Qualified Affordable Housing Park makes certain equity investments in various limited partnerships that sponsor affordable housing projects. The purposes of these investments are to achieve a satisfactory return on capital, help create affordable housing opportunities, and assist the Company to achieve its goals associated with the Community Reinvestment Act. The table below details the balances of Park’s affordable housing tax credit investments and related unfunded commitments at March 31, 2022 and December 31, 2021. (in thousands) March 31, 2022 December 31, 2021 Affordable housing tax credit investments $ 56,731 $ 58,711 Unfunded commitments 21,232 28,484 Commitments are funded when capital calls are made by the general partner. Park expects that the current commitments will be funded between 2022 and 2032. Park recognized amortization expense of $ 2.0 million and $ 1.9 million, respectively, for the three months ended March 31, 2022 and 2021, which were included within the provision for income taxes. Additionally, during the three months ended March 31, 2022 and 2021, Park recognized tax credits and other benefits from its affordable housing tax credit investments of $ 2.8 million and $ 2.9 million, respectively, which were included within the provision for income taxes. 39 Table of Contents Note 10 – Foreclosed and Repossessed Assets Park typically transfers a loan to OREO at the time that Park takes deed/title to the real estate property asset. The carrying amounts of foreclosed real estate properties held at March 31, 2022 and December 31, 2021 are listed below, as well as the recorded investment of loans secured by residential real estate properties for which formal foreclosure proceedings were in process at those dates. (in thousands) March 31, 2022 December 31, 2021 OREO: Residential real estate 760 775 Total OREO $ 760 $ 775 Loans in process of foreclosure: Residential real estate $ 1,452 $ 1,148 In addition to real estate, Park may also repossess different types of collateral. At March 31, 2022 and December 31, 2021, Park had $ 643,000 and $ 3.3 million, respectively, in other repossessed assets which are included in "Other assets" on the Consolidated Condensed Balance Sheets. At December 31, 2021, the other repossessed assets largely consisted of an aircraft acquired as part of a loan workout. Note 11 – Loan Servicing Park serviced sold mortgage loans of $ 2.14 billion at March 31, 2022, $ 2.13 billion at December 31, 2021 and $ 2.04 billion at March 31, 2021. At March 31, 2022, $ 3.4 million of the sold mortgage loans were sold with recourse, compared to $ 3.3 million at December 31, 2021 and $ 2.3 million at March 31, 2021. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. At March 31, 2022 and December 31, 2021, management had established reserves of $ 61,000 and $ 57,000 , respectively, to account for expected losses on loan repurchases. When Park sells mortgage loans with servicing rights retained, these servicing rights are initially recorded at fair value. Park has selected the “amortization method” as permissible within U.S. GAAP, whereby the servicing rights capitalized are amortized in proportion to and over the period of estimated future servicing income with respect to the underlying loan. At the end of each reporting period, the carrying value of MSRs is assessed for impairment with a comparison to fair value. MSRs are carried at the lower of their amortized cost or fair value. The amortization of MSRs is included within "Other service income" in the Consolidated Condensed Statements of Income. Activity for MSRs and the related valuation allowance follows: Three Months Ended March 31, (In thousands) 2022 2021 Mortgage servicing rights: Carrying amount, net, beginning of period $ 15,264 $ 12,210 Additions 626 1,678 Amortization ( 628 ) ( 1,105 ) Change in valuation allowance 442 852 Carrying amount, net, end of period $ 15,704 $ 13,635 Valuation allowance: Beginning of period $ 1,568 $ 3,189 Change in valuation allowance ( 442 ) ( 852 ) End of period $ 1,126 $ 2,337 40 Table of Contents Servicing fees included in other service income were $ 1.4 million and $ 1.3 million for the three months ended March 31, 2022 and 2021, respectively. Note 12 - Leases Park is a lessee in several noncancellable operating lease arrangements, primarily for retail branches, administrative and warehouse buildings, ATMs, and certain office equipment within its Ohio, North Carolina, South Carolina, and Kentucky markets. Certain of these leases contain renewal options for periods ranging from one to five years. Park’s leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. Payments due under the lease 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. 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. If an arrangement is determined to be or contain a lease, Park recognizes a ROU asset and a lease liability at the lease commencement date. Leases are classified as operating or finance leases at the lease commencement date. At March 31, 2022 and December 31, 2021, all of Park's leases were classified as operating leases. Park’s lease liability is initially and subsequently measured as the present value of the unpaid lease payments at the lease commencement date. 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. 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 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. The impact of utilizing an interest rate on an over-collateralized borrowing versus a fully collateralized borrowing is not material. Therefore, the FHLB yield curve was selected by management as a baseline to determine Park’s discount rates for leases. • 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 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: – Fixed payments, including in-substance fixed payments, owed over the lease term; – For certain of Park's gross real estate leases, non-lease components such as real estate taxes, insurance, and common area maintenance; and – 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. 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. Park's operating lease ROU asset and lease liability are presented in “Operating lease right-of-use asset" and "Operating lease liability," respectively, on Park's Consolidated Condensed Balance Sheets. The carrying amounts of Park's ROU asset and lease 41 Table of Contents liability at March 31, 2022 were $ 12.8 million and $ 13.6 million, respectively. At December 31, 2021, the carrying amounts of Park's ROU asset and lease liability were $ 13.4 million and $ 14.3 million, respectively. Park's operating lease expense is recorded in "Occupancy expense" on the Company's Consolidated Condensed Statements of Income. Other information related to operating leases for the three months ended March 31, 2022 and 2021 follows: Three Months Ended (in thousands) March 31, 2022 March 31, 2021 Lease cost Operating lease cost $ 724 $ 721 Sublease income ( 63 ) ( 63 ) Total lease cost $ 661 $ 658 Other information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 773 $ 782 ROU assets obtained in exchange for new operating lease liabilities $ — $ — Reductions to ROU assets resulting from reductions to lease obligations $ ( 698 ) $ ( 694 ) At March 31, 2022 and December 31, 2021, Park's operating leases had a weighted average remaining term of 6.6 years and 6.8 years, respectively. The weighted average discount rate of Park's operating leases was 2.2 % and 2.3 % at March 31, 2022 and December 31, 2021, respectively. Undiscounted cash flows included in lease liabilities have expected contractual payments as follows: (in thousands) March 31, 2022 Nine months ending December 31, 2022 $ 2,271 2023 2,966 2024 1,880 2025 1,540 2026 1,452 Thereafter 4,496 Total undiscounted minimum lease payments $ 14,605 Present value adjustment ( 1,037 ) Total lease liabilities $ 13,568 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 or March 31, 2022. 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 between June 2022 and September 2022, and therefore, is not recognized as of December 31, 2021 or March 31, 2022. 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. 42 Table of Contents Note 13 – Repurchase Agreement Borrowings Securities sold under agreements to repurchase ("repurchase agreements") with customers represent funds deposited by customers, generally on an overnight basis, that are collateralized by investment securities owned by Park. Repurchase agreements with customers are included in "Short-term borrowings" on the Consolidated Condensed Balance Sheets. All repurchase agreements are subject to terms and conditions of repurchase/security agreements between Park and the client and are accounted for as secured borrowings. Park's repurchase agreements consisted of customer accounts and securities which are pledged on an individual security basis. At March 31, 2022 and December 31, 2021, Park's repurchase agreement borrowings totaled $ 180.9 million and $ 213.8 million, respectively. These borrowings were collateralized with U.S. government sponsored entities' asset-backed securities with a fair value of $ 233.4 million and $ 334.9 million at March 31, 2022 and December 31, 2021, respectively. Declines in the value of the collateral would require Park to pledge additional securities. As of March 31, 2022 and December 31, 2021, Park had $ 1,182 million and $ 1,225 million, respectively, of available unpledged securities. The table below shows the remaining contractual maturity of repurchase agreements by collateral pledged at March 31, 2022 and December 31, 2021: March 31, 2022 (in thousands) Remaining Contractual Maturity of the Agreements Overnight and Continuous Up to 30 days 30 - 90 days Greater than 90 days Total U.S. government and agency securities $ 180,927 $ — $ — $ — $ 180,927 December 31, 2021 (in thousands) Remaining Contractual Maturity of the Agreements Overnight and Continuous Up to 30 days 30 - 90 days Greater than 90 days Total U.S. government and agency securities $ 213,786 $ — $ — $ — $ 213,786 Note 14 - Derivatives 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. Park does not use derivatives for speculative purposes. A summary of derivative financial instruments utilized by Park follows. Interest Rate Swaps Park utilizes interest rate swap agreements as part of its asset-liability management strategy to help manage its interest rate risk position and as a means to meet the financing, interest rate and other risk management needs of qualifying commercial banking customers. The notional amount of the interest rate swaps does not represent the amount exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. Borrowing Derivatives : Interest rate swaps with notional amounts totaling $ 25.0 million at both March 31, 2022 and December 31, 2021 were designated as cash flow hedges of certain FHLB advances. Loan Derivatives : In conjunction with the Carolina Alliance acquisition, Park acquired interest rate swaps related to certain commercial loans. Simultaneously with borrowers entering into interest rate swaps, Carolina Alliance entered into offsetting interest rate swaps executed with a third party, such that Carolina Alliance minimized its net interest rate risk exposure resulting from such transactions. These interest rate swaps had a notional amount totaling $ 29.2 million and $ 29.7 million at March 31, 2022 and December 31, 2021, respectively. All of the Company's interest rate swaps were determined to be fully effective during each of the three-month periods ended March 31, 2022 and March 31, 2021. As such, no amount of ineffectiveness has been included in net income. Therefore, the 43 Table of Contents aggregate fair value of the swaps is recorded in other assets and other liabilities with changes in fair value recorded in other comprehensive (loss) income. The amount included in accumulated other comprehensive (loss) 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. Summary information about Park's interest rate swaps as of March 31, 2022 and December 31, 2021 follows: March 31, 2022 December 31, 2021 (In thousands, except weighted average data) Borrowing Derivatives Loan Derivatives Borrowing Derivatives Loan Derivatives Notional amounts $ 25,000 $ 29,175 $ 25,000 $ 29,651 Weighted average pay rates 2.595 % 4.673 % 2.595 % 4.668 % Weighted average receive rates 0.254 % 4.673 % 0.124 % 4.668 % Weighted average maturity (years) 0.2 8.0 0.5 8.2 Unrealized losses $ 86 $ — $ 262 $ — Interest expense recorded on swap transactions was $ 148,000 for both of the three -month periods ended March 31, 2022 and 2021. Interest Rate Swaps The following table presents the net gains, net of income taxes, recorded in OCI and the Consolidated Condensed Statements of Income related to interest rate swaps for the three -month periods ended March 31, 2022 and 2021. Three Months Ended March 31, 2022 (In thousands) Amount of Gain (Loss) Recognized in OCI (Effective Portion) Amount of Gain (Loss) Reclassified from OCI to Interest Income Amount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion) Interest rate swaps $ 139 $ — $ — Three Months Ended March 31, 2021 (In thousands) Amount of Gain (Loss) Recognized in OCI (Effective Portion) Amount of Gain (Loss) Reclassified from OCI to Interest Income Amount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion) Interest rate swaps $ 125 $ — $ — 44 Table of Contents The following tables reflect the interest rate swaps included in the Consolidated Condensed Balance Sheets as of March 31, 2022 and December 31, 2021. (In thousands) March 31, 2022 December 31, 2021 Notional Amount Fair Value Notional Amount Fair Value Included in other assets: Borrowing derivatives - interest rate swaps related to FHLB advances $ — $ — $ — $ — Loan derivatives - instruments associated with loans Matched interest rate swaps with borrower 18,666 619 29,651 1,952 Matched interest rate swaps with counterparty 10,509 304 — — Total included in other assets $ 29,175 $ 923 $ 29,651 $ 1,952 Included in other liabilities: Borrowing derivatives - interest rate swaps related to FHLB advances $ 25,000 $ ( 86 ) $ 25,000 $ ( 262 ) Loan derivatives - instruments associated with loans Matched interest rate swaps with borrower 10,509 ( 304 ) — — Matched interest rate swaps with counterparty 18,666 ( 619 ) 29,651 ( 1,952 ) Total included in other liabilities $ 54,175 $ ( 1,009 ) $ 54,651 $ ( 2,214 ) Mortgage Banking Derivatives Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. In order to hedge the change in interest rates resulting from its commitments to fund the loans, the Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into. These mortgage banking derivatives are not designated as hedge relationships. The fair value of an interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Fair values of these mortgage banking derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in "Other service income" in the Condensed Consolidated Statements of Income. At March 31, 2022 and December 31, 2021 , Park had $ 14.6 million and $ 13.3 million, respectively, of interest rate lock commitments. The fair value of these mortgage banking derivatives was reflected by a derivative asset of $ 0.3 million at both March 31, 2022 and December 31, 2021 , respectively. Other Derivatives In connection with the sale of Park’s Class B Visa shares during 2009, Park entered into a swap agreement with the purchaser of the shares. The swap agreement adjusts for dilution in the conversion ratio of Class B Visa shares resulting from certain Visa litigation. At both March 31, 2022 and December 31, 2021 , the fair value of the swap liability of $ 226,000 was an estimate of the exposure based upon probability-weighted potential Visa litigation losses. 45 Table of Contents Note 15 – Accumulated Other Comprehensive (Loss) Income Other comprehensive (loss) income components, net of income tax, are shown in the following table for the three-month periods ended March 31, 2022 and 2021: (in thousands) Changes in pension plan assets and benefit obligations Unrealized net holding gain (loss) on cash flow hedge Unrealized gains (losses) on debt securities AFS Total Beginning balance at January 1, 2022 $ ( 5,792 ) $ ( 206 ) $ 21,153 $ 15,155 Other comprehensive income (loss) before reclassifications — 139 ( 55,763 ) ( 55,624 ) Net current period other comprehensive income (loss) — 139 ( 55,763 ) ( 55,624 ) Ending balance at March 31, 2022 $ ( 5,792 ) $ ( 67 ) $ ( 34,610 ) $ ( 40,469 ) Beginning balance at January 1, 2021 $ ( 34,421 ) $ ( 698 ) $ 40,690 $ 5,571 Other comprehensive income (loss) before reclassifications — 125 ( 13,597 ) ( 13,472 ) Net current period other comprehensive income (loss) — 125 ( 13,597 ) ( 13,472 ) Ending balance at March 31, 2021 $ ( 34,421 ) $ ( 573 ) $ 27,093 $ ( 7,901 ) During the three-month periods ended March 31, 2022 and 2021, there were no reclassifications out of accumulated other comprehensive (loss) income. Note 16 – Earnings Per Common Share The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2022 and 2021. Three Months Ended March 31, (In thousands, except share and per common share data) 2022 2021 Numerator: Net income $ 38,875 $ 42,831 Denominator: Weighted-average common shares outstanding 16,219,889 16,314,987 Effect of dilutive PBRSUs and TBRSUs 111,142 124,933 Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs 16,331,031 16,439,920 Earnings per common share: Basic earnings per common share $ 2.40 $ 2.63 Diluted earnings per common share $ 2.38 $ 2.61 Park awarded 52,335 and 61,890 PBRSUs to certain employees during the three months ended March 31, 2022 and 2021, respectively. No common shares were repurchased during the three months ended March 31, 2022 or 2021.. Note 17 – Segment Information The Corporation is a financial holding company headquartered in Newark, Ohio. The reportable segment for the Corporation is its chartered national bank subsidiary, PNB (headquartered in Newark, Ohio). "All Other", which primarily consists of Park as the "Parent Company", GFSC and SEPH, is shown to reconcile the segment totals to the Consolidated Condensed Statements of Income. 46 Table of Contents Management is required to disclose information about the different types of business activities in which a company engages and also information on the different economic environments in which a company operates, so that the users of the financial statements can better understand the company’s performance, better understand the potential for future cash flows, and make more informed judgments about the company as a whole. Park has one reportable segment, as: (i) discrete financial information is available for this reportable segment and (ii) the segment is aligned with internal reporting to Park’s Chief Executive Officer, who is the chief operating decision maker. Operating Results for the three months ended March 31, 2022 (In thousands) PNB All Other Total Net interest income (expense) $ 79,372 $ ( 1,686 ) $ 77,686 Recovery of credit losses ( 4,547 ) ( 58 ) ( 4,605 ) Other income 31,247 409 31,656 Other expense 64,216 3,157 67,373 Income (loss) before income taxes $ 50,950 $ ( 4,376 ) $ 46,574 Income tax expense (benefit) 9,482 ( 1,783 ) 7,699 Net income (loss) $ 41,468 $ ( 2,593 ) $ 38,875 Assets (at March 31, 2022) $ 9,544,545 $ 31,807 $ 9,576,352 Operating Results for the three months ended March 31, 2021 (In thousands) PNB All Other Total Net interest income (expense) $ 82,086 $ ( 1,352 ) $ 80,734 Recovery of credit losses ( 4,194 ) ( 661 ) ( 4,855 ) Other income 32,800 1,289 34,089 Other expense 63,576 4,289 67,865 Income (loss) before income taxes $ 55,504 $ ( 3,691 ) $ 51,813 Income tax expense (benefit) 10,382 ( 1,400 ) 8,982 Net income (loss) $ 45,122 $ ( 2,291 ) $ 42,831 Assets (at March 31, 2021) $ 9,884,055 $ 30,014 $ 9,914,069 The operating results in the “All Other” column are used to reconcile the segment totals to the Consolidated Condensed Statements of Income for the three-month periods ended March 31, 2022 and 2021. The reconciling amounts for consolidated total assets for the periods ended March 31, 2022 and 2021 consisted of the elimination of intersegment borrowings and the assets of the Parent Company, GFSC and SEPH which were not eliminated. Note 18 - Share-Based Compensation The Park National Corporation 2017 Long-Term Incentive Plan for Employees (the "2017 Employees LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. The 2017 Employees LTIP makes equity-based awards and cash-based awards available for grant to employee participants in the form of incentive stock options, nonqualified stock options, SARs, Restricted Stock, Restricted Stock Units, Other Stock-Based Awards and cash-based awards. Under the 2017 Employees LTIP, 750,000 common shares are authorized to be delivered in connection with grants under the 2017 Employees LTIP. The common shares to be delivered under the 2017 Employees LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At March 31, 2022, 397,665 common shares were available for future grants under the 2017 Employees LTIP. The Park National Corporation 2017 Long-Term Incentive Plan for Non-Employee Directors (the "2017 Non-Employee Directors LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. The 2017 Non-Employee Directors LTIP makes equity-based awards and cash-based awards available for grant to non-employee director participants in the form of nonqualified stock options, 47 Table of Contents SARs, Restricted Stock, Restricted Stock Units, Other Stock-Based Awards, and cash-based awards. Under the 2017 Non-Employee Directors LTIP, 150,000 common shares are authorized to be delivered in connection with grants under the 2017 Non-Employee Directors LTIP. The common shares to be delivered under the 2017 Non-Employee Directors LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At March 31, 2022, 86,850 common shares were available for future grants under the 2017 Non-Employee Directors LTIP. During the three months ended March 31, 2022 and 2021, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 52,335 and 61,890 common shares, respectively, to certain employees of Park and its subsidiaries. As of March 31, 2022, Park has nonvested PBRSUs as well as TBRSUs. The number of PBRSUs earned or settled will depend on the level of achievement with respect to certain performance criteria over a three-year period and are also subject to subsequent service-based vesting. The number of TBRSUs earned or settled will be subject to service-based vesting. A summary of changes in the common shares subject to nonvested PBRSUs and TBRSUs for the three months ended March 31, 2022 follows: Common shares subject to PBRSUs and TBRSUs Nonvested at January 1, 2022 211,819 Granted 52,335 Vested ( 48,415 ) Forfeited ( 373 ) Adjustment for performance conditions of PBRSUs (1) ( 634 ) Nonvested at March 31, 2022 (2) 214,732 (1) The number of PBRSUs earned depends on the level of achievement with respect to certain performance criteria. Adjustment herein represents the difference between the maximum number of common shares which could be earned and the actual number earned for those PBRSUs as to which the performance period was completed. (2) Nonvested amount herein represents the maximum number of nonvested PBRSUs and TBRSUs. As of March 31, 2022, an aggregate of 209,906 PBRSUs and TBRSUs are expected to vest. 48 Table of Contents A summary of awards vested during the three months ended March 31, 2022 and 2021 follows: Three Months Ended March 31, 2022 2021 PBRSU and TBRSU vested 48,415 35,872 Common shares withheld to satisfy employee income tax withholding obligations 18,658 14,108 Net common shares issued 29,757 21,764 Share-based compensation expense of $ 2.0 million and $ 1.8 million was recognized for the three-month periods ended March 31, 2022 and 2021, respectively. The following table details expected additional share-based compensation expense related to PBRSUs and TBRSUs outstanding at March 31, 2022: (In thousands) Nine months ending December 31, 2022 $ 4,198 2023 4,449 2024 2,902 2025 1,210 2026 194 Total $ 12,953 Note 19 – Benefit Plans Park has a noncontributory defined benefit pension plan (the "Pension Plan") covering substantially all of its employees. The Pension Plan provides benefits based on an employee’s years of service and compensation. There were no Pension Plan contributions for any of the three-month periods ended March 31, 2022 and 2021. Additionally, no contributions are expected to be made during the remainder of 2022. The following table shows the components of net periodic pension benefit (income) expense: Three Months Ended March 31, Affected Line Item in the Consolidated Condensed Statements of Income (In thousands) 2022 2021 Service cost $ 2,437 $ 2,479 Employee benefits Interest cost 1,426 1,340 Other components of net periodic pension benefit income Expected return on plan assets ( 4,449 ) ( 3,933 ) Other components of net periodic pension benefit income Recognized net actuarial (gain) loss and prior service costs ( 4 ) 555 Other components of net periodic pension benefit income Net periodic pension benefit (income) expense $ ( 590 ) $ 441 Park 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 tax law. 49 Table of Contents The expense for the Corporation related to the SERP Agreements for the three months ended March 31, 2022 and 2021 was as follows: Three Months Ended March 31, Affected Line Item in the Consolidated Condensed Statements of Income (In thousands) 2022 2021 Service cost $ 213 $ 204 Employee benefits Interest cost 183 149 Miscellaneous expense Total SERP expense $ 396 $ 353 Note 20 – Fair Value The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that Park uses to measure fair value are as follows: • Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that Park has the ability to access as of the measurement date. • Level 2: Level 1 inputs for assets or liabilities that are not actively traded. Also consists of an observable market price for a similar asset or liability. This includes the use of “matrix pricing” to value debt securities absent the exclusive use of quoted prices. • Level 3: Consists of unobservable inputs that are used to measure fair value when observable market inputs are not available. This could include the use of internally developed models, financial forecasting and similar inputs. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the balance sheet date. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and Park must use other valuation methods to develop a fair value. The fair value of individually evaluated collateral dependent loans is typically based on the fair value of the underlying collateral, which is estimated through third-party appraisals in accordance with Park's valuation requirements under its commercial and real estate loan policies. 50 Table of Contents Assets and Liabilities Measured at Fair Value on a Recurring Basis : The following table presents assets and liabilities measured at fair value on a recurring basis: Fair Value Measurements at March 31, 2022 using: (In thousands) Level 1 Level 2 Level 3 Balance at March 31, 2022 Assets Investment securities: Obligations of U.S. Treasury and other U.S. Government sponsored entities $ — $ 38,562 $ — $ 38,562 Obligations of states and political subdivisions — 371,641 — 371,641 U.S. Government sponsored entities’ asset-backed securities — 834,802 — 834,802 Collateralized loan obligations — 494,917 — 494,917 Corporate debt securities — 17,225 — 17,225 Equity securities 1,546 — 491 2,037 Mortgage loans held for sale — 7,852 — 7,852 Mortgage IRLCs — 301 — 301 Loan interest rate swaps — 923 — 923 Liabilities Fair value swap $ — $ — $ 226 $ 226 Borrowing interest rate swap — 86 — 86 Loan interest rate swaps — 923 — 923 Fair Value Measurements at December 31, 2021 using: (In thousands) Level 1 Level 2 Level 3 Balance at December 31, 2021 Assets Investment securities: Obligations of states and political subdivisions $ — $ 389,591 $ — $ 389,591 U.S. Government sponsored entities’ asset-backed securities — 854,463 — 854,463 Collateralized loan obligations — 498,674 — 498,674 Corporate debt securities — 11,412 — 11,412 Equity securities 1,630 — 499 2,129 Mortgage loans held for sale — 9,387 — 9,387 Mortgage IRLCs — 333 — 333 Loan interest rate swaps — 1,952 — 1,952 Liabilities Fair value swap $ — $ — $ 226 $ 226 Borrowing interest rate swap — 262 — 262 Loan interest rate swaps — 1,952 — 1,952 51 Table of Contents The following methods and assumptions were used by the Company in determining the fair value of the financial assets and liabilities discussed above: Interest rate swaps: The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2). Investment securities: Fair values for investment securities are based on quoted market prices, where available (Level 1). If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows (Level 3). Fair value swap: The fair value of the swap agreement entered into with the purchaser of the Visa Class B shares represents an internally developed estimate of the exposure based upon probability-weighted potential Visa litigation losses and is classified as Level 3. Mortgage Interest Rate Lock Commitments: Mortgage IRLCs are based on current secondary market pricing and are classified as Level 2. Mortgage loans held for sale: Mortgage loans held for sale are carried at their fair value. Mortgage loans held for sale are estimated using market prices for similar product types and, therefore, are classified in Level 2. The table below presents a reconciliation of the beginning and ending balances of the Level 3 inputs for the three-month periods ended March 31, 2022 and 2021, for financial instruments measured on a recurring basis and classified as Level 3: Level 3 Fair Value Measurements Three months ended March 31, 2022 and 2021 (In thousands) Equity Securities Fair value swap Balance at January 1, 2022 $ 499 $ ( 226 ) Total losses Included in other income ( 8 ) — Balance at March 31, 2022 $ 491 $ ( 226 ) Balance at January 1, 2021 $ 485 $ ( 226 ) Total gains Included in other income 5 — Balance at March 31, 2021 $ 490 $ ( 226 ) Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis: The following methods and assumptions were used by the Company in determining the fair value of assets and liabilities measured at fair value on a nonrecurring basis as described below: Individually evaluated collateral dependent loans: When a loan is individually evaluated, it is valued at the lower of cost or fair value. Collateral dependent loans which are individually evaluated and carried at fair value have been partially charged off or receive specific allocations of the allowance for credit losses. For collateral dependent loans, fair value is generally based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value. Collateral is then adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’s business, resulting in a Level 3 fair value classification. Individually evaluated loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Additionally, updated independent valuations are obtained annually for all collateral dependent loans in accordance with Company policy. 52 Table of Contents OREO: Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs. Fair value is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value. Appraisals for both individually evaluated collateral dependent loans and OREO are performed by licensed appraisers. Appraisals are generally obtained to support the fair value of collateral. In general, there are three types of appraisals received by the Company: real estate appraisals, income approach appraisals, and lot development loan appraisals. These are discussed below: • Real estate appraisals typically incorporate measures such as recent sales prices for comparable properties. Appraisers may make adjustments to the sales prices of the comparable properties as deemed appropriate based on the age, condition or general characteristics of the subject property. Management generally applies a 15 % discount to real estate appraised values which management expects will cover all disposition costs (including selling costs). This 15 % discount is based on historical discounts to appraised values on sold OREO properties. • Income approach appraisals typically incorporate the annual net operating income of the business divided by an appropriate capitalization rate, as determined by the appraiser. Management generally applies a 15 % discount to income approach appraised values which management expects will cover all disposition costs (including selling costs). • Lot development loan appraisals are typically performed using a discounted cash flow analysis. Appraisers determine an anticipated absorption period and a discount rate that takes into account an investor’s required rate of return based on recent comparable sales. Management generally applies a 6 % discount to lot development appraised values, which is an additional discount above the net present value calculation included in the appraisal, to account for selling costs. Other repossessed assets: Other repossessed assets are initially recorded at fair value less costs to sell when acquired. The carrying value of other repossessed assets is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs. At December 31, 2021, other repossessed assets primarily consisted of aircraft acquired as part of a loan workout. Fair value is based on Aircraft Bluebook and VREF Aircraft Value Reference values based on the model of aircraft and adjustments for flight hours, features and other variables. Such adjustments result in a Level 3 classification of the inputs for determining fair value. There were no other repossessed assets carried at fair value at March 31, 2022. MSRs: MSRs are carried at the lower of cost or fair value. MSRs do not trade in active, open markets with readily observable prices. For example, sales of MSRs do occur, but precise terms and conditions typically are not readily available. As such, management, with the assistance of a third-party specialist, determines fair value based on the discounted value of the future cash flows estimated to be received. Significant inputs include the discount rate and assumed prepayment speeds. The calculated fair value is then compared to market values where possible to ascertain the reasonableness of the valuation in relation to current market expectations for similar products. Accordingly, MSRs are classified as Level 2. 53 Table of Contents The following tables present assets and liabilities measured at fair value on a nonrecurring basis. Individually evaluated collateral dependent loans secured by real estate are carried at fair value if they have been charged down to fair value or if a specific valuation allowance has been established. As of March 31, 2022 and December 31, 2021, there were no PCD loans carried at fair value. A new cost basis is established at the time a property is initially recorded in OREO. OREO properties are carried at fair value if a devaluation has been taken with respect to the property's value subsequent to the initial measurement. Fair Value Measurements at March 31, 2022 using: (In thousands) Level 1 Level 2 Level 3 Balance at March 31, 2022 Individually evaluated collateral dependent loans recorded at fair value: Commercial real estate $ — $ — $ 566 $ 566 Residential real estate — — 261 261 Total individually evaluated collateral dependent loans recorded at fair value $ — $ — $ 827 $ 827 MSRs $ — $ 14,021 $ — $ 14,021 OREO recorded at fair value: Residential real estate — — 760 760 Total OREO recorded at fair value $ — $ — $ 760 $ 760 Other repossessed assets $ — $ — $ — $ — Fair Value Measurements at December 31, 2021 using: (In thousands) Level 1 Level 2 Level 3 Balance at December 31, 2021 Individually evaluated collateral dependent loans recorded at fair value: Commercial real estate $ — $ — $ 831 $ 831 Residential real estate — — 272 272 Total individually evaluated collateral dependent loans recorded at fair value $ — $ — $ 1,103 $ 1,103 MSRs $ — $ 13,482 $ — $ 13,482 OREO recorded at fair value: Residential real estate — — 775 775 Total OREO recorded at fair value $ — $ — $ 775 $ 775 Other repossessed assets $ — $ — $ 2,750 $ 2,750 54 Table of Contents The table below provides additional detail on those individually evaluated loans which are recorded at fair value as well as the remaining individually evaluated loan portfolio not included above. The remaining individually evaluated loans consist of 1) loans which are not collateral dependent, 2) loans which are not secured by real estate, and 3) loans carried at cost as the fair value of the underlying collateral or the present value of expected future cash flows on each of the loans exceeded the book value for each respective credit. March 31, 2022 (In thousands) Loan Balance Prior Charge-Offs Specific Valuation Allowance Carrying Balance Total individually evaluated collateral dependent loans recorded at fair value $ 970 $ 240 $ 143 $ 827 Remaining individually evaluated loans 62,239 384 1,370 60,869 Total individually evaluated loans $ 63,209 $ 624 $ 1,513 $ 61,696 December 31, 2021 (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 The income from credit adjustments related to individually evaluated loans carried at fair value was $ 24,000 and $ 0.9 million for the three-month periods ended March 31, 2022 and 2021, respectively. MSRs totaled $ 15.7 million at March 31, 2022. Of this $ 15.7 million MSR carrying balance, $ 14.0 million was recorded at fair value and included a valuation allowance of $ 1.1 million. The remaining $ 1.7 million was recorded at cost, as the fair value exceeded cost at March 31, 2022. At December 31, 2021, MSRs totaled $ 15.3 million. 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 $ 1.8 million was recorded at cost, as the fair value exceeded cost at December 31, 2021. The income r elated to MSRs carried at fair value during the three months ended March 31, 2022 and 2021 was $ 442,000 and $ 852,000 , respectively. Total OREO held by Park was $ 0.8 million at both March 31, 2022 and December 31, 2021. At both March 31, 2022 and December 31, 2021, all of the OREO held by Park was carried at fair value due to fair value adjustments made subsequent to the initial OREO measure ment. The net expense related to OREO fair value adjustments was $ 30,000 for the three -month period ended March 31, 2022. There was no expense related to OREO fair value adjustments for the three-month period ended March 31, 2021 . Other repossessed assets totaled $ 0.6 million at March 31, 2022, of which there were no repossessed assets recorded at fair value. Other repossessed assets totaled $ 3.3 million at December 31, 2021, of which $ 2.8 million were recorded at fair value. There was no expense related to fair value adjustments on other repossessed assets during either of the three-month periods ended March 31, 2022 and 2021. 55 Table of Contents The following tables present qualitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at March 31, 2022 and December 31, 2021: March 31, 2022 (In thousands) Fair Value Valuation Technique Unobservable Input(s) Range (Weighted Average) Individually evaluated collateral dependent loans: Commercial real estate $ 566 Sales comparison approach Adj to comparables 0.0 % - 232.0 % ( 22.8 %) Residential real estate $ 261 Sales comparison approach Adj to comparables 0.5 % - 78.6 % ( 11.4 %) Cost approach Accumulated depreciation 8.3 % ( 8.3 %) Other real estate owned: Residential real estate $ 760 Sales comparison approach Adj to comparables 5.0 % - 32.5 % ( 19.1 %) Balance at December 31, 2021 (In thousands) Fair Value Valuation Technique Unobservable Input(s) Range (Weighted Average) Individually evaluated collateral dependent loans: Commercial real estate $ 831 Sales comparison approach Adj to comparables 0.0 % - 232.0 % ( 28.3 %) 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: Residential real estate $ 775 Sales comparison approach Adj to comparables 5.0 % - 32.5 % ( 19.1 %) 56 Table of Contents 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. At March 31, 2022 and December 31, 2021, Park had Partnership Investments with a NAV of $ 21.3 million and $ 18.0 million, respectively. At March 31, 2022 and December 31, 2021, Park had $ 17.4 million and $ 8.4 million, respectively, in unfunded commitments related to these Partnership Investments. For the three-month periods ended March 31, 2022 and 2021, Park recognized income of $ 2.4 million and $ 1.4 million, respectively, related to these Partnership Investments. The fair value of certain financial instruments at March 31, 2022 and December 31, 2021, was as follows: March 31, 2022 Fair Value Measurements (In thousands) Carrying value Level 1 Level 2 Level 3 Total fair value Financial assets: Cash and money market instruments $ 246,892 $ 246,892 $ — $ — $ 246,892 Investment securities (1) 1,757,147 — 1,757,147 — 1,757,147 Other investment securities (2) 2,037 1,546 — 491 2,037 Mortgage loans held for sale 7,852 — 7,852 — 7,852 Mortgage IRLCs 301 — 301 — 301 Individually evaluated loans carried at fair value 827 — — 827 827 Other loans, net 6,733,765 — — 6,713,878 6,713,878 Loans receivable, net $ 6,742,745 $ — $ 8,153 $ 6,714,705 $ 6,722,858 Financial liabilities: Time deposits $ 694,544 $ — $ 696,789 $ — $ 696,789 Other 2,770 2,770 — — 2,770 Deposits (excluding demand deposits) $ 697,314 $ 2,770 $ 696,789 $ — $ 699,559 Short-term borrowings $ 205,927 $ — $ 205,927 $ — $ 205,927 Subordinated notes 188,322 — 201,516 — 201,516 Derivative financial instruments - assets: Loan interest rate swaps 923 — 923 — 923 Derivative financial instruments - liabilities: Fair value swap 226 — — 226 226 Borrowing interest rate swap 86 — 86 — 86 Loan interest rate swaps 923 — 923 — 923 (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. 57 Table of Contents December 31, 2021 Fair Value Measurements (In thousands) Carrying value Level 1 Level 2 Level 3 Total fair value Financial assets: Cash and money market instruments $ 219,180 $ 219,180 $ — $ — $ 219,180 Investment securities (1) 1,754,140 — 1,754,140 — 1,754,140 Other investment securities (2) 2,129 1,630 — 499 2,129 Mortgage loans held for sale 9,387 — 9,387 — 9,387 Mortgage IRLCs 333 — 333 — 333 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 Loans receivable, net $ 6,787,925 $ — $ 9,720 $ 6,784,951 $ 6,794,671 Financial liabilities: Time deposits $ 711,660 $ — $ 714,307 — $ 714,307 Other 1,465 1,465 — — 1,465 Deposits (excluding demand deposits) $ 713,125 $ 1,465 $ 714,307 $ — $ 715,772 Short-term borrowings $ 238,786 $ — $ 238,786 $ — $ 238,786 Subordinated notes 188,210 — 207,912 — 207,912 Derivative financial instruments - assets: Loan interest rate swaps 1,952 — 1,952 — 1,952 Derivative financial instruments - liabilities: Fair value swap $ 226 $ — $ — $ 226 $ 226 Borrowing interest rate swap 262 — 262 — 262 Loan interest rate swaps 1,952 — 1,952 — 1,952 (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. 58 Table of Contents Note 21 - Revenue from Contracts with Customers All of Park's revenue from contracts with customers within the scope of ASC 606 is recognized within "Other income" in the Consolidated Condensed Statements of Income. The following table presents the Corporation's sources of other income by revenue stream and operating segment for the three-month periods ended March 31, 2022 and March 31, 2021. Three Months Ended March 31, 2022 Revenue by Operating Segment (in thousands) PNB All Other Total Income from fiduciary activities Personal trust and agency accounts $ 2,506 $ — $ 2,506 Employee benefit and retirement-related accounts 2,560 — 2,560 Investment management and investment advisory agency accounts 3,260 — 3,260 Other 471 — 471 Service charges on deposit accounts Non-sufficient funds (NSF) fees 1,417 — 1,417 Demand deposit account (DDA) charges 516 — 516 Other 141 — 141 Other service income (1) Credit card 642 — 642 HELOC 89 — 89 Installment 43 — 43 Real estate 3,719 — 3,719 Commercial 354 ( 28 ) 326 Debit card fee income 6,126 — 6,126 Bank owned life insurance income (2) 1,093 82 1,175 ATM fees 532 — 532 Loss on sale of OREO, net — — — Gain on equity securities, net (2) 2,219 134 2,353 Other components of net periodic pension benefit income (2) 2,955 72 3,027 Miscellaneous (3) 2,604 149 2,753 Total other income $ 31,247 $ 409 $ 31,656 (1) Of the $ 4.8 million of aggregate revenue included within "Other service income", approximately $ 1.2 million is within the scope of ASC 606, with the remaining $ 3.6 million consisting primarily of certain residential real estate loan fees which are out of scope. (2) Not within the scope of ASC 606. (3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $ 2.8 million, all of which are within scope of ASC 606. 59 Table of Contents Three Months Ended March 31, 2021 Revenue by Operating Segment (in thousands) PNB All Other Total Income from fiduciary activities Personal trust and agency accounts $ 2,387 $ — $ 2,387 Employee benefit and retirement-related accounts 2,301 — 2,301 Investment management and investment advisory agency accounts 3,009 — 3,009 Other 476 — 476 Service charges on deposit accounts Non-sufficient funds (NSF) fees 1,134 — 1,134 Demand deposit account (DDA) charges 789 — 789 Other 131 — 131 Other service income (1) Credit card 580 — 580 HELOC 89 — 89 Installment 34 — 34 Real estate 8,438 — 8,438 Commercial 418 58 476 Debit card fee income 6,086 — 6,086 Bank owned life insurance income (2) 1,085 80 1,165 ATM fees 530 — 530 Loss on sale of OREO, net ( 33 ) — ( 33 ) Gain on equity securities, net (2) 834 976 1,810 Other components of net periodic pension benefit income (2) 1,987 51 2,038 Miscellaneous (3) 2,525 124 2,649 Total other income $ 32,800 $ 1,289 $ 34,089 (1) Of the $ 9.6 million of aggregate revenue included within "Other service income", approximately $ 1.3 million is within the scope of ASC 606, with the remaining $ 8.3 million consisting primarily of certain residential real estate loan fees which are out of scope. (2) Not within the scope of ASC 606. (3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $ 2.6 million, all of which are within scope of ASC 606. A description of Park's material revenue streams accounted for under ASC 606 follows: Income from fiduciary activities (gross) : Park earns fiduciary fee income and investment brokerage fees from its contracts with trust customers for various fiduciary and investment-related services. These fees are earned over time as the Company provides the contracted monthly and quarterly services and are generally assessed based on the market value of the trust assets. Service charges on deposit accounts and ATM fees : The Corporation earns fees from the Corporation's deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering fees, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are generally recognized at the end of the month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance. Other service income : Other service income includes income from (1) the sale and servicing of loans sold to the secondary market, (2) incentive income from third-party credit card issuers, and (3) loan customers for various loan-related activities and services. Income related to the sale and servicing of loans sold to the secondary market is included within Other service income, but is not within the scope of ASC 606. Services that fall within the scope of ASC 606 are recognized as revenue when the Company satisfies the Company's performance obligation to the customer. 60 Table of Contents Debit card fee income : Park earns interchange fees from debit cardholder transactions conducted primarily through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, net of card network fees, concurrently with the transaction processing services provided to the cardholder. Gain or loss on sale of OREO, net : The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of delivery of an executed deed. When Park finances the sale of OREO to the buyer, the Corporation assesses whether the buyer is committed to perform the buyer's obligation under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain 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. ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, without limitation: • the ever-changing effects of the global novel coronavirus (COVID-19) pandemic - - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants thereof - - on economies (local, national and international), supply chains and markets, on the labor market, including the potential for a sustained reduction in labor force participation, and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social or other activities), the availability, effectiveness and acceptance of vaccines, and the implementation of fiscal stimulus packages; • the impact of future governmental and regulatory actions upon our participation in and execution of government programs related to the COVID-19 pandemic; • Park's ability to execute our business plan successfully and within the expected timeframe as well as our ability to manage strategic initiatives in light of the impact of the COVID-19 pandemic and the various responses to the COVID-19 pandemic; • current and future economic and financial market conditions, either nationally or in the states in which Park and our subsidiaries do business, including the effects of higher unemployment rates, inflation, U.S. fiscal debt, budget and tax matters, geopolitical matters (including the conflict in Ukraine), and any slowdown in global economic growth, in addition to the continuing impact of the COVID-19 pandemic on our customers’ operations and financial condition, any of which may result in adverse impacts on the demand for loan, deposit and other financial services, delinquencies, defaults and counterparties' inability to meet credit and other obligations and the possible impairment of collectability of loans; • factors that can impact the performance of our loan portfolio, including changes in real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance, including any loans acquired in acquisition transactions; • the effect of monetary and other fiscal policies (including the impact of money supply, interest rate policies and policies impacting inflation, of the Federal Reserve Board, the U.S. Treasury and other governmental agencies) as well as disruption in the liquidity and functioning of U.S. financial markets, as a result of the COVID-19 pandemic and government policies implemented in response thereto, may adversely impact prepayment penalty income, mortgage banking income, income from fiduciary activities, the value of securities, deposits and other financial instruments, in addition to the loan demand and the performance of our loan portfolio, and the interest rate sensitivity of our consolidated balance sheet as well as reduce interest margins; • changes in the federal, state, or local tax laws may adversely affect the fair values of net deferred tax assets and obligations of state and political subdivisions held in Park's investment securities portfolio and otherwise negatively impact our financial performance; 61 Table of Contents • the impact of the changes in federal, state and local governmental policy, including the regulatory landscape, capital markets, elevated government debt, potential changes in tax legislation that may increase tax rates, infrastructure spending and social programs; • changes in laws or requirements imposed by Park's regulators impacting Park's capital actions, including dividend payments and stock repurchases; • changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic and reactions thereto), legislative and regulatory initiatives (including those undertaken in response to the COVID-19 pandemic), or other factors may be different than anticipated; • changes in customers', suppliers', and other counterparties' performance and creditworthiness, and Park's expectations regarding future credit losses and our allowance for credit losses, may be different than anticipated due to the continuing impact of and the various responses to the COVID-19 pandemic; • Park may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral; • the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors; • the adequacy of our internal controls and risk management program in the event of changes in the market, economic, operational (including those which may result from our associates working remotely), asset/liability repricing, legal, compliance, strategic, cybersecurity, liquidity, credit and interest rate risks associated with Park's business; • competitive pressures among financial services organizations could increase significantly, including product and pricing pressures (which could in turn impact our credit spreads), changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Park's ability to attract, develop and retain qualified banking professionals; • uncertainty regarding the nature, timing, cost and effect of changes in banking regulations or other regulatory or legislative requirements affecting the respective businesses of Park and our subsidiaries, including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry, specifically the reforms provided for in the CARES Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the Basel III regulatory capital reforms, as well as regulations already adopted and which may be adopted in the future by the relevant regulatory agencies, including the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve Board, to implement the provisions of the CARES Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the provisions of the American Rescue Plan Act of 2021, the provisions of the Dodd-Frank Act, and the Basel III regulatory capital reforms; • the effect of changes in accounting policies and practices, as may be adopted by the FASB, the SEC, the Public Company Accounting Oversight Board and other regulatory agencies, may adversely affect Park's reported financial condition or results of operations; • Park's assumptions and estimates used in applying critical accounting policies and modeling, including under the CECL model, which may prove unreliable, inaccurate or not predictive of actual results; • the impact of Park's ability to anticipate and respond to technological changes on Park's ability to respond to customer needs and meet competitive demands; • operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Park and our subsidiaries are highly dependent; • the ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Park's third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Park and/or result in Park incurring a financial loss; • a failure in or breach of Park's operational or security systems or infrastructure, or those of our third-party vendors and other service providers, resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems, including as a result of cyber attacks; • the impact on Park's business and operating results of any costs associated with obtaining rights in intellectual property claimed by others and of adequacy of Park's intellectual property protection in general; • the existence or exacerbation of general geopolitical instability and uncertainty as well as the effect of trade policies (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, closing of border crossings and changes in the relationship of the U.S. and its global trading partners); 62 Table of Contents • the impact on financial markets and the economy of any changes in the credit ratings of the U.S. Treasury obligations and other U.S. government-backed debt, as well as issues surrounding the levels of U.S., European and Asian government debt and concerns regarding the growth rates and financial stability of certain sovereign governments, supranationals and financial institutions in Europe and Asia and the risk they may face difficulties servicing their sovereign debt; • the effect of a fall in stock market prices on Park's asset and wealth management businesses; • our litigation and regulatory compliance exposure, including the costs and effects of any adverse developments in legal proceedings or other claims and the costs and effects of unfavorable resolution of regulatory and other governmental examinations or other inquiries; • continued availability of earnings and excess capital sufficient for the lawful and prudent declaration of dividends; • the impact on Park's business, personnel, facilities or systems of losses related to acts of fraud, scams and schemes of third parties; • the impact of widespread natural and other disasters, pandemics (including the COVID-19 pandemic), dislocations, regional or national protests and civil unrest (including any resulting branch closures or damages), military or terrorist activities or international hostilities on the economy and financial markets generally and on us or our counterparties specifically; • any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially affect our business, including our customers' willingness to conduct banking transactions and their ability to pay on existing obligations; • the effect of healthcare laws in the U.S. and potential changes for such laws, especially in light of the COVID-19 pandemic, which may increase our healthcare and other costs and negatively impact our operations and financial results; • risk and uncertainties associated with Park's entry into new geographic markets with our recent acquisitions, including expected revenue synergies and cost savings from recent acquisitions not being fully realized or realized within the expected time frame; • the replacement of the LIBOR with other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies; • and other risk factors relating to the banking industry as detailed from time to time in Park's reports filed with the SEC including those described in "Item 1A. Risk Factors" of Part I of Park's Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Park does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions that may be made to update any forward-looking statement to reflect the events or circumstances after the date on which the forward-looking statement was made, or reflect the occurrence of unanticipated events, except to the extent required by law. Non-GAAP Financial Measures This Management's Discussion and Analysis (or "MD&A") contains non-U.S. GAAP financial measures where management believes it to be helpful in understanding Park’s results of operations or financial position. Where non-U.S. GAAP financial measures are used, the comparable U.S. GAAP financial measure, as well as the reconciliation to the comparable U.S. GAAP financial measure, can be found herein. Items Impacting Comparability of Period Results From time to time, revenue, expenses and/or taxes are impacted by items judged by management of Park to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by management of Park at that time to be infrequent or short-term in nature. Most often, these items impacting comparability of period results are due to merger and acquisition activities and revenue and expenses related to former Vision Bank loan relationships. In other cases, they may result from management's decisions associated with significant corporate actions outside of the ordinary course of business. Even though certain revenue and expense items are naturally subject to more volatility than others due to changes in market and economic environment conditions, as a general rule volatility alone does not result in the inclusion of an item as one impacting comparability of period results. For example, changes in the (recovery of) / provision for credit losses (aside from those related to former Vision Bank loan relationships), gains (losses) on equity securities, net, and asset valuation adjustments, reflect ordinary banking activities and are, therefore, typically excluded from consideration as items impacting comparability of period results. Management believes the disclosure of items impacting comparability of period results provides a better understanding of Park's performance and trends and allows management to ascertain which of such items, if any, to include or exclude from an 63 Table of Contents analysis of Park's performance; i.e., within the context of determining how that performance differed from expectations, as well as how, if at all, to adjust estimates of future performance taking such items into account. Items impacting comparability of the results of particular periods are not intended to be a complete list of items that may materially impact current or future period performance. Non-GAAP Ratios Park's management uses certain non-GAAP financial measures to evaluate Park's performance. Specifically, management reviews the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio and the tangible book value per share. Management has included in the tables included within the "Items Impacting Comparability" section of this MD&A information relating to the annualized return on average tangible equity and the annualized return on average tangible assets, for the three months ended and at March 31, 2022 and March 31, 2021. For purposes of calculating the annualized return on average tangible equity, a non-GAAP financial measure, net income for each period is divided by average tangible equity during the period. Average tangible equity equals average shareholders' equity during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating the annualized return on average tangible assets, a non-GAAP financial measure, net income for each period is divided by average tangible assets during the period. Average tangible assets equals average assets during the applicable period less average goodwill and other intangible assets during the applicable period. Tangible equity equals total shareholders' equity less goodwill and other intangible assets, in each case at period end. Tangible assets equal total assets less goodwill and other intangible assets, in each case at period end. Management believes that the disclosure of the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio and the tangible book value per share presents additional information to the reader of the consolidated financial statements, which, when read in conjunction with the consolidated financial statements prepared in accordance with U.S. GAAP, assists in analyzing Park's operating performance, ensures comparability of operating performance from period to period, and facilitates comparisons with the performance of Park's peer financial holding companies and bank holding companies, while eliminating certain non-operational effects of acquisitions. In the tables included within the "Items Impacting Comparability" section of this MD&A, Park has provided a reconciliation of average tangible equity to average shareholders' equity, average tangible assets to average assets, tangible equity to total shareholders' equity and tangible assets to total assets solely for the purpose of complying with SEC Regulation G and not as an indication that the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio and the tangible book value per share are substitutes for the annualized return on average equity, the annualized return on average assets, the total shareholders' equity to total assets ratio and the book value per share, respectively, as determined in accordance with U.S. GAAP. FTE (fully taxable equivalent) Ratios Interest income, yields, and ratios on a FTE basis are considered non-GAAP financial measures. Management believes net interest income on a FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a corporate federal statutory tax rate of 21 percent. In the tables included within the "Items Impacting Comparability" section of this MD&A, Park has provided detail of FTE interest income solely for the purpose of complying with SEC Regulation G and not as an indication that FTE interest income, yields and ratios are substitutes for interest income, yields and ratios, as determined in accordance with U.S. GAAP. Paycheck Protection Program ("PPP") Loans Park originated $764.7 million in loans as part of the PPP. These loans are not typical of Park's loan portfolio in that they are part of a specific government program to support businesses during the COVID-19 pandemic and are 100% guaranteed by the SBA. As such, management considers growth in the loan portfolio excluding PPP loans, the total allowance for credit losses to total loans ratio (excluding PPP loans), and general reserve on collectively evaluated loans as a percentage of total collectively evaluated loans (excluding PPP loans) in addition to the related U.S. GAAP metrics which are not adjusted for PPP loans. Critical Accounting Policies Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2021 Form 10-K lists significant accounting policies used in the development and presentation of Park’s consolidated financial statements. The accounting and reporting policies of Park conform with U.S. GAAP and general practices within the financial services industry. The preparation of 64 Table of Contents financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. 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 COVID-19 pandemic may meaningfully impact significant estimates such as the allowance for credit losses, goodwill, and pension plan obligations and related expenses. Allowance for Credit Losses: Park believes the determination of the allowance for credit losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for credit losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses over the life of an asset or an off-balance sheet credit exposure. Management’s determination of the adequacy of the allowance for credit losses is based on periodic evaluations of past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. However, this evaluation has subjective components requiring material estimates, including expected default probabilities, the expected loss given default, the amounts and timing of expected future cash flows on individually evaluated loans, and estimated losses based on historical loss experience and forecasted economic conditions. All of these factors may be susceptible to significant change. To the extent that actual results differ from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods. One of the most significant judgments impacting the ACL estimate is the economic forecast for Ohio unemployment, Ohio GDP, and Ohio HPI. Changes in the economic forecasts could significantly affect the estimated credit losses which could potentially lead to materially different allowance levels from one reporting period to the next. In calculating the ACL, management weighs several different scenarios, including a baseline (most likely) scenario and an adverse scenario. To create a hypothetical sensitivity analysis, management calculated a quantitative allowance using a 100% weighting applied to an adverse scenario. This scenario considers among other things that: (1) the military conflict between Russia and Ukraine worsens significantly and persists longer than anticipated resulting in a disruption in oil supply and increased inflation; (2) supply chain issues erode, with increased shortages of many goods, also boosting inflation; and (3) new cases, hospitalizations and deaths from COVID-19 start to rise significantly again, slowing growth in spending on air travel, retail and hotels. The adverse scenario forecasts unemployment for the next twelve months to range from 6.1% to 8.4%. Excluding consideration of general reserve adjustments, this sensitivity analysis would result in a hypothetical increase in Park's ACL of $18.3 million as of March 31, 2022. Refer to the "Credit Metrics and (Recovery of) Provision for Credit Losses" section of this MD&A for additional discussion. Goodwill: Management believes that the accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies. U.S. GAAP establishes standards for the impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in each business acquired. Park’s goodwill, as of March 31, 2022, relates to the value inherent in the banking industry and that value is dependent upon the ability of Park’s national bank subsidiary, PNB, to provide quality, cost-effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base, the inability to deliver cost-effective services over sustained periods or significant credit problems could lead to impairment of goodwill that could, in turn, adversely impact earnings in future periods. U.S. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Park evaluates goodwill for impairment during the second quarter of each year, with financial data as of March 31. Based on the qualitative analysis performed as of April 1, 2021, the Company determined that goodwill for Park's reporting unit, PNB, was not impaired. Management continues to monitor economic factors, including economic conditions as a result of the COVID-19 pandemic and responses thereto, and geopolitical conflict (including the conflict in Ukraine), to evaluate goodwill impairment. The fair value of the goodwill, which resides on the books of PNB, is evaluated for potential impairment by reviewing the past and projected operating results for PNB, deposit and loan totals for PNB and banking industry comparable information. Pension Plan: The determination of pension plan obligations and related expenses requires the use of assumptions to estimate the amount of benefits that employees will earn while working, as well as the present value of those benefits. Annual pension expense is principally based on four components: (1) the value of benefits earned by employees for working during the year 65 Table of Contents (service cost), (2) the increase in the liability due to the passage of time (interest cost), and (3) other gains and losses, reduced by (4) the expected return on plan assets for our pension plan. Significant assumptions used to measure our annual pension expense include: • the interest rate used to determine the present value of liabilities (discount rate); • certain employee-related factors, such as turnover, retirement age and mortality; • the expected return on assets in our funded pension plan; and • the rate of salary increases where benefits are based on earnings. Our assumptions reflect our historical experience and management’s best judgment regarding future expectations. Due to the significant management judgment involved, our assumptions could have a material impact on the measurement of our pension plan expense and obligation. Comparison of Results of Operations For the Three Months Ended March 31, 2022 and 2021 Summary Discussion of Results Net income for the three months ended March 31, 2022 was $38.9 million, compared to $42.8 million for the first quarter of 2021. Diluted earnings per common share were $2.38 for the first quarter of 2022, compared to $2.61 for the first quarter of 2021. Weighted average diluted common shares outstanding were 16,331,031 for the first quarter of 2022, compared to 16,439,920 weighted average diluted common shares outstanding for the first quarter of 2021. COVID-19 Considerations During 2022 and 2021, Park provided calamity pay and special bonuses to certain associates related to the COVID-19 pandemic. The cost of the calamity pay and special bonuses amounted to $606,000 and $634,000 for the three months ended March 31, 2022 and 2021, respectively, and is included within salaries expense. Paycheck Protection Program: During 2020 and 2021, Park approved and funded 7,701 loans totaling $764.7 million. For its assistance in making and retaining these loans, Park received an aggregate of $33.1 million in fees from the SBA, of which $1.5 million and $4.6 were recognized within loan interest income during the three months ended March 31, 2022 and 2021, respectively. At March 31, 2022, the remaining balance of PPP loans was $37.4 million. Loan Modifications: 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 the TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. The modified loans were considered current and continued to accrue interest during the deferral period. Financial Results by Segment The table below reflects the net income (loss) by segment for the first quarters (the three months ended March 31) of 2022 and 2021 and for the years ended December 31, 2021 and 2020. Park's segments include PNB and "All Other" which primarily consists of Park as the "Parent Company", GFSC and SEPH. (In thousands) Q1 2022 Q1 2021 2021 2020 PNB $ 41,468 $ (259) $ 45,122 $ 159,461 $ 123,730 All Other (2,593) (2,291) (5,516) 4,193 Total Park $ 38,875 $ 42,831 $ 153,945 $ 127,923 Net income for the three months ended March 31, 2022 of $38.9 million represented a $3.9 million, or 9.2%, decrease compared to $42.8 million for the three months ended March 31, 2021. Net income for each of the three months ended March 66 Table of Contents 31, 2022 and 2021 included several items of income and expense that impacted comparability of period results. These items are detailed in the "Items Impacting Comparability" section within this MD&A. The following discussion provides additional information regarding the PNB segment, followed by additional information regarding All Other. The Park National Bank (PNB) The table below reflects PNB's net income for the first quarters (the three months ended March 31) of 2022 and 2021 and for the years ended December 31, 2021 and 2020. (In thousands) Q1 2022 Q1 2021 2021 2020 Net interest income $ 79,372 $ 82,086 $ 328,398 $ 326,375 (Recovery of) provision for credit losses (1) (4,547) (4,194) (8,554) 30,813 Other income 31,247 32,800 126,802 124,231 Other expense 64,216 63,576 266,678 268,938 Income before income taxes $ 50,950 $ 55,504 $ 197,076 $ 150,855 Income tax expense 9,482 10,382 37,615 27,125 Net income $ 41,468 $ 45,122 $ 159,461 $ 123,730 (1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of March 31, 2022 and 2021, and as of December 31, 2021 and the related (recovery of) provision for credit losses for the three months ended March 31, 2022 and 2021 and the year ended December 31, 2021 were calculated utilizing this guidance. Net interest income of $79.4 million for the three months ended March 31, 2022 represented a $2.7 million, or 3.3%, decrease compared to $82.1 million for the three months ended March 31, 2021. The decrease was a result of a $3.5 million decrease in interest income, partially offset by an $834,000 decrease in interest expense. The $3.5 million decrease in interest income was primarily due to a $5.8 million decrease in interest income on loans, partially offset by a $2.3 million increase in investment income. The decrease in interest income on loans was primarily the result of a $3.6 million decrease in interest income on PPP loans and a $2.2 million decrease in interest income on all other loans. Excluding PPP loans, there was a $7.2 million increase in average loans from $6.760 billion for the three months ended March 31, 2021 to $6.767 billion for the three months ended March 31, 2022. This increase in average loans was offset by a 14 basis point decline in the yield excluding PPP loans from 4.38% for the three months ended March 31, 2021 to 4.24% for the three months ended March 31, 2022. The $2.3 million increase in investment income was primarily the result of a $676.1 million increase in average investments, from $1.09 billion for the three months ended March 31, 2021 to $1.76 billion for the three months ended March 31, 2022. The increase was partially offset by a decrease in the yield on investments, which decreased 42 basis points to 2.12% for the three months ended March 31, 2022, compared to 2.54% for the three months ended March 31, 2021. The $834,000 decrease in interest expense was primarily due to a $895,000 decrease in interest expense on deposits, partially offset by a $61,000 increase in interest expense on borrowings. The decrease in interest expense on deposits was partially the result of a decrease in the cost of deposits of 8 basis points, from 0.16% for the three months ended March 31, 2021 to 0.08% for the three months ended March 31, 2022. The decrease in the interest expense on deposits was partially offset by a $42.2 million increase in average on-balance sheet interest bearing deposits from $5.13 billion for the three months ended March 31, 2021, to $5.17 billion for the three months ended March 31, 2022. The increase in on-balance sheet interest bearing deposits was due to increases in both transaction account and savings deposits, which were partially offset by a decline in higher-cost time deposits. During the three months ended March 31, 2022 and 2021, Park made the decision to participate in two programs to transfer deposits off balance sheet in order to manage growth of the balance sheet. This decision also minimized the increase in interest bearing deposits. The recovery of credit losses of $4.5 million for the three months ended March 31, 2022 represented a difference of $0.3 million, compared to a recovery of credit losses of $4.2 million for the three months ended March 31, 2021. Refer to the “Credit Metrics and (Recovery of) Provision for Credit Losses” section for additional details regarding the level of the (recovery of) provision for credit losses recognized in each period presented above. 67 Table of Contents Other income of $31.2 million for the three months ended March 31, 2022 represented a decrease of $1.6 million, or 4.7%, compared to $32.8 million for the three months ended March 31, 2021. The $1.6 million decrease was primarily related to a $4.7 million decrease in other service income, which was primarily due to declines in fee income from mortgage loan originations and mortgage servicing rights, partially offset by an increase in investor rate locks and mortgage loans held for sale. This decrease in other service income was partially offset by increases of (i) $1.4 million in gain on equity securities, net; (ii) $968,000 in other components of net periodic pension benefit income; and (iii) $624,000 in income from fiduciary activities. A summary of mortgage loan originations for each quarter of 2021, the year ended December 31, 2021 and the three months ended March 31, 2022 follows. (In thousands) Q1 2021 Q2 2021 Q3 2021 Q4 2021 2021 Q1 2022 Mortgage Loan Origination Volume Sold $ 191,116 $ 142,398 $ 123,757 $ 98,007 $ 555,278 $ 69,053 Portfolio 82,613 74,670 66,718 60,685 284,686 53,498 Construction 28,987 37,266 28,486 24,816 119,555 32,928 Service released 1,266 2,204 4,537 5,795 13,802 4,660 Total mortgage loan originations $ 303,982 $ 256,538 $ 223,498 $ 189,303 $ 973,321 $ 160,139 Refinances as a % of Total Mortgage Loan Originations 71.1 % 50.0 % 44.8 % 44.2 % 54.2 % 41.7 % Total mortgage loan originations decreased $143.8 million, or 47.3%, to $160.1 million for the three months ended March 31, 2022 compared to $304.0 million for the three months ended March 31, 2021. The table below reflects PNB's other expense for the three months ended March 31, 2022 and 2021. (Dollars in thousands) Q1 2022 Q1 2021 change % change Other expense: Salaries $ 29,320 $ 28,579 $ 741 2.6 % Employee benefits 10,413 10,087 326 3.2 % Occupancy expense 3,230 3,317 (87) (2.6) % Furniture and equipment expense 2,936 2,607 329 12.6 % Data processing fees 7,423 7,625 (202) (2.6) % Professional fees and services 4,698 4,136 562 13.6 % Marketing 1,315 1,491 (176) (11.8) % Insurance 1,400 1,551 (151) (9.7) % Communication 874 1,100 (226) (20.5) % State tax expense 1,123 989 134 13.5 % Amortization of intangible assets 402 479 (77) (16.1) % Miscellaneous 1,082 1,615 (533) (33.0) % Total other expense $ 64,216 $ 63,576 $ 640 1.0 % Other expense of $64.2 million for the three months ended March 31, 2022 represented an increase of $640,000, or 1.0%, compared to $63.6 million for the three months ended March 31, 2021. The increase in salaries expense was primarily related to increases in base salary expense and share-based compensation expense, partially offset by a decrease in additional compensation expense. The increase in employee benefits expense was primarily related to increased payroll tax expense, group insurance costs and other retirement benefits. The increase in furniture and equipment expense was primarily related to an increase in depreciation expense. The decrease in data processing fees was primarily related to a decrease in debit card processing expense, partially offset by an increase in software data processing expense. The increase in professional fees and services expense was primarily due to increases in management and consulting expense and legal expense, which were partially 68 Table of Contents offset by decreases in temporary wage expense, title, appraisal and credit costs, and other fees. The decrease in communication expense was due to decreased postage and telephone expenses. The decrease in miscellaneous expense was due to decreased expense for the allowance on unfunded commitments. The table below provides certain balance sheet information and financial ratios for PNB as of or for the three months ended March 31, 2022 and 2021 and the year ended December 31, 2021. (Dollars in thousands) March 31, 2022 December 31, 2021 March 31, 2021 % change from 12/31/21 % change from 03/31/21 Loans 6,820,090 6,868,935 7,162,807 (0.71) % (4.78) % Loans less PPP loans (1) 6,782,666 6,794,515 6,775,817 (0.17) % 0.10 % Allowance for credit losses 78,808 83,111 86,560 (5.18) % (8.96) % Net loans 6,741,282 6,785,824 7,076,247 (0.66) % (4.73) % Investment securities 1,817,493 1,807,392 1,167,225 0.56 % 55.71 % Total assets 9,544,545 9,538,217 9,884,055 0.07 % (3.43) % Total deposits 8,255,304 8,157,720 8,485,798 1.20 % (2.72) % Average assets (2) 9,798,555 9,814,766 9,573,763 (0.17) % 2.35 % Efficiency ratio (3) 57.63 % 58.21 % 55.00 % (1.00) % 4.78 % Return on average assets (4) 1.72 % 1.62 % 1.91 % 6.17 % (9.95) % (1) Excludes $37.4 million, $74.4 million and $387.0 million of PPP loans at March 31, 2022, December 31, 2021 and March 31, 2021. (2) Average assets for the three months ended March 31, 2022 and 2021 and for the year ended December 31, 2021. (3) Calculated utilizing FTE net interest income which includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustments were $819,000 for the three months ended March 31, 2022, $714,000 for the three months ended March 31, 2021 and $2.9 million for the year ended December 31, 2021. (4) Annualized for the three months ended March 31, 2022 and 2021. Loans outstanding at March 31, 2022 were $6.82 billion, compared to $6.87 billion at December 31, 2021, a decrease of $48.8 million. Loans outstanding at March 31, 2022 were $6.82 billion, compared to $7.16 billion at March 31, 2021, a decrease of $342.7 million. Excluding $37.4 million and $74.4 million of PPP loans at March 31, 2022 and December 31, 2021, respectively, loans outstanding were $6.78 billion at March 31, 2022, compared to $6.79 billion at December 31, 2021, a decrease of $11.8 million. Excluding $37.4 million and $387.0 million of PPP loans at March 31, 2022 and 2021, respectively, loans outstanding were $6.78 billion at March 31, 2022, compared to $6.78 billion at March 31, 2021, an increase of $6.8 million. The table below breaks out the change in loans outstanding, by loan type. (Dollars in thousands) March 31, 2022 December 31, 2021 March 31, 2021 change from 12/31/21 % change from 12/31/21 change from 03/31/21 % change from 03/31/21 Home equity $ 159,667 $ 165,691 $ 171,495 $ (6,024) (3.64) % $ (11,828) (6.90) % Installment 1,685,627 1,685,687 1,657,140 (60) — % 28,487 1.72 % Real estate 1,126,666 1,142,991 1,192,978 (16,325) (1.43) % (66,312) (5.56) % Commercial (excluding PPP loans) (1) 3,807,310 3,797,673 3,749,153 9,637 0.25 % 58,157 1.55 % PPP loans 37,424 74,420 386,990 (36,996) (49.71) % (349,566) (90.33) % Other 3,396 2,473 5,051 923 37.32 % (1,655) (32.77) % Total loans $ 6,820,090 $ 6,868,935 $ 7,162,807 $ (48,845) (0.71) % $ (342,717) (4.78) % Total loans (excluding PPP loans) $ 6,782,666 $ 6,794,515 $ 6,775,817 $ (11,849) (0.17) % $ 6,849 0.10 % (1) Excludes $37.4 million of PPP loans at March 31, 2022, $74.4 million of PPP loans at December 31, 2021 and $387.0 million of PPP loans at March 31, 2021. PNB's allowance for credit losses decreased by $4.3 million, or 5.2%, to $78.8 million at March 31, 2022, compared to $83.1 million at December 31, 2021. Net recoveries were $245,000, or 0.01% of total average loans, for the three months ended March 31, 2022 and were $640,000, or 0.01% of total average loans, for the year ended December 31, 2021. Refer to the “Credit Metrics and (Recovery of) Provision for Credit Losses” section for additional information regarding PNB's loan portfolio and the level of (recovery of) provision for credit losses recognized in each period presented. 69 Table of Contents Total deposits at March 31, 2022 were $8.26 billion, compared to $8.16 billion at December 31, 2021, an increase of $97.6 million, or 1.2%. Total deposits at March 31, 2022 were $8.26 billion, compared to $8.49 million at March 31, 2021, a decrease of $230.5 million, or 2.7%. During the three months ended March 31, 2022 and 2021 and the year ended December 31, 2021, Park made the decision to participate in two programs to transfer deposits off balance sheet in order to manage growth of the balance sheet, as deposits increased significantly throughout the COVID-19 pandemic. At March 31, 2022, December 31, 2021 and March 31, 2021, Park had $1,149.2 million, $983.1 million and $809.1 million, respectively, in deposits which were off-balance sheet. Total deposits would have increased $263.7 million, or 2.9%, compared to December 31, 2021 had the $1,149.2 million and $983.1 million in deposits remained on the balance sheet at the respective dates. Total deposits would have increased $109.6 million, or 1.2%, compared to March 31, 2021 had the $1,149.2 million and $809.1 million in deposits remained on the balance sheet at the respective dates. The table below breaks out the change in deposit balances, by deposit type. (Dollars in thousands) March 31, 2022 December 31, 2021 March 31, 2021 change from 12/31/21 % change from 12/31/21 change from 03/31/21 % change from 03/31/21 Non-interest bearing deposits $ 3,315,210 $ 3,320,413 $ 3,158,237 $ (5,203) (0.2) % $ 156,973 5.0 % Transaction accounts 1,587,856 1,502,876 1,598,437 84,980 5.7 % (10,581) (0.7) % Savings 2,657,694 2,622,771 2,906,929 34,923 1.3 % (249,235) (8.6) % Certificates of deposit 694,544 711,660 822,195 (17,116) (2.4) % (127,651) (15.5) % Total deposits $ 8,255,304 $ 8,157,720 $ 8,485,798 $ 97,584 1.2 % $ (230,494) (2.7) % Off balance sheet deposits 1,149,187 983,053 809,135 166,134 16.9 % 340,052 42.0 % Total deposits including off balance sheet deposits $ 9,404,491 $ 9,140,773 $ 9,294,933 $ 263,718 2.9 % $ 109,558 1.2 % All Other The table below reflects All Other net (loss) income for the first quarters (the three months ended March 31) of 2022 and 2021 and for the years ended December 31, 2021 and 2020. (In thousands) Q1 2022 Q1 2021 2021 2020 Net interest (expense) income $ (1,686) $ (1,352) $ 1,495 $ 1,255 Recovery of credit losses (1) (58) (661) (3,362) (18,759) Other income 409 1,289 3,142 1,433 Other expense 3,157 4,289 16,840 17,657 Net (loss) income before income tax benefit $ (4,376) $ (3,691) $ (8,841) $ 3,790 Income tax benefit (1,783) (1,400) (3,325) (403) Net (loss) income $ (2,593) $ (2,291) $ (5,516) $ 4,193 (1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of March 31, 2022 and 2021 and December 31, 2021 and the related recovery of credit losses for the three months ended March 31, 2022 and 2021, and the year ended December 31, 2021 were calculated utilizing this guidance. The net interest (expense) income for All Other included, for all periods presented, interest income on subordinated debt investments in PNB, which were eliminated in the consolidated Park National Corporation totals, as well as interest income on GFSC loans and SEPH impaired loan relationships. The net interest (expense) income for All Other included interest expense on $175.0 million aggregate principal amount of 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030 issued by Park in August 2020 (the "Park Subordinated Notes"). Net interest (expense) income reflected net interest expense of $1.7 million for the three months ended March 31, 2022, compared to $1.4 million for the three months ended March 31, 2021. The change was largely the result of a decrease of $96,000 in loan interest income related to payment collections at SEPH, and a decrease of $383,000 in net interest income from GFSC, partially offset by a decrease in interest expense on borrowings of $141,000 mainly related to the Park Subordinated Notes. All Other had other income of $409,000 for the three months ended March 31, 2022, compared to $1.3 million for the three months ended March 31, 2021. The change was largely due to an $430,000 decrease in income related to Partnership 70 Table of Contents Investments, which went from a $634,000 gain for the three months ended March 31, 2021 to a $204,000 gain for the three months ended March 31, 2022, and a $413,000 difference in gain (loss) on equity securities, net, which went from a $343,000 gain for the three months ended March 31, 2021 to a $70,000 loss for the three months ended March 31, 2022. All Other had other expense of $3.2 million for the three months ended March 31, 2022, compared to $4.3 million for the three months ended March 31, 2021. The decrease was largely due to a $339,000 decrease in occupancy expenses and a $367,000 decrease in professional fees and services. The table below provides certain balance sheet information for All Other as of or for the three months ended March 31, 2022 and 2021 and the year ended December 31, 2021. (Dollars in thousands) March 31, 2022 December 31, 2021 March 31, 2021 % change from 12/31/21 % change from 3/31/21 Loans $ 1,516 $ 2,187 $ 5,938 (30.68) % (74.47) % Allowance for credit losses 53 86 326 (38.37) % (83.74) % Net loans 1,463 2,101 5,612 (30.37) % (73.93) % Total assets 31,807 22,037 30,014 44.33 % 5.97 % Average assets (1) 26,827 32,692 38,779 (17.94) % (30.82) % (1) Average assets for the three months ended March 31, 2022 and 2021, and the year ended December 31, 2021. Park National Corporation The table below reflects Park's consolidated net income for the first quarters (the three months ended March 31) of 2022 and 2021 and for the years ended December 31, 2021 and 2020. (In thousands) Q1 2022 Q1 2021 2021 2020 Net interest income $ 77,686 $ 80,734 $ 329,893 $ 327,630 (Recovery of) provision for credit losses (1) (4,605) (4,855) (11,916) 12,054 Other income 31,656 34,089 129,944 125,664 Other expense 67,373 67,865 283,518 286,595 Income before income taxes $ 46,574 $ 51,813 $ 188,235 $ 154,645 Income tax expense 7,699 8,982 34,290 26,722 Net income $ 38,875 $ 42,831 $ 153,945 $ 127,923 (1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of March 31, 2022 and 2021 and December 31, 2021 and the related recovery of (provision for) credit losses for the three months ended March 31, 2022 and 2021, and the year ended December 31, 2021 were calculated utilizing this guidance. 71 Table of Contents Net Interest Income Park’s principal source of earnings is net interest income, the difference between total interest income and total interest expense. Net interest income results from average balances outstanding for interest earning assets and interest bearing liabilities in conjunction with the average rates earned and paid on them. Comparison for the First Quarters of 2022 and 2021 Net interest income decreased by $3.0 million, or 3.8%, to $77.7 million for the first quarter of 2022, compared to $80.7 million for the first quarter of 2021. See the discussion under the table below. Three months ended March 31, 2022 Three months ended March 31, 2021 (Dollars in thousands) Average balance Interest Tax equivalent yield/cost Average balance Interest Tax equivalent yield/cost Loans (1) $ 6,829,336 $ 72,584 4.31 % $ 7,138,854 $ 78,910 4.48 % Taxable investments 1,397,975 6,130 1.78 % 814,586 4,256 2.12 % Tax-exempt investments (2) 371,695 3,098 3.38 % 278,955 2,578 3.75 % Money market instruments 360,103 153 0.17 % 553,906 143 0.11 % Interest earning assets $ 8,959,109 $ 81,965 3.71 % $ 8,786,301 $ 85,887 3.96 % Interest bearing deposits $ 5,170,296 1,071 0.08 % $ 5,129,357 1,970 0.16 % Short-term borrowings 223,157 244 0.44 % 318,406 183 0.23 % Long-term debt 188,267 2,145 4.62 % 220,300 2,286 4.21 % Interest bearing liabilities $ 5,581,720 $ 3,460 0.25 % $ 5,668,063 $ 4,439 0.32 % Excess interest earning assets $ 3,377,389 $ 3,118,238 Tax equivalent net interest income $ 78,505 $ 81,448 Net interest spread 3.46 % 3.64 % Net interest margin 3.55 % 3.76 % (1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $168,000 for the three months ended March 31, 2022 and $173,000 for the same period of 2021. (2) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $651,000 for the three months ended March 31, 2022 and $541,000 for the same period of 2021. Average interest earning assets for the first quarter of 2022 increased by $172.8 million, or 2.0%, to $8,959 million for the first quarter of 2022, compared to $8,786 million for the first quarter of 2021. The average yield on interest earning assets decreased by 25 basis points to 3.71% for the first quarter of 2022, compared to 3.96% for the first quarter of 2021. Interest income for the three months ended March 31, 2022 and 2021 included purchase accounting accretion of $477,000 and $1.1 million, respectively, related to the acquisitions of NewDominion and Carolina Alliance, as well as $42,000 and $105,000, respectively, of interest income related to payments received on certain SEPH impaired loan relationships, some of which are participated with PNB. Interest income for the three months ended March 31, 2022 and 2021 also included $1.6 million and $5.2 million, respectively, of income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the yield on loans was 4.22% and 4.34% for the three months ended March 31, 2022 and 2021, respectively, and the yield on earning assets was 3.64% and 3.82% for the three months ended March 31, 2022 and 2021, respectively. Average interest bearing liabilities for the first quarter of 2022 decreased by $86.3 million, or 1.5%, to $5,582 million, compared to $5,668 million for the first quarter of 2021. The average cost of interest bearing liabilities decreased by 7 basis points to 0.25% for the first quarter of 2022, compared to 0.32% for the first quarter of 2021. During the year ended December 31, 2020, Park made the decision to participate in a OWS program in order to manage growth of the balance sheet. At March 31, 2022 and 2021, Park had $1,149.2 million and $809.1 million, respectively, in OWS insured cash sweep deposits which were off-balance sheet. Excluding the impact of these off-balance sheet OWS deposits, the average cost of interest bearing liabilities would have been 0.21% and 0.28% for the first quarters of 2022 and 2021, respectively. 72 Table of Contents Removing the impacts of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance, the interest income related to payments on certain SEPH impaired loan relationships and the interest income related to PPP loans, the net interest margin was 3.48% and 3.61% for the three months ended March 31, 2022 and 2021, respectively. Yield on Loans: Average loan balances decreased $309.5 million, or 4.3%, to $6,829 million for the first quarter of 2022, compared to $7,139 million for the first quarter of 2021. The average yield on the loan portfolio decreased by 17 basis points to 4.31% for the first quarter of 2022, compared to 4.48% for the first quarter of 2021. Average loans for the first quarters of 2022 and 2021 included $60.0 million and $369.1 million, respectively, of PPP loans. The table below shows the average balance and tax equivalent yield by type of loan for the three months ended March 31, 2022 and 2021. Three months ended March 31, 2022 Three months ended March 31, 2021 (Dollars in thousands) Average balance Tax equivalent yield Average balance Tax equivalent yield Home equity loans $ 161,827 3.53 % $ 175,496 3.91 % Installment loans 1,680,738 4.67 % 1,658,098 4.91 % Real estate loans 1,130,635 3.69 % 1,197,687 3.89 % Commercial loans (1) 3,853,302 4.36 % 4,104,900 4.50 % Other 2,834 11.73 % 2,673 13.32 % Total loans before allowance $ 6,829,336 4.31 % $ 7,138,854 4.48 % (1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $168,000 for the three months ended March 31, 2022 and $173,000 for the same period of 2021. Loan interest income for the three months ended March 31, 2022 and 2021 included the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance, interest income related to payments on certain SEPH impaired loan relationships and interest income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, (a) the yield on home equity loans was 3.40%, the yield on installment loans was unchanged at 4.67%, the yield on real estate loans was 3.67%, the yield on commercial loans was 4.21% and the yield on total loans and leases before allowance was 4.22% for the three months ended March 31, 2022; and (b) the yield on home equity loans was 3.49%, the yield on installment loans was unchanged at 4.91%, the yield on real estate loans was 3.85%, the yield on commercial loans was 4.27% and the yield on total loans and leases before allowance was 4.34% for the three months ended March 31, 2021. Cost of Deposits: Average interest bearing deposit balances increased $40.9 million, or 0.8%, to $5,170 million for the first quarter of 2022, compared to $5,129 for the first quarter of 2021. The average cost of funds on deposit balances decreased by 8 basis points to 0.08% for the first quarter of 2022, compared to 0.16% for the first quarter of 2021. The table below shows for the three months ended March 31, 2022 and 2021, the average balance and cost of funds by type of deposit. Three months ended March 31, 2022 Three months ended March 31, 2021 (Dollars in thousands) Average balance Cost of funds Average balance Cost of funds Transaction accounts $ 1,639,828 0.02 % $ 1,457,617 0.02 % Savings deposits and clubs 2,829,331 0.04 % 2,823,920 0.04 % Time deposits 701,137 0.42 % 847,820 0.76 % Total interest bearing deposits $ 5,170,296 0.08 % $ 5,129,357 0.16 % 73 Table of Contents Yield on Average Interest Earning Assets: The following table shows the tax equivalent yield on average interest earning assets for the three months ended March 31, 2022 and for the years ended December 31, 2021, 2020 and 2019. Loans (1) (3) Investments (2) Money Market Instruments Total (3) 2019 - year 5.19 % 2.76 % 2.33 % 4.70 % 2020 - year 4.71 % 2.66 % 0.26 % 4.28 % 2021 - year 4.53 % 2.22 % 0.13 % 3.86 % 2022 - first three months 4.31 % 2.11 % 0.17 % 3.71 % (1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $168,000 for the three months ended March 31, 2022, and $704,000, $623,000, and $576,000 for the years ended December 31, 2021, 2020 and 2019, respectively. (2) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $651,000 for the three months ended March 31, 2022, and $2.2 million, $2.2 million and $2.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. (3) Interest income for the three months ended March 31, 2022 and for the years ended December 31, 2021, 2020 and 2019 included $42,000, $8.0 million,$453,000, and $256,000, respectively, related to payments received on certain SEPH impaired loan relationships, some of which are participated with PNB, as well as $477,000, $3.3 million, $4.4 million, and $5.2 million, respectively, of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Interest income for the three months ended March 31, 2022 and for the years ended December 31, 2021 and December 31, 2020 included $1.6 million, $18.0 million and $16.7 million, respectively, of income related to PPP loans. Excluding all of these sources of income, the yield on loans was 4.22%, 4.27%, 4.63%, and 5.09%, for the three months ended March 31, 2022, and for the years ended December 31, 2021, 2020 and 2019, respectively, and the yield on earning assets was 3.64%, 3.64%, 4.20%, and 4.62%, for the three months ended March 31, 2022 and for the years ended December 31, 2021, 2020 and 2019, respectively. Cost of Average Interest Bearing Liabilities: The following table shows the cost of funds on average interest bearing liabilities for the three months ended March 31, 2022 and for the years ended December 31, 2021, 2020 and 2019. Interest bearing deposits (1) Short-term borrowings Long-term debt Total (1) 2019 - year 1.01 % 1.15 % 2.77 % 1.12 % 2020 - year 0.41 % 0.40 % 3.55 % 0.52 % 2021 - year 0.12 % 0.27 % 4.32 % 0.28 % 2022 - first three months 0.08 % 0.44 % 4.62 % 0.25 % (1) Interest expense for the three months ended March 31, 2022 and the years ended December 31, 2021, 2020 and 2019 included $3,000, $46,000, $226,000, and $593,000, respectively, of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Excluding this income, for the three months ended March 31, 2022 and the years ended December 31, 2021, 2020 and 2019, the cost of funds on interest bearing deposits was 0.08%, 0.12%, 0.41%, and 1.02%, respectively, and the cost of interest bearing liabilities was 0.25%, 0.28%, 0.53%, and 1.13%, respectively. Credit Metrics and (Recovery of) Provision for Credit Losses The (recovery of) provision for credit losses is the amount subtracted from/added to the allowance for credit losses to ensure the allowance is sufficient to absorb estimated credit losses over the life of a loan. The amount of the (recovery of) provision for credit losses is determined by management based on relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. The adoption of ASU 2016-13 on January 1, 2021 resulted in a $6.1 million increase to the allowance for credit losses and a $3.9 million increase to the allowance for unfunded credit losses. A cumulative effect adjustment resulting in an $8.0 million decrease to retained earnings and a $2.1 million increase to deferred tax assets was also recorded. 74 Table of Contents The table below provides additional information on the recovery of credit losses for the three-month periods ended March 31, 2022 and 2021. Three Months Ended March 31, (Dollars in thousands) 2022 2021 Allowance for credit losses: Beginning balance $ 83,197 $ 85,675 Cumulative change in accounting principle; adoption of ASU 2016-13 — 6,090 Charge-offs 1,347 1,701 Recoveries 1,616 1,677 Net (recoveries) charge-offs (269) 24 Recovery of credit losses (4,605) (4,855) Ending balance $ 78,861 86,886 Net (recoveries) charge-offs as a % of average loans (annualized) (0.02) % — % The following table provides additional information related to the allowance for credit losses for Park including information related to specific reserves and general reserves, at March 31, 2022, December 31, 2021 and March 31, 2021. Park - Allowance for Credit Losses (Dollars in thousands) 3/31/2022 12/31/2021 3/31/2021 Total allowance for credit losses $ 78,861 $ 83,197 $ 86,886 Allowance on PCD loans — — — Specific reserves on individually evaluated loans 1,513 1,616 4,962 General reserves on collectively evaluated loans $ 77,348 $ 81,581 $ 81,924 Total loans $ 6,821,606 $ 6,871,122 $ 7,168,745 PCD loans 6,987 7,149 10,284 Individually evaluated loans 63,209 74,502 100,407 Collectively evaluated loans $ 6,751,410 $ 6,789,471 $ 7,058,054 Allowance for credit losses as a % of period end loans 1.16 % 1.21 % 1.21 % Allowance for credit losses as a % of period end loans (excluding PPP loans) (1) 1.16 % 1.22 % 1.28 % General reserve as a % of collectively evaluated loans 1.15 % 1.20 % 1.16 % General reserve as a % of collectively evaluated loans (excluding PPP loans) (1) 1.15 % 1.21 % 1.22 % (1) Excludes $37.4 million of PPP loans and $39,000 in related allowance at March 31, 2022; $74.4 million of PPP loans and $77,000 in related allowance at December 31, 2021; and $ 387.0 million of PPP loans and $389,000 related allowance at March 31, 2021. The allowance for credit losses of $78.9 million at March 31, 2022 represented a $4.3 million, or 5.2%, decrease compared to $83.2 million at December 31, 2021. The decline was largely due to a $4.2 million decrease in general reserves, taking into consideration changing economic forecasts while balancing the risks associated with the COVID-19 pandemic, particularly in high risk loan portfolios such as hotel and accommodations, restaurants and food service and strip shopping centers, inflation, geopolitical conflict (including the conflict in Ukraine), and other economic risks. Additionally, there was a $103,000 decrease in specific reserves on individually evaluated loans from $1.6 million at December 31, 2021 to $1.5 million at March 31, 2022. See the section entitled "Allowance for Credit Losses" for further details. 75 Table of Contents Generally, management obtains updated valuations for all nonperforming loans at least annually. As new valuation information is received, management performs an evaluation and applies a discount for anticipated disposition costs to determine the net realizable value of the collateral, which is compared against the outstanding principal balance to determine if additional write-downs are necessary. Nonperforming Assets: Nonperforming assets include: (1) loans whose interest is accounted for on a nonaccrual basis; (2) TDRs on accrual status; (3) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue; (4) OREO which results from taking possession of property that served as collateral for a defaulted loan; and (5) other nonperforming assets. At December 31, 2021, other nonperforming assets consisted of aircraft acquired as part of a loan workout. There were no other nonperforming assets at March 31, 2022. The following table compares Park’s nonperforming assets at March 31, 2022, December 31, 2021 and March 31, 2021. (In thousands) March 31, 2022 December 31, 2021 March 31, 2021 Nonaccrual loans $ 54,018 $ 72,722 $ 114,708 Accruing TDRs 32,428 28,323 14,817 Loans past due 90 days or more 445 1,607 802 Total nonperforming loans $ 86,891 $ 102,652 $ 130,327 OREO 760 775 844 Other nonperforming assets — 2,750 3,164 Total nonperforming assets $ 87,651 $ 106,177 $ 134,335 Percentage of nonaccrual loans to total loans 0.79 % 1.06 % 1.60 % Percentage of nonperforming loans to total loans 1.27 % 1.49 % 1.82 % Percentage of nonperforming assets to total loans 1.28 % 1.55 % 1.87 % Percentage of nonperforming assets to total assets 0.92 % 1.11 % 1.35 % Included in the OREO totals above were $594,000 of SEPH OREO at each of March 31, 2022, December 31, 2021 and March 31, 2021. Park classifies loans as nonaccrual when a loan (1) is maintained on a cash basis because of deterioration in the financial condition of the borrower, (2) payment in full of principal or interest is not expected, or (3) principal or interest has been in default for a period of 90 days for commercial loans and 120 days for all other loans. As a result, loans may be classified as nonaccrual despite being current with their contractual terms. The following table details the delinquency status of nonaccrual loans at March 31, 2022, December 31, 2021 and March 31, 2021. Loans are classified as current if they are less than 30 days past due. March 31, 2022 December 31, 2021 March 31, 2021 (In thousands) Balance Percent of Total Loans Balance Percent of Total Loans Balance Percent of Total Loans Nonaccrual loans - current $ 36,415 0.53 % $ 53,259 0.78 % $ 94,572 1.32 % Nonaccrual loans - past due 17,603 0.26 % 19,463 0.28 % 20,136 0.28 % Total nonaccrual loans $ 54,018 0.79 % $ 72,722 1.06 % $ 114,708 1.60 % Credit Quality Indicators: When determining the quarterly credit loss provision, Park reviews the grades of commercial loans. These loans are graded from 1 to 8. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded an 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher PD is applied to these loans. Commercial loans graded a 6 (substandard), also considered to be watch list credits, represent higher credit risk than those rated special mention and, as a result, a higher PD is applied to these loans. Commercial loans that are graded a 7 (doubtful) are shown as nonperforming and Park charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Any commercial loan graded an 8 (loss) is completely charged-off. 76 Table of Contents The following table highlights the credit trends within the commercial loan portfolio. Commercial loans * (In thousands) March 31, 2022 December 31, 2021 March 31, 2021 Pass-rated $ 3,696,217 $ 3,712,784 $ 3,912,572 Special mention 78,432 75,397 109,561 Substandard 75 — 436 Individually evaluated for impairment 63,209 74,502 100,407 Accruing PCD 6,497 6,630 9,766 Total $ 3,844,430 $ 3,869,313 $ 4,132,742 * Commercial loans include (1) Commercial, financial and agricultural loans, (2) Commercial real estate loans, (3) Commercial related loans in the construction real estate portfolio, (4) Commercial related loans in the residential real estate portfolio and (5) Leases. Park had $78.5 million of collectively evaluated commercial loans included on the watch list at March 31, 2022, compared to $75.4 million at December 31, 2021, and $110.0 million at March 31, 2021. The existing conditions of these loans do not warrant classification as nonaccrual. However, these loans have shown some weakness and management performs additional analysis regarding each borrower's ability to comply with payment terms. The $78.5 million of collectively evaluated commercial watch list loans as of March 31, 2022 is elevated compared to pre-pandemic levels, an increase of $51.7 million compared to $26.8 million at March 31, 2020. This $51.7 million increase was largely due to $54.4 million of hotels and accommodations loans that were downgraded to special mention as a result of the impact of COVID-19. In addition to the $54.4 million in hotels and accommodations loans that were downgraded to special mention, $4.8 million in hotels and accommodations loans were downgraded to nonaccrual status. Park is closely monitoring the impact of COVID-19 on its borrowers' ability to repay their loans in accordance with contractual terms. As additional information becomes available, management will continue to evaluate loans to ensure appropriate risk classification. Delinquencies have remained low since the start of the COVID-19 pandemic. Delinquent and accruing loans were $10.1 million, or 0.15% of total loans at March 31, 2022, compared to $15.1 million, or 0.22% of total loans at December 31, 2021, and $13.8 million, or 0.19% of total loans at March 31, 2021. Individually Evaluated Loans: Loans that do not share risk characteristics are evaluated on an individual basis. Park has determined that any commercial loans which have been placed on nonaccrual status or classified as TDRs will be individually evaluated and are labeled as individually evaluated. Individual analysis will establish a specific reserve for loans in scope. Specific reserves on individually evaluated commercial loans are typically based on management’s best estimate of the fair value of collateral securing these loans. The amount ultimately charged off for these loans may be different from the specific reserve as the ultimate liquidation of the collateral may be for an amount different from management’s estimate. Individually evaluated commercial loans were $63.2 million at March 31, 2022, a decrease of $11.3 million, compared to $74.5 million at December 31, 2021 and a decrease of $37.2 million, compared to $100.4 million at March 31, 2021. The $63.2 million of individually evaluated commercial loans at March 31, 2022 included $22.9 million of loans modified in a TDR which are currently on accrual status and performing in accordance with the restructured terms, up from $17.5 million at December 31, 2021. At March 31, 2022, Park had taken partial charge-offs of $624,000 related to the $63.2 million of the individually evaluated commercial loans, compared to partial charge-offs of $624,000 related to the $74.5 million of individually evaluated commercial loans at December 31, 2021. Loans Acquired with Deteriorated Credit Quality: In conjunction with the NewDominion acquisition, Park acquired loans with a book value of $277.9 million as of the July 1, 2018 acquisition date. These loans were recorded at the initial fair value of $272.8 million. Loans acquired with deteriorated credit quality (ASC 310-30) with a book value of $5.1 million were recorded at the initial fair value of $4.9 million. In conjunction with the Carolina Alliance acquisition, Park acquired loans and leases with a book value of $589.7 million as of the April 1, 2019 acquisition date. These loans and leases were recorded at the initial fair value of $578.6 million. Loans and leases acquired with deteriorated credit quality (ASC 310-30) with a book value of $19.9 million were recorded at the initial fair value of $18.4 million Upon adoption of CECL on January 1, 2021, $52,000 of the credit discount on PCD loans was reclassified to the allowance for credit losses. PCD loans are individually evaluated on a quarterly basis to determine if a specific reserve is necessary. At both March 31, 2022 and December 31, 2021, there was no allowance for credit losses on PCD loans. The carrying amount of loans 77 Table of Contents acquired with deteriorated credit quality at March 31, 2022 and December 31, 2021 was $7.0 million and $7.1 million, respectively. Allowance for Credit Losses: The allowance for credit losses is calculated on a quarterly basis. The methodology for calculating the ACL and assumptions made as of March 31, 2022 are detailed below. Quantitative Considerations The ACL is primarily calculated utilizing a DCF model. Key inputs and assumption 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 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 December 31, 2021, the "most likely" scenario forecasted Ohio unemployment 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 current weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2021. ◦ As of March 31, 2022, the "most likely" scenario forecasted Ohio unemployment between 3.36% and 3.75%, during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2022, management considered the range of forecasted unemployment as well as a number of economic indicators. While some economic indications were optimistic, the surging inflation, volatility in consumer confidence, workforce challenges, and geopolitical conflict (including the conflict in Ukraine) 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 March 31, 2022. 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. 78 Table of Contents ◦ Level of and trend in loan charge-offs and recoveries. • Park's lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, write-offs, and recoveries. • The quality of Park’s credit review function. • The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff. • The effect of other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or pandemics. • Actual and expected changes in international, national, regional, and local economic and business conditions and developments in the markets in which Park operates that affect the collectibility of financial assets. • Where the U.S. economy is within a given credit cycle. • The extent that there is government assistance (stimulus). During 2020, Park added an additional reserve for three industries at particularly high risk due to the COVID-19 pandemic: hotels and accommodations; restaurants and food service; and strip shopping centers. These industries have experienced high levels of deferrals and have been particularly impacted by shut downs of non-essential businesses, increased health department regulations, and changes in consumer behavior. Management expects that a relatively higher percentage of the 4-rated credits in these portfolios will eventually migrate to special mention, substandard, or impaired status. In adopting CECL, management determined it was appropriate to retain this qualitative adjustment as this adjustment takes into account the additional risk in these portfolios, which is not captured in the quantitative calculation Even though COVID-19 case numbers have declined since December 31, 2021, these industries are still recovering from the pandemic effects. As of March 31, 2022, additional reserves totaling $ 3.8 million were added for these portfolios on top of the quantitative reserve already calculated. This is a decrease from $ 5.2 million as of December 31, 2021 and reflects improvement in COVID-19 cases and eased COVID-19 health department precautions. Management believes there is still residual risk in these portfolios related to pandemic effects and uncertainty in future COVID-19 strains and related impacts. A breakout of the 4-rated balances within these portfolios and the additional reserve related to these portfolios is detailed in the following table. March 31, 2022 December 31, 2021 (in thousands) 4-Rated Balance Additional Reserve Pass Rated Balance Additional Reserve Hotels and accommodations $ 148,108 $ 1,670 $ 148,018 $ 2,226 Restaurants and food service 44,606 754 40,648 917 Strip shopping centers 167,099 1,384 184,171 2,033 Total $ 359,813 $ 3,808 $ 372,837 $ 5,176 Additionally, at March 31, 2022, management applied a 1.00% reserve to all hotels and accommodations loans in the collectively evaluated population to account for increased valuation risk. This 1.00% reserve was maintained from December 31, 2021. At March 31, 2022, Park's originated hotels and accommodation loans had a balance of $ 206.2 million with an additional reserve related to valuation risks of $ 2.1 million. At December 31, 2021, Park's originated hotels and accommodation loans had a balance of $ 203.9 million with an additional reserve related to valuation risks of $ 2.0 million. There is still a significant amount of uncertainty related to the long-term 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. economy. Management will continue to evaluate its estimate of expected credit losses as new information becomes available. As of March 31, 2022, Park had $ 37.4 million 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. Other Income Other income decreased by $2.4 million to $31.7 million for the quarter ended March 31, 2022, compared to $34.1 million for the first quarter of 2021. 79 Table of Contents The decrease for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to a decrease in other service income, partially offset by increases in income from fiduciary activities, gain on equity securities, net, and other components of net periodic pension benefit income. The following table is a summary of the changes in the components of other income: Three months ended March 31, (In thousands) 2022 2021 Change Income from fiduciary activities $ 8,797 $ 8,173 $ 624 Service charges on deposit accounts 2,074 2,054 20 Other service income 4,819 9,617 (4,798) Debit card fee income 6,126 6,086 40 Bank owned life insurance income 1,175 1,165 10 ATM fees 532 530 2 Loss on sale of OREO, net — (33) 33 Gain on equity securities, net 2,353 1,810 543 Other components of net periodic pension benefit income 3,027 2,038 989 Miscellaneous 2,753 2,649 104 Total other income $ 31,656 $ 34,089 $ (2,433) Income from fiduciary activities increased by $624,000, or 7.6%, to $8.8 million for the three months ended March 31, 2022, compared to $8.2 million for the same period of 2021. The average market value of assets under management for the three months ended March 31, 2022 was $7,515 million compared to $7,061 million for the same period in 2021. Other service income decreased by $4.8 million, or 49.9%, to $4.8 million for the three months ended March 31, 2022, compared to $9.6 million for the same period of 2021. The primary reasons for the decrease for the three months ended March 31, 2022 compared to the same period of 2021 were a decrease in fee income related to mortgage loan originations to be sold in the secondary market of $4.7 million, and a decrease in mortgage servicing rights income of $1.0 million, offset by an increase in investor rate locks and mortgage loans held for sale of $904,000. Mortgage origination volume decreased by $143.8 million to $160.1 million for the three months ended March 31, 2022 from $304.0 million for the three months ended March 31, 2021. Gain on equity securities, net, increased $543,000, to a net gain of $2.4 million for the three months ended March 31, 2022, compared to a net gain of $1.8 million for the same period in 2021. The $543,000 increase for the three months ended March 31, 2022 was related to a $1.0 million increase in the gain on equity securities held at NAV, which went from a $1.4 million gain for the three months ended March 31, 2021 to a $2.4 million gain for the three months ended March 31, 2022, offset by a $527,000 decrease in gain (loss) on other equity securities, which went from a $435,000 gain for the three months ended March 31, 2021 to a $92,000 loss for the three months ended March 31, 2022. Other components of net periodic pension benefit income increased $989,000 to $3.0 million for the three months ended March 31, 2022 compared to $2.0 million for the same period in 2021. The increase was largely due to an increase in the expected return on plan assets as a result of the increased value of plan assets as well as a decrease in the amortization of unrecognized net actuarial losses. Other Expense Other expense decreased by $492,000 to $67.4 million for the three months ended March 31, 2022 compared to $67.9 million for the same period of 2021. 80 Table of Contents The following table is a summary of the changes in the components of other expense: Three months ended March 31, (In thousands) 2022 2021 Change Salaries $ 30,521 $ 29,896 $ 625 Employee benefits 10,499 10,201 298 Occupancy expense 3,214 3,640 (426) Furniture and equipment expense 2,937 2,610 327 Data processing fees 7,504 7,712 (208) Professional fees and services 5,858 5,664 194 Marketing 1,317 1,491 (174) Insurance 1,405 1,691 (286) Communication 890 1,122 (232) State tax expense 1,192 1,108 84 Amortization of intangible assets 402 479 (77) Miscellaneous 1,634 2,251 (617) Total other expense $ 67,373 $ 67,865 $ (492) Salaries increased by $625,000, or 2.1%, to $30.5 million for the three months ended March 31, 2022, compared to $29.9 million for the same period in 2021. The increase was primarily due to an increase of $687,000 in base salary expense and a $145,000 increase in share-based compensation expense, partially offset by a decrease of $324,000 in additional compensation expense. Employee benefits increased $298,000, or 2.9%, to $10.5 million for the three months ended March 31, 2022, compared to $10.2 million for the same period in 2021. The $298,000 increase was primarily due to increased payroll tax expense of $175,000, and a $101,000 increase in Park's KSOP match. Occupancy expense decreased by $426,000, or 11.7%, to $3.2 million for the three months ended March 31, 2022, compared to $3.6 million for the same period in 2021. The decrease was primarily related to reductions in rental, maintenance, and janitorial expenses, partially offset by an increase in utilities expense for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Furniture and equipment expense increased $327,000, or 12.5%, to $2.9 million for the three months ended March 31, 2022 compared to $2.6 million for the same period in 2021. The increase primarily related to an increase in depreciation expense of $271,000 compared to the same period in 2021. Insurance expense decreased $286,000, or 16.9%, to $1.4 million for the three months ended March 31, 2022 compared to $1.7 million for the same period in 2021. The $286,000 decrease was mainly due to a decline in FDIC insurance assessments (premiums). The subcategory "miscellaneous" other expense includes expenses for supplies, travel and other miscellaneous expense. The subcategory miscellaneous other expense decreased $617,000, or 27.4%, to $1.6 million for the three months period ended March 31, 2022, compared to $2.3 million for the same period of 2021. The $617,000 decrease in expense was primarily related to a $596,000 decrease in the provision for the allowance for unfunded credit losses and a decline of $149,000 in non-loan related losses, partially offset by an increase of $104,000 in supplies expense. 81 Table of Contents Items Impacting Comparability From time to time, revenue, expenses, and/or taxes are impacted by items judged by management of Park to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by management of Park at that time to be infrequent or short-term in nature. Most often, these items impacting comparability of period results result from merger and acquisition activities and revenue and expenses related to former Vision Bank loan relationships. In other cases, they may result from management's decisions associated with significant corporate actions outside of the ordinary course of business. The following table details those items which management believes impact the comparability of current and prior period amounts. THREE MONTHS ENDED (in thousands) March 31, 2022 March 31, 2021 Affected Line Item Net interest income $ 77,686 $ 80,734 less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions 477 1,110 Interest and fees on loans less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions 3 21 Interest on deposits less interest income on former Vision Bank relationships 42 105 Interest and fees on loans Net interest income - adjusted $ 77,164 $ 79,498 Recovery of credit losses $ (4,605) $ (4,855) less recoveries on former Vision Bank relationships (1) (257) Recovery of credit losses Recovery of credit losses - adjusted $ (4,604) $ (4,598) Total other income $ 31,656 $ 34,089 less other service income related to former Vision Bank relationships — 58 Other service income Total other income - adjusted $ 31,656 $ 34,031 Total other expense $ 67,373 $ 67,865 less merger-related expenses related to NewDominion and Carolina Alliance acquisitions — 8 Salaries less merger-related expenses related to NewDominion and Carolina Alliance acquisitions — 4 Insurance less COVID-19 related expenses 606 634 Salaries less severance and restructuring charges 42 108 Salaries less management and consulting expenses related to collection of payments on former Vision Bank loan relationships — 107 Professional fees and services less rebranding initiative related expenses 264 — Occupancy expense less rebranding initiative related expenses 80 — Furniture and equipment expense less rebranding initiative related expenses — 589 Data processing fees less rebranding initiative related expenses — 29 Professional fees and services less core deposit intangible amortization related to NewDominion and Carolina Alliance acquisitions 402 479 Amortization of intangible assets Total other expense - adjusted $ 65,979 $ 65,907 Tax effect of adjustments to net income identified above (7) $ 183 $ 85 Net income - reported $ 38,875 $ 42,831 Net income - adjusted (6) $ 39,563 $ 43,153 82 Table of Contents THREE MONTHS ENDED (in thousands, except share and per share data) March 31, 2022 March 31, 2021 Diluted EPS $ 2.38 $ 2.61 Diluted EPS, adjusted (6) $ 2.42 $ 2.62 Annualized return on average assets (1)(2) 1.60 % 1.81 % Annualized return on average assets, adjusted (1)(2)(6) 1.63 % 1.82 % Annualized return on average tangible assets (1)(2)(4) 1.63 % 1.84 % Annualized return on average tangible assets, adjusted (1)(2)(4)(6) 1.66 % 1.85 % Annualized return on average shareholders' equity (1)(2) 14.26 % 16.63 % Annualized return on average shareholders' equity, adjusted (1)(2)(6) 14.51 % 16.76 % Annualized return on average tangible equity (1)(2)(3) 16.80 % 19.84 % Annualized return on average tangible equity, adjusted (1)(2)(3)(6) 17.09 % 19.98 % Efficiency ratio (5) 61.16 % 58.74 % Efficiency ratio, adjusted (5)(6) 60.18 % 57.69 % Annualized net interest margin (5) 3.55 % 3.76 % Annualized net interest margin, adjusted (5)(6) 3.53 % 3.70 % 83 Table of Contents Financial Reconciliations (1) Reported measure uses net income (2) Averages are for the three months ended March 31, 2022 and March 31, 2021. (3) Net income for each period divided by average tangible equity during the period. Average tangible equity equals average shareholders' equity during the applicable period less average goodwill and other intangible assets during the applicable period. RECONCILIATION OF AVERAGE SHAREHOLDERS' EQUITY TO AVERAGE TANGIBLE EQUITY: THREE MONTHS ENDED March 31, 2022 March 31, 2021 AVERAGE SHAREHOLDERS' EQUITY $ 1,105,540 $ 1,044,412 Less: Average goodwill and other intangible assets 166,918 168,690 AVERAGE TANGIBLE EQUITY $ 938,622 $ 875,722 (4) Net income for each period divided by average tangible assets during the period. Average tangible assets equals average assets less average goodwill and other intangible assets, in each case during the applicable period. RECONCILIATION OF AVERAGE ASSETS TO AVERAGE TANGIBLE ASSETS THREE MONTHS ENDED March 31, 2022 March 31, 2021 AVERAGE ASSETS $ 9,825,382 $ 9,612,542 Less: Average goodwill and other intangible assets 166,918 168,690 AVERAGE TANGIBLE ASSETS $ 9,658,464 $ 9,443,852 (5) Efficiency ratio is calculated by dividing total other expense by the sum of FTE net interest income and other income. Fully taxable equivalent net interest income reconciliation is shown assuming a 21% federal corporate income tax rate. Additionally, net interest margin is calculated on a fully taxable equivalent basis by dividing fully taxable equivalent net interest income by average interest earning assets. RECONCILIATION OF FULLY TAXABLE EQUIVALENT NET INTEREST INCOME TO NET INTEREST INCOME THREE MONTHS ENDED March 31, 2022 March 31, 2021 Interest income $ 81,146 $ 85,173 FTE adjustment 819 714 FTE interest income $ 81,965 $ 85,887 Interest expense 3,460 4,439 FTE net interest income $ 78,505 $ 81,448 (6) Adjustments to net income for each period presented are detailed in the non-GAAP reconciliations of net interest income, recovery of credit losses, total other income and total other expense. (7) The tax effect of adjustments to net income was calculated assuming a 21% federal corporate income tax rate. 84 Table of Contents Income Tax Income tax expense was $7.7 million for the first quarter of 2022 and consisted of federal income tax expense of $7.4 million and state income tax expense of $305,000. This compares to income tax expense of $9.0 million for the first quarter of 2021 which consisted of federal income tax expense of $8.7 million and state income tax expense of $264,000. The effective income tax rate for the first quarter of 2022 was 16.5%, compared to 17.3% for the same period in 2021. The difference between the statutory federal corporate income tax rate of 21% and Park's effective income tax rate reflects permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, qualified affordable housing and historical tax credits, bank owned life insurance income, and dividends paid on the common shares held within Park's salary deferral plan offset by the impact of state income taxes. Park expects permanent federal income tax differences for the 2022 year will be approximately $6.7 million. Comparison of Financial Condition At March 31, 2022 and December 31, 2021 Changes in Financial Condition Total assets increased by $16.1 million, or 0.2%, during the first three months of 2022 to $9,576 million at March 31, 2022, compared to $9,560 million at December 31, 2021. This increase was primarily due to the following: • Cash and cash equivalents increased by $27.7 million, or 12.6%, to $246.9 million at March 31, 2022, compared to $219.2 million at December 31, 2021. Money market instruments were $87.0 million at March 31, 2022, compared to $74.7 million at December 31, 2021 and cash and due from banks were $159.9 million at March 31, 2022, compared to $144.5 million at December 31, 2021. • Investment securities increased $16.9 million, or 0.9%, to $1,832 million at March 31, 2022, compared to $1,815 million at December 31, 2021. • Loans decreased by $49.5 million, or 0.7%, to $6,822 million at March 31, 2022, compared to $6,871 million at December 31, 2021. PPP loans were $37.4 million at March 31, 2022 compared to $74.4 million at December 31, 2021. • Bank owned life insurance increased by $8.3 million, or 3.9%, to $224.1 million at March 31, 2022, compared to $215.8 million at December 31, 2021. • Other assets increased by $9.6 million, or 94.4%, to $19.7 million at March 31, 2022, compared to $10.2 million at December 31, 2021. This was primarily related to an increase in deferred tax assets. Total liabilities increased by $50.5 million, or 0.6%, during the first three months of 2022 to $8,500 million at March 31, 2022, compared to $8,449 million at December 31, 2021. This increase was primarily due to the following: • Total deposits increased by $91.8 million, or 1.2%, to $7,996 million at March 31, 2022, compared to $7,905 million at December 31, 2021. During 2020, Park made the decision to participate in an OWS program in order to manage the balance sheet. At March 31, 2022 and December 31, 2021, Park had $1,149.2 million and $809.1 million, respectively, in off-balance sheet deposits. • Short-term borrowings decreased by $32.9 million, or 13.8%, to $205.9 million at March 31, 2022, compared to $238.8 million at December 31, 2021. • Unfunded commitments in affordable housing tax credit investments decreased by $7.3 million, or 25.5%, to $21.2 million at March 31, 2022, compared to $28.5 million at December 31, 2021. Total shareholders’ equity decreased by $34.4 million, or 3.1%, to $1,076.4 million at March 31, 2022, from $1,110.8 million at December 31, 2021. This decrease was primarily due to the following: • Accumulated other comprehensive (loss) income, net of taxes changed by $55.6 million, from a positive $15.2 million at December 31, 2021, to a negative $40.5 million at March 31, 2022, as a result of unrealized net holding losses on debt securities AFS, net of taxes, of $55.8 million, partially offset by an unrealized gain on cash flow hedging derivatives, net of taxes, of $139,000. • Retained earnings increased by $20.7 million during the period primarily as a result of net income of $38.9 million, partially offset by common share dividends of $17.2 million. • Treasury shares decreased by $3.0 million during the period as a result of the issuance of treasury shares under share-based compensation awards (net of common shares withheld to pay employee income taxes). 85 Table of Contents Increases or decreases in the investment securities portfolio, short-term borrowings and long-term debt are greatly dependent upon the growth in loans and deposits. The primary objective of management is to grow loan and deposit totals. To the extent that management is unable to grow loan totals at a desired growth rate, additional investment securities may be acquired. Likewise, both short-term borrowings and long-term debt are utilized to fund the growth in earning assets if the growth in deposits and cash flow from operations are not sufficient to do so. Liquidity Cash provided by operating activities was $28.3 million and $45.9 million for the three months ended March 31, 2022 and 2021, respectively. Net income was the primary source of cash from operating activities for each of the three-month periods ended March 31, 2022 and 2021. Cash used in investing activities was $40.0 million and $75.5 million for the three months ended March 31, 2022 and 2021, respectively. Proceeds from the sale, repayment, or maturity of investment securities provide cash and purchases of investment securities use cash. Net investment securities transactions used cash of $76.0 million for the three months ended March 31, 2022 and used cash of $67.2 million for the three months ended March 31, 2021. Another major use or source of cash in investing activities is the net increase or decrease in the loan portfolio. Cash provided by the net decrease in the loan portfolio was $52.4 million for the three months ended March 31, 2022 and cash provided by the net decrease in the loan portfolio was $616,000 for the three months ended March 31, 2021. Cash provided by financing activities was $39.4 million and $602.4 million for the three months ended March 31, 2022 and 2021, respectively. A major source of cash for financing activities is the net change in deposits. Deposits (net of off-balance sheet deposits) increased and provided $91.8 million and $663.9 million of cash for the three months ended March 31, 2022 and 2021, respectively. Another major source/use of cash from financing activities is borrowings in the form of short-term borrowings, long-term debt and subordinated notes. For the three months ended March 31, 2022, net short-term borrowings decreased and used $32.9 million in cash. For the three months ended March 31, 2021, net short-term borrowings decreased and used $36.8 million in cash and net long-term borrowings decreased and used $2.5 million in cash. Finally, cash declined by $17.1 million and $20.2 million for the three months ended March 31, 2022 and 2021, respectively, from the payment of dividends. Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as the operating cash needs of the Corporation, are met. Funds are available from a number of sources, including the capital markets, the investment securities portfolio, the core deposit base, FHLB borrowings and the capability to securitize or package loans for sale. The Corporation’s loan to asset ratio was 71.23% at March 31, 2022, compared to 71.87% at December 31, 2021 and 72.31% at March 31, 2021. Cash and cash equivalents were $246.9 million at March 31, 2022, compared to $219.2 million at December 31, 2021 and $943.3 million at March 31, 2021. Management believes that the present funding sources provide more than adequate liquidity for the Corporation to meet its cash flow needs. 86 Table of Contents Capital Resources Shareholders’ equity at March 31, 2022 was $1,076.4 million, or 11.2% of total assets, compared to $1,110.8 million, or 11.6% of total assets, at December 31, 2021 and $1,041.3 million, or 10.5% of total assets, at March 31, 2021. Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies. Park has elected not to include the net unrealized gain or loss on debt securities AFS in computing regulatory capital. Park has adopted the Basel III regulatory capital framework as approved by the federal banking agencies. Under the Basel III regulatory capital framework, in order to avoid limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers, Park must hold a capital conservation buffer of 2.5% above the adequately capitalized risk-based capital ratios. The amounts shown below as the adequately capitalized ratio plus capital conservation buffer include the 2.50% buffer. The Federal Reserve Board has also adopted capital requirements Park must maintain to be deemed "well capitalized" and remain a financial holding company. Park and PNB met each of the well capitalized ratio guidelines applicable to them at March 31, 2022. The following table indicates the capital ratios for PNB and Park at March 31, 2022 and December 31, 2021. At March 31, 2022 Leverage Tier 1 Risk-Based Common Equity Tier 1 Total Risk-Based The Park National Bank 8.69 % 11.18 % 11.18 % 12.61 % Park National Corporation 9.98 % 12.80 % 12.61 % 16.21 % Adequately capitalized ratio 4.00 % 6.00 % 4.50 % 8.00 % Adequately capitalized ratio plus capital conservation buffer 4.00 % 8.50 % 7.00 % 10.50 % Well capitalized ratio (PNB) 5.00 % 8.00 % 6.50 % 10.00 % Well capitalized ratio (Park) N/A 6.00 % N/A 10.00 % At December 31, 2021 Leverage Tier 1 Risk-Based Common Equity Tier 1 Total Risk-Based The Park National Bank 8.58 % 11.05 % 11.05 % 12.56 % Park National Corporation 9.77 % 12.57 % 12.37 % 16.05 % Adequately capitalized ratio 4.00 % 6.00 % 4.50 % 8.00 % Adequately capitalized ratio plus capital conservation buffer 4.00 % 8.50 % 7.00 % 10.50 % Well capitalized ratio (PNB) 5.00 % 8.00 % 6.50 % 10.00 % Well capitalized ratio (Park) N/A 6.00 % N/A 10.00 % Contractual Obligations and Commitments In the ordinary course of operations, Park enters into certain contractual obligations. Such obligations include the funding of operations through debt issuances as well as leases for premises. See page 79 of Park’s 2021 Form 10-K (Table 39) for disclosure concerning contractual obligations and commitments at December 31, 2021. There were no other significant changes in contractual obligations and commitments during the first three months of 2022. Financial Instruments with Off-Balance Sheet Risk PNB is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. The exposure to credit loss (for PNB) in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. PNB uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of 87 Table of Contents the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers. The total amounts of off-balance sheet financial instruments with credit risk were as follows: (In thousands) March 31, 2022 December 31, 2021 Loan commitments $ 1,395,422 $ 1,364,224 Standby letters of credit $ 16,903 $ 18,216 ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Management reviews interest rate sensitivity on a monthly basis by modeling the consolidated financial statements under various interest rate scenarios. The primary reason for these efforts is to guard Park from adverse impacts of unforeseen changes in interest rates. Management continues to believe that further changes in interest rates will have a small impact on net income, consistent with the disclosure on page 79 of Park’s 2021 Form 10-K. On page 78 (Table 38) of Park’s 2021 Form 10-K, management reported that Park’s twelve-month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $1,895.3 million or 21.70% of total interest earning assets at December 31, 2021. At March 31, 2022, Park’s twelve-month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $1,775.1 million or 20.21% of total interest earning assets. Management supplements the interest rate sensitivity gap analysis with periodic simulations of balance sheet sensitivity under various interest rate and what-if scenarios to better forecast and manage the net interest margin. Management uses a 50 basis point change in market interest rates per quarter for a total of 200 basis points per year in evaluating the impact of changing interest rates on net interest income and net income over a twelve-month horizon. On page 79 of Park’s 2021 Form 10-K, management reported that at December 31, 2021, the earnings simulation model projected that net income would increase by 7.5% using a rising interest rate scenario and decrease by 15.1% using a declining interest rate scenario over the next year. At March 31, 2022, the earnings simulation model projected that net income would increase by 4.6% using a rising interest rate scenario and would decrease by 16.3% in a declining interest rate scenario. At March 31, 2022, management continues to believe that gradual changes in interest rates (50 basis points per quarter for a total of 200 basis points per year) will have a small impact on net income. ITEM 4 – CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures With the participation of the Chairman of the Board and Chief Executive Officer (the principal executive officer) and the Chief Financial Officer, Secretary and Treasurer (the principal financial officer) of Park, Park’s management has evaluated the effectiveness of Park’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, Park’s Chairman of the Board and Chief Executive Officer and Park’s Chief Financial Officer, Secretary and Treasurer have concluded that: • information required to be disclosed by Park in this Quarterly Report on Form 10-Q and the other reports that Park files or submits under the Exchange Act would be accumulated and communicated to Park’s management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure; • information required to be disclosed by Park in this Quarterly Report on Form 10-Q and the other reports that Park files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and • Park’s disclosure controls and procedures were effective as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. 88 Table of Contents Changes in Internal Control Over Financial Reporting There were no changes in Park's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Park's quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, Park's internal control over financial reporting. 89 Table of Contents PART II – OTHER INFORMATION Item 1. Legal Proceedings There are no pending legal proceedings to which Park or any of its subsidiaries is a party or to which any of their property is subject, except for routine legal proceedings which Park's subsidiaries are parties to incidental to their respective businesses. Park considers none of those proceedings to be material. Item 1A. Risk Factors There are certain risks and uncertainties in our business that could cause Park's actual results to differ materially from those anticipated. In “ITEM 1A. RISK FACTORS” of Part I of Park’s 2021 Form 10-K, we included a detailed discussion of our risk factors. All of these risk factors should be read carefully in connection with evaluating Park's business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described in Park's 2021 Form 10-K could materially adversely affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (a) Not applicable (b) Not applicable (c) The following table provides information concerning purchases of Park’s common shares ("Common Shares") made by or on behalf of Park or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Exchange Act, during the three months ended March 31, 2022, as well as the maximum number of common shares that may be purchased under Park’s previously announced stock repurchase authorizations to fund the 2017 Long-Term Incentive Plan for Employees (the "2017 Employees LTIP") and the 2017 Long-Term Incentive Plan for Non-Employee Directors (the "2017 Non-Employee Directors LTIP") and Park's previously announced 2017 and 2019 stock repurchase authorizations: Period Total number of Common Shares purchased Average price paid per Common Share Total number of Common Shares purchased as part of publicly announced plans or programs Maximum number of Common Shares that may yet be purchased under the plans or programs (1) January 1 through January 31, 2022 — $ — — 1,195,088 February 1 through February 28, 2022 — — — 1,195,088 March 1 through March 31, 2022 — — — 1,195,088 Total — $ — — 1,195,088 (1) The number shown represents, as of the end of each period, the maximum number of Common Shares that may yet be purchased as part of Park’s publicly announced stock repurchase authorizations to fund the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP, both of which became effective on April 24, 2017; Park's publicly announced stock repurchase authorization covering 500,000 Common Shares which was announced on January 23, 2017; and Park's stock repurchase authorization covering 500,000 Common Shares which was announced on January 28, 2019 and as to which approval from the Federal Reserve was obtained in the form of correspondence from the Federal Reserve Bank of Cleveland dated April 19, 2019. At the 2017 Annual Meeting of Shareholders held on April 24, 2017, Park's shareholders approved the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP. The Common Shares to be issued and delivered under the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP may consist of either Common Shares currently held or Common Shares subsequently acquired by Park as treasury shares. No newly-issued Common Shares will be delivered under the 2017 Employees LTIP or the 2017 Non-Employee Directors LTIP. On April 24, 2017, Park's Board of Directors authorized the purchase, from time to time, of up to 750,000 Park Common Shares and 150,000 Park Common Shares, respectively, to be held 90 Table of Contents as treasury shares for subsequent issuance and delivery under the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP. On January 23, 2017, Park announced that on that same day, the Park Board of Directors authorized Park to purchase, from time to time, up to an aggregate of 500,000 Park Common Shares. On January 28, 2019, Park announced that on that same day, the Park Board of Directors authorized Park to repurchase, from time to time following receipt of any required approval from the Federal Reserve, up to 500,000 Park Common Shares in addition to the 500,000 Park Common Shares which had been authorized for repurchase by the Park Board of Directors on January 23, 2017 and remained available for repurchase as of January 28, 2019. The required approval was received by Park in the form of correspondence from the Federal Reserve Bank of Cleveland dated April 19, 2019. Purchases may be made through NYSE American, in the over-the-counter market or in privately negotiated transactions, in each case in compliance with the Ohio General Corporation Law, applicable federal and state securities laws, the rules applicable to issuers having securities listed on NYSE American, regulations promulgated by the Federal Reserve Board and all applicable laws and regulations, each as in effect at the time of each such purchase. Purchases will be made upon such terms and conditions and at such times and in such amounts as any one or more of the authorized officers of Park deem to be appropriate, subject to market conditions, regulatory requirements, any contractual obligations of Park and Park's subsidiaries and other factors, and in the best interest of Park and Park's shareholders. The January 23, 2017 stock repurchase authorization and the January 28, 2019 stock repurchase authorization are distinct from the stock repurchase authorizations to fund the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP. Item 3. Defaults Upon Senior Securities (a), (b) Not applicable. Item 4. Mine Safety Disclosures Not applicable. Item 5. Other Information (a), (b) Not applicable. Item 6. Exhibits 2.1 Agreement and Plan of Merger and Reorganization among Park National Corporation, The Park National Bank and NewDominion Bank, dated as of January 22, 2018 (Incorporated herein by reference to Exhibit 2.1 to Park National Corporation's Current Report on Form 8-K dated and filed on January 26, 2018 (File No. 1-13006))* 2.2 Agreement and Plan of Merger and Reorganization, dated as of September 12, 2018, by and between Park National Corporation and CAB Financial Corporation (Incorporated herein by reference to Exhibit 2.1 to Park National Corporation's Current Report on Form 8-K dated and filed on September 14, 2018 (File No. 1-13006))* 3.1(a) Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on March 24, 1992 (Incorporated herein by reference to Exhibit 3(a) to Park National Corporation’s Form 8-B, filed on May 20, 1992 (File No. 0-18772) (“Park’s Form 8-B”)) P 3.1(b) Certificate of Amendment to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on May 6, 1993 (Incorporated herein by reference to Exhibit 3(b) to Park National Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772)) P 3.1(c) Certificate of Amendment to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on April 16, 1996 (Incorporated herein by reference to Exhibit 3(a) to Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996 (File No. 1-13006)) 91 Table of Contents 3.1(d) Certificate of Amendment by Shareholders to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on April 22, 1997 (Incorporated herein by reference to Exhibit 3(a)(1) to Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 1-13006) (“Park’s June 30, 1997 Form 10-Q”)) 3.1(e) Certificate of Amendment by Shareholders as filed with the Ohio Secretary of State on December 18, 2008 in order to evidence the adoption by the shareholders of Park National Corporation on December 18, 2008 of an amendment to Article FOURTH of Park National Corporation’s Articles of Incorporation to authorize Park National Corporation to issue up to 200,000 preferred shares, without par value (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed December 19, 2008 (File No. 1-13006)) 3.1(f) Certificate of Amendment by Directors to Articles as filed with the Ohio Secretary of State on December 19, 2008, evidencing the adoption of an amendment by the Board of Directors of Park National Corporation to Article FOURTH of Articles of Incorporation to establish express terms of Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value, of Park National Corporation (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed December 23, 2008 (File No. 1-13006)) 3.1(g) Certificate of Amendment by Shareholders as filed with the Ohio Secretary of State on April 18, 2011 in order to evidence the adoption by Park National Corporation’s shareholders of an amendment to Article SIXTH of Park National Corporation’s Articles of Incorporation in order to provide that shareholders do not have preemptive rights (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed April 19, 2011 (File No. 1-13006)) 3.1(h) Certificate of Amendment as filed with the Ohio Secretary of State on April 26, 2022 in order to evidence the adoption by Park National Corporation's shareholders of an amendment to Park National Corporation's Articles of Incorporation to add a new Article NINTH to eliminate cumulative voting rights in the election of directors (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation's Current Report on Form 8-K dated and filed April 27, 2022 (File No. 1-13006) ("Park's April 27, 2022 Form 8-K")) 3.1(i) Articles of Incorporation of Park National Corporation [This document represents the Articles of Incorporation of Park National Corporation in compiled form incorporating all amendments. This compiled document has not been filed with the Ohio Secretary of State.] (Filed herewith) 3.2(a) Regulations of Park National Corporation (Incorporated herein by reference to Exhibit 3(b) to Park’s Form 8-B) P 3.2(b) Certified Resolution regarding Adoption of Amendment to Subsection 2.02(A) of the Regulations of Park National Corporation by Shareholders on April 21, 1997 (Incorporated herein by reference to Exhibit 3(b)(1) to Park’s June 30, 1997 Form 10-Q) 3.2(c) Certificate Regarding Adoption of Amendments to Sections 1.04 and 1.11 of Park National Corporation’s Regulations by the Shareholders on April 17, 2006 (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed on April 18, 2006 (File No. 1-13006)) 3.2(d) Certificate Regarding Adoption by the Shareholders of Park National Corporation on April 21, 2008 of Amendment to Regulations to Add New Section 5.10 to Article Five (Incorporated herein by reference to Exhibit 3.2(d) to Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 (File No. 1-13006) ) 3.2(e) Certificate Regarding Adoption by the Shareholders of Park National Corporation on April 25, 2022 of Amendments to Section 1.10 and Section 2.04 of Park National Corporation's Regulations to eliminate the textual references to the right of Park National Corporation's shareholders to have cumulative voting apply in the election of directors (Incorporated herein by reference to Exhibit 3.2 to Park National Corporation's Current Report on Form 8-K dated and filed April 27, 2022 (File No. 1-13006)) 92 Table of Contents 3.2(f) Regulations of Park National Corporation [This document represents the Regulations of Park National Corporation in compiled form incorporating all amendments, including those adopted by the shareholders of Park National Corporation on April 25, 2022] (Filed herewith) 10.1 Summary of Base Salaries for Executive Officers of Park National Corporation (Incorporated herein by reference to Exhibit 10.1 to Park National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (File No. 1-13006) ("Park's 2021 Form 10-K")) 10.2 Summary of Certain Compensation for Directors of Park National Corporation (Incorporated herein by reference to Exhibit 10.17 to Park's 2021 Form 10-K) 31.1 Rule 13a – 14(a) / 15d – 14(a) Certifications (Principal Executive Officer) (Filed herewith) 31.2 Rule 13a – 14(a) / 15d – 14(a) Certifications (Principal Financial Officer) (Filed herewith) 32.1 Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Principal Executive Officer) (Furnished herewith) 32.2 Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Principal Financial Officer) (Furnished herewith) 101 The following information from Park’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 formatted in Inline XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Condensed Balance Sheets as of March 31, 2022 and December 31, 2021 (unaudited); (ii) the Consolidated Condensed Statements of Income for the three months ended March 31, 2022 and 2021 (unaudited); (iii) the Consolidated Condensed Statements of Comprehensive (Loss) Income for the three months ended March 31, 2022 and 2021 (unaudited); (iv) the Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2022 and 2021 (unaudited); (v) the Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited); and (vi) the Notes to Unaudited Consolidated Condensed Financial Statements (electronically submitted herewith). ** 104 Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document with applicable taxonomy extension information contained in Exhibit 101) ________________________________________ *Annexes, schedules and exhibits have been omitted pursuant to Item 601(b)(2) of SEC Regulation S-K, as in effect at the time of filing of the Agreement and Plan of Merger and Reorganization, and Item 601(a)(5) of SEC Regulation S-K, as currently in effect. A copy of any omitted attachment will be furnished supplementally to the SEC upon its request. ** The instance document does not appear in the interactive data file because its XBRL tags are imbedded within the Inline XBRL document. P Park National Corporation filed this exhibit with the SEC in paper form originally and this exhibit has not been filed with the SEC in electronic format. 93 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PARK NATIONAL CORPORATION DATE: May 3, 2022 /s/ David L. Trautman David L. Trautman Chairman of the Board and Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer) DATE: May 3, 2022 /s/ Brady T. Burt Brady T. Burt Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Duly Authorized Officer) 94