PARK NATIONAL CORP /OH/ 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index to Financial Statements Audited Financial Statements Page Management’s Report on Internal Control Over Financial Reporting 75 Report of Independent Registered Public Accounting Firm 77 Auditor Name: Crowe LLP Auditor Location: Columbus, OH Auditor Firm ID: 173 Consolidated Balance Sheets at December 31, 2023 and 2022 79 Consolidated Statements of Income for the Years Ended December 31, 2023, 2022 and 2021 81 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2023, 2022 and 2021 83 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2023, 2022 and 2021 84 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021 85 Notes to Consolidated Financial Statements 87 -74- Management’s Report on Internal Control Over Financial Reporting Management’s Report on Internal Control Over Financial Reporting To the Board of Directors and Shareholders Park National Corporation The management of Park National Corporation (the “Corporation”) is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, for the Corporation and its consolidated subsidiaries. The Corporation’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP"). The Corporation’s internal control over financial reporting includes those policies and procedures that: a. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation and its consolidated subsidiaries; b. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Corporation and its consolidated subsidiaries are being made only in accordance with authorizations of management and directors of the Corporation; and c. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Corporation and its consolidated subsidiaries that could have a material effect on the financial statements. The Corporation’s internal control over financial reporting as it relates to the consolidated financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation. With the participation of our Chairman of the Board and Chief Executive Officer and our Chief Financial Officer, Secretary, and Treasurer, management evaluated the effectiveness of the Corporation’s internal control over financial reporting at December 31, 2023, the end of the Corporation’s fiscal year. In making this assessment, management used the criteria set forth for effective internal control over financial reporting by the Committee of Sponsoring Organizations of the Treadway Commission's (COSO) Internal Control — Integrated Framework (2013). Based on our assessment under the criteria described in the immediately preceding paragraph, management concluded that the Corporation maintained effective internal control over financial reporting at a reasonable assurance level as of December 31, 2023. We reviewed the results of management's assessment with the Audit Committee of the Board of Directors of the Corporation. The Corporation’s independent registered public accounting firm, Crowe LLP, has audited the Consolidated Balance Sheets of the Corporation and its subsidiaries at December 31, 2023 and 2022 and the related Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Shareholders' Equity and Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2023, included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K and the Corporation’s internal control over financial reporting as of December 31, 2023, and has issued their Report of Independent -75- Registered Public Accounting Firm, which appears in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K. /s/ David L. Trautman /s/ Brady T. Burt David L. Trautman Brady T. Burt Chairman of the Board and Chief Executive Officer Chief Financial Officer, Secretary and Treasurer February 23, 2024 -76- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and the Board of Directors of Park National Corporation Newark, Ohio Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Park National Corporation (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the -77- company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate. Allowance for Credit Losses The allowance for credit losses (the “ACL”) as described in Notes 1 and 6 is an accounting estimate of expected credit losses over the estimated life of loans. The Company’s loan portfolio, measured at amortized cost, is presented at the net amount expected to be collected. Estimates of expected credit losses for loans are based on historical experience, current conditions and reasonable and supportable forecasts over the life of the loans. The Company measures expected credit losses based on pooled loans when similar risk characteristics exist primarily utilizing a discounted cash flow (“DCF”) model. A quantitative adjustment is made on top of the model using economic forecasts that are weighted to reflect model risk in the current economic environment. The Company adjusts its quantitative results for certain qualitative factors to reflect the extent to which management expects current conditions and reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated. The auditing of the quantitative adjustments related to weighting of economic scenarios was identified by us as a critical audit matter because of the significant subjective and complex judgments made by management to develop the quantitative adjustments, which led to significant auditor judgment and audit effort to evaluate the quantitative adjustment made, on top of the model, that weights the economic scenarios to reflect model risk in the current economic environment. The primary procedures performed to address the critical audit matter included: • Testing the effectiveness of management's controls addressing: ◦ Evaluation of the appropriateness of the key judgments used in the determination of the quantitative adjustment, made on top of the model, that weights the economic scenarios used in the forecast. ◦ Evaluation of the relevance and reliability of data used in the determination of the quantitative adjustment, made on top of the model, that weights the economic scenarios used in the forecast. • Substantive testing included: ◦ Evaluating management’s judgments and the relevance and reliability of data used in applying a quantitative adjustment, made on top of the model, that weights the economic scenarios used in the forecast. Crowe LLP We have served as the Company's auditor since 2006. Columbus, Ohio February 23, 2024 -78- Park National Corporation and Subsidiaries Consolidated Balance Sheets at December 31, 2023 and 2022 (In thousands, except share and per share data) 2023 2022 Assets Cash and due from banks $ 160,477 $ 156,750 Money market instruments 57,791 32,978 Cash and cash equivalents 218,268 189,728 Investment securities: Debt securities available-for-sale, at fair value (amortized cost of $ 1,418,770 and $ 1,854,852 at December 31, 2023 and 2022, respectively, and no allowance for credit losses at December 31, 2023 and 2022) 1,332,842 1,733,696 Other investment securities 96,302 87,091 Total investment securities 1,429,144 1,820,787 Total loans 7,476,221 7,141,891 Allowance for credit losses ( 83,745 ) ( 85,379 ) Net loans 7,392,476 7,056,512 Other assets: Bank owned life insurance 231,631 220,072 Prepaid assets 165,879 153,579 Goodwill 159,595 159,595 Other intangible assets 4,652 5,975 Premises and equipment, net 74,211 82,126 Affordable housing tax credit investments 62,703 60,968 Accrued interest receivable 39,236 34,704 Other real estate owned 983 1,354 Mortgage loan servicing rights 14,656 15,792 Operating lease right-of-use asset 15,715 17,600 Other 27,304 36,201 Total other assets 796,565 787,966 Total assets $ 9,836,453 $ 9,854,993 The accompanying notes are an integral part of the consolidated financial statements. -79- Park National Corporation and Subsidiaries Consolidated Balance Sheets at December 31, 2023 and 2022 (In thousands, except share and per share data) 2023 2022 Liabilities and shareholders’ equity Deposits: Non-interest bearing $ 2,628,234 $ 3,074,276 Interest bearing 5,414,332 5,160,439 Total deposits 8,042,566 8,234,715 Borrowings: Short-term borrowings 328,182 227,342 Subordinated notes 189,147 188,667 Total borrowings 517,329 416,009 Other liabilities: Operating lease liability 16,605 19,291 Accrued interest payable 6,860 3,486 Unfunded commitments in affordable housing tax credit investments 28,768 28,132 Allowance for credit losses on off-balance sheet commitments 5,103 5,214 Other 73,929 78,920 Total other liabilities 131,265 135,043 Total liabilities 8,691,160 8,785,767 Commitments and contingencies Shareholders’ equity: Preferred shares ( 200,000 preferred shares authorized; no preferred shares outstanding at December 31, 2023 and 2022) $ — $ — Common shares, no par value ( 20,000,000 common shares authorized; 17,623,104 common shares issued at December 31, 2023 and 2022) 463,280 462,404 Accumulated other comprehensive loss, net of taxes ( 66,191 ) ( 102,394 ) Retained earnings 903,877 847,235 Less: Treasury shares ( 1,506,625 and 1,359,521 common shares at December 31, 2023 and 2022, respectively) ( 155,673 ) ( 138,019 ) Total shareholders’ equity 1,145,293 1,069,226 Total liabilities and shareholders’ equity $ 9,836,453 $ 9,854,993 The accompanying notes are an integral part of the consolidated financial statements. -80- Park National Corporation and Subsidiaries Consolidated Statements of Income for years ended December 31, 2023, 2022 and 2021 (In thousands, except per share data) 2023 2022 2021 Interest and dividend income: Interest and fees on loans $ 399,795 $ 323,107 $ 317,208 Interest and dividends on debt securities: Taxable 52,786 36,047 19,458 Tax-exempt 10,966 10,964 8,307 Other interest income 8,123 8,129 880 Total interest and dividend income 471,670 378,247 345,853 Interest expense: Interest on deposits: Demand and savings deposits 71,776 17,646 1,595 Time deposits 12,677 3,314 4,711 Interest on short-term borrowings 4,721 1,395 767 Interest on subordinated notes and long-term debt 9,383 8,833 8,887 Total interest expense 98,557 31,188 15,960 Net interest income 373,113 347,059 329,893 Provision for (recovery of) credit losses 2,904 4,557 ( 11,916 ) Net interest income after provision for (recovery of) credit losses 370,209 342,502 341,809 Other income: Income from fiduciary activities 35,474 34,091 34,449 Service charges on deposit accounts 8,445 10,091 8,832 Other service income 10,300 15,295 29,812 Debit card fee income 26,522 26,046 25,865 Bank owned life insurance income 5,338 6,100 4,897 ATM fees 2,178 2,273 2,379 (Loss) gain on the sale of OREO, net ( 3 ) 5,611 ( 4 ) OREO valuation markup 60 12,039 64 Loss on the sale of debt securities, net ( 7,875 ) — — Gain on equity securities, net 971 2,955 5,011 Other components of net periodic benefit income 7,572 12,108 8,152 Miscellaneous 3,652 9,326 10,487 Total other income $ 92,634 $ 135,935 $ 129,944 The accompanying notes are an integral part of the consolidated financial statements. -81- Park National Corporation and Subsidiaries Consolidated Statements of Income for years ended December 31, 2023, 2022 and 2021 (In thousands, except per share data) 2023 2022 2021 Other expense: Salaries $ 139,237 $ 133,299 $ 125,585 Employee benefits 42,264 40,490 41,603 Occupancy expense 13,114 13,866 13,039 Furniture and equipment expense 12,233 11,901 10,887 Data processing fees 37,637 32,627 30,539 Professional fees and services 29,173 30,837 27,450 Marketing 5,471 5,335 6,073 Insurance 7,640 5,413 5,917 Communication 4,210 3,891 3,539 State tax expense 4,657 4,585 4,255 Amortization of intangible assets 1,323 1,487 1,798 Foundation contributions 1,000 4,000 4,000 Miscellaneous 11,280 10,247 8,833 Total other expense 309,239 297,978 283,518 Income before income taxes 153,604 180,459 188,235 Income taxes 26,870 32,108 34,290 Net income $ 126,734 $ 148,351 $ 153,945 Earnings per common share: Basic $ 7.84 $ 9.13 $ 9.45 Diluted $ 7.80 $ 9.06 $ 9.37 The accompanying notes are an integral part of the consolidated financial statements. -82- Park National Corporation and Subsidiaries Consolidated Statements of Comprehensive Income for years ended December 31, 2023, 2022 and 2021 (In thousands) 2023 2022 2021 Net income $ 126,734 $ 148,351 $ 153,945 Other comprehensive income (loss) net of income tax: Defined benefit pension plan: Amortization of net actuarial loss (gain) and amortization of prior service cost (credit), net of income tax effect of $ 10 , $( 3 ) and $ 466 , for the years ended December 31, 2023, 2022, and 2021, respectively 38 ( 12 ) 1,754 Unrealized net actuarial gain (loss) and prior service credit (cost), net of income tax effect of $ 2,215 , $( 233 ) and $ 7,144 , for the years ended December 31, 2023, 2022, and 2021, respectively 8,334 ( 876 ) 26,875 Change in funded status of defined benefit pension plan, net of income tax effect 8,372 ( 888 ) 28,629 Debt securities available-for-sale: Net loss realized on sale of debt securities AFS, net of income tax effect of $ 1,654 for the year ended December 31, 2023 6,221 — — Change in unrealized holding gain (loss) on debt securities AFS, net of income tax effect of $ 5,743 , $( 31,066 ) and $( 5,193 ), for the years ended December 31, 2023, 2022 and 2021, respectively 21,610 ( 116,867 ) ( 19,537 ) Unrealized net holding gain (loss) on debt securities available-for-sale, net of income tax effect 27,831 ( 116,867 ) ( 19,537 ) Cash flow hedging derivatives: Unrealized gain on cash flow hedging derivatives, net of income tax effect of $ 41 and $ 131 for the years ended December 31, 2022 and 2021, respectively — 154 492 Reclassification adjustment for losses included in net income on cash flow hedging derivatives, net of income tax effect of $ 14 for the year ended December 31, 2022 — 52 — Unrealized net holding gain on cash flow hedging derivatives, net of income tax effect — 206 492 Other comprehensive income (loss) $ 36,203 $ ( 117,549 ) $ 9,584 Comprehensive income $ 162,937 $ 30,802 $ 163,529 The accompanying notes are an integral part of the consolidated financial statements. -83- Park National Corporation and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2023, 2022 and 2021 Preferred Shares Common Shares Retained Earnings Treasury Shares Accumulated Other Comprehensive Income (Loss) (In thousands, except share and per share data) Shares Outstanding Amount Shares Outstanding Amount Balance, January 1, 2021, as previously presented — $ — 16,314,197 $ 460,687 $ 704,764 $ ( 130,766 ) $ 5,571 Cumulative effect of change in accounting principle for ASU 2016-13, net of income tax ( 7,956 ) Balance, January 1, 2021, as adjusted — $ — 16,314,197 $ 460,687 $ 696,808 $ ( 130,766 ) $ 5,571 Net income 153,945 Other comprehensive income, net of income tax 9,584 Cash dividends, $ 4.52 per common share ( 74,634 ) Cash payment for fractional shares in dividend reinvestment plan ( 45 ) ( 6 ) Share-based compensation expense 6,345 Issuance of 29,670 common shares under share-based compensation awards, net of 18,436 common shares withheld to pay employee income taxes 29,670 ( 5,226 ) ( 141 ) 2,964 Treasury shares repurchased ( 137,659 ) ( 16,048 ) Treasury shares reissued for director grants 13,400 316 1,360 Balance, December 31, 2021 — $ — 16,219,563 $ 461,800 $ 776,294 $ ( 142,490 ) $ 15,155 Net income 148,351 Other comprehensive loss, net of income tax ( 117,549 ) Cash dividends, $ 4.66 per common share ( 76,771 ) Cash payment for fractional shares in dividend reinvestment plan ( 14 ) ( 2 ) Share-based compensation expense 5,879 Issuance of 34,245 common shares under share-based compensation awards, net of 21,219 common shares withheld to pay employee income taxes 34,245 ( 5,273 ) ( 965 ) 3,477 Treasury shares reissued for director grants 9,789 326 994 Balance, December 31, 2022 — — 16,263,583 462,404 847,235 ( 138,019 ) ( 102,394 ) Cumulative effect of a change in accounting principle for ASU 2022-02, net of income tax ( 303 ) Balance January 1, 2023, as adjusted — $ — 16,263,583 462,404 846,932 ( 138,019 ) ( 102,394 ) Net income 126,734 Other comprehensive income, net of income tax 36,203 Cash dividends, $ 4.20 per common share ( 68,716 ) Share-based compensation expense 6,787 Issuance of 38,842 common shares under share-based compensation awards, net of 23,973 common shares withheld to pay employee income taxes 38,842 ( 5,911 ) ( 947 ) 4,014 Treasury shares repurchased ( 199,000 ) ( 23,017 ) Treasury shares reissued for director grants 13,054 ( 126 ) 1,349 Balance, December 31, 2023 — $ — 16,116,479 $ 463,280 $ 903,877 $ ( 155,673 ) $ ( 66,191 ) The accompanying notes are an integral part of the consolidated financial statements. -84- Park National Corporation and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 (In thousands) 2023 2022 2021 Operating activities: Net income $ 126,734 $ 148,351 $ 153,945 Adjustments to reconcile net income to net cash provided by operating activities: Provision for (recovery of) credit losses 2,904 4,557 ( 11,916 ) Accretion of loan fees and costs, net ( 8,759 ) ( 12,085 ) ( 25,185 ) Net amortization (accretion) of purchase accounting adjustments 664 ( 334 ) ( 1,519 ) Depreciation of premises and equipment 14,015 13,819 13,267 Amortization of investment securities, net 3,794 3,666 2,174 (Increase) decrease in deferred income tax ( 703 ) 611 ( 3,131 ) Loss on the sale of debt securities, net 7,875 — — Gain on equity securities, net ( 971 ) ( 2,955 ) ( 5,011 ) Share-based compensation expense 8,010 7,199 8,021 Loan originations to be sold in secondary market ( 65,211 ) ( 173,880 ) ( 569,080 ) Proceeds from sale of loans in secondary market 65,338 185,361 609,377 Gain on sale of loans in secondary market ( 1,213 ) ( 4,243 ) ( 18,018 ) Loss (gain) on the sale of OREO, net 3 ( 5,611 ) 4 OREO valuation markup ( 60 ) ( 12,039 ) ( 64 ) Gain on sale of non-mortgage loans — ( 495 ) — Bank owned life insurance income ( 5,338 ) ( 6,100 ) ( 4,897 ) Investment in qualified affordable housing tax credits amortization 8,265 7,743 7,313 Changes in assets and liabilities: Increase in prepaid dealer premiums ( 43 ) ( 9,422 ) ( 2,415 ) Decrease (increase) in other assets 2,182 ( 4,467 ) 12,406 Decrease in other liabilities ( 6,982 ) ( 4,814 ) ( 7,939 ) Net cash provided by operating activities $ 150,504 $ 134,862 $ 157,332 Investing activities: Proceeds from redemption/repurchase of FHLB stock 11,672 2,216 8,677 Proceeds from sales of investment securities 284,454 — 934 Proceeds from calls and maturities of: AFS debt securities 145,310 186,123 232,197 Purchase of: AFS debt securities ( 3,981 ) ( 317,278 ) ( 953,900 ) Equity securities ( 2,195 ) ( 9,165 ) — FHLB stock ( 18,228 ) — — Net decrease in other investments 1,886 331 2,597 Net loan (originations) paydowns, portfolio loans ( 329,810 ) ( 271,753 ) 312,187 -85- Park National Corporation and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 (In thousands) 2023 2022 2021 Proceeds from the sale of non-mortgage loans — 4,345 3,718 Proceeds from the sale of OREO 965 17,684 758 Life insurance death benefits 1,816 9,587 5,598 Purchases of bank owned life insurance ( 10,779 ) ( 7,500 ) — Investment in qualified affordable housing tax credits ( 9,364 ) ( 10,352 ) ( 10,814 ) Purchases of premises and equipment ( 7,589 ) ( 7,937 ) ( 14,093 ) Net cash provided by (used in) investing activities $ 64,157 $ ( 403,699 ) $ ( 412,141 ) Financing activities Net (decrease) increase in deposits ( 386,901 ) ( 456,922 ) 605,168 Net decrease (increase) in off-balance sheet deposits 194,752 787,116 ( 272,952 ) Net increase (decrease) in short-term borrowings 100,840 ( 11,444 ) ( 103,444 ) Repayment of long-term debt — — ( 32,500 ) Value of common shares withheld to pay employee income taxes ( 2,844 ) ( 2,761 ) ( 2,403 ) Repurchase of common shares to be held as treasury shares ( 23,017 ) — ( 16,048 ) Cash dividends paid ( 68,951 ) ( 76,604 ) ( 74,306 ) Net cash (used in) provided by financing activities $ ( 186,121 ) $ 239,385 $ 103,515 Increase (decrease) in cash and cash equivalents 28,540 ( 29,452 ) ( 151,294 ) Cash and cash equivalents at beginning of year 189,728 219,180 370,474 Cash and cash equivalents at end of year $ 218,268 $ 189,728 $ 219,180 Cash paid for: Interest $ 95,183 $ 30,818 $ 16,704 Federal income taxes 17,200 24,670 25,505 Non cash items: Loans transferred to OREO $ 1,097 $ 13,418 $ 150 Non-mortgage loans transferred to held for sale, net — 3,890 3,718 Right-of-use assets obtained in exchange for lease obligations 545 7,867 1,190 New commitments in affordable housing tax credit investments 10,000 10,000 10,000 New commitments in other investment securities 2,745 16,250 3,000 The accompanying notes are an integral part of the consolidated financial statements. -86- Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies The following is a summary of significant accounting policies followed in the preparation of the consolidated financial statements: Principles of Consolidation The consolidated financial statements include the accounts of Park National Corporation and its subsidiaries (“Park”, the “Company” or the “Corporation”), unless the context otherwise requires. Material intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications Certain prior year amounts have been reclassified to conform with the current presentation. These reclassifications had no impact on net income or shareholders' equity. Restrictions on Cash and Due from Banks As of March 26, 2020, the Federal Reserve Board eliminated reserve requirements for all depository institutions. There were no compensating balance arrangements in existence at December 31, 2023 or 2022. Investment Securities Debt securities are classified upon acquisition into one of three categories: HTM, AFS, or trading (see Note 4 - Investment Securities). HTM debt securities are those debt securities that the Corporation has the positive intent and ability to hold to maturity and are recorded at amortized cost. The Corporation did not hold any HTM debt securities during any period presented. AFS debt securities are those debt securities that would be available to be sold in the future in response to the Corporation’s liquidity needs, changes in market interest rates, and asset-liability management strategies, among other reasons. AFS debt securities are reported at fair value, with unrealized holding gains and losses excluded from earnings, but included in other comprehensive income (loss), net of applicable income taxes. The Corporation did not hold any trading securities during any period presented. Interest income from debt securities includes amortization of purchase premium or discount. Premiums and discounts on investment securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses realized on the sale of debt securities are recorded on the trade date and determined using the specific identification method. A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days past due. Interest accrued but not received for a security placed on nonaccrual status is reversed against interest income. ACL - Debt Securities AFS For debt securities AFS in an unrealized loss position, Park first assesses whether it intends to sell, or it is more likely than not that Park will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through net income. For debt securities AFS that do not meet the aforementioned criteria, Park evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss), net of applicable taxes. -87- Changes in the ACL are recorded as a provision for (or recovery of) credit loss expense. Losses are charged against the ACL when management believes that uncollectibility of a debt security AFS is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on debt securities AFS totaled $ 10.6 million and $ 12.4 million at December 31, 2023 and 2022, respectively, and is excluded from the estimate of credit losses. ACL - HTM Debt Securities Management measures expected credit losses on HTM debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Park does not currently hold any HTM debt securities. Equity Securities Equity securities, included within "Other investment securities" on the Consolidated Balance Sheets, are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. Federal Home Loan Bank and Federal Reserve Bank of Cleveland Stock PNB is a member of the FHLB and the FRB. Members are required to own a certain amount of stock based on their level of borrowings and other factors and may invest in additional amounts. FHLB stock and FRB stock are classified as restricted securities and are carried at their redemption value within "Other investment securities" on the Consolidated Balance Sheets. Impairment is evaluated based on the ultimate recovery of par value. Both cash and stock dividends are reported as income. Loans Held for Sale Park has elected the fair value option for mortgage loans held for sale, which are carried at their fair value as of each balance sheet date. 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. The fair value of an interest rate lock is recorded at the time the commitment to fund a mortgage loan is executed and is adjusted for the expected exercise of a commitment before a loan is funded. In order to hedge against a change in interest rates resulting from the Company's commitments to fund loans, the Company enters into forward commitments for the future delivery of mortgage loans. The fair value of Park's mortgage banking derivatives is estimated based on the change in mortgage interest rates from the date the interest on a loan is locked. The fair value of these mortgage banking derivatives is included in "Loans" in the Consolidated Balance Sheets. Changes in the fair value of these mortgage banking derivatives are included in "Other service income" in the Consolidated Statements of Income. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred loan fees and costs. Interest income is accrued on the unpaid principal balance. Accrued interest receivable totaled $ 28.5 million and $ 22.3 million at December 31, 2023 and 2022, respectively, and was reported in "Accrued interest receivable" on the Consolidated Balance Sheets. Late charges on loans are recognized as income when they are collected. Net loan origination fees and costs are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Commercial loans include: (1) commercial, financial and agricultural loans; (2) commercial real estate loans; (3) those commercial loans in the construction real estate loan segment; (4) those commercial loans in the residential real estate loan segment; and (5) leases. Consumer loans include: (1) mortgage and installment loans included in the construction real estate segment; (2) mortgage, home equity lines of credit ("HELOCs"), and installment loans included in the residential real estate segment; and (3) all loans included in the consumer segment. Generally, commercial loans are placed on nonaccrual status at 90 days past due and consumer and residential mortgage loans are placed on nonaccrual status at 120 days past due. The delinquency status of a loan is based on contractual terms and not on how recently payments have been received. Park’s charge-off policy for commercial loans requires management to establish an individual reserve or record a charge-off when collection is in doubt and there is, or likely will be, a collateral shortfall related to the estimated value of the collateral securing a loan. The Company’s charge-off policy for consumer loans is dependent on the class of the loan. Residential mortgage loans, HELOCs, and consumer loans secured by residential real estate are typically -88- charged down to the value of the collateral, less estimated selling costs, at 180 days past due. The charge-off policy for other consumer loans, primarily installment loans, requires a monthly review of delinquent loans and a complete charge-off for any account that reaches 120 days past due. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. For loans which are on nonaccrual status, it is Park’s policy to reverse interest previously accrued on the loans against interest income. Interest on such loans may be recorded on a cash basis and be included in earnings only when Park expects to receive the entire recorded investment of the respective loans. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. A description of each segment of the loan portfolio, along with the risk characteristics of each segment, is included below: Commercial, financial and agricultural: Commercial, financial and agricultural ("C&I") loans are made for a wide variety of general corporate purposes, including financing for commercial and industrial properties, financing for equipment, inventory and accounts receivable, acquisition financing, commercial leasing, and loans originated by consumer finance companies. The term of each commercial loan varies by its purpose. Repayment terms are structured such that commercial loans will be repaid within the economic useful life of the underlying asset. Risk of loss on C&I loans largely depends upon general economic cycles, as they may adversely impact certain industries, competency of the borrower's management team, the quality of the underlying assets supporting the loans including accounts receivable, inventory, and equipment, and the accuracy of the borrower's financial reporting. Such risks are mitigated by generally requiring the borrower's owners to guaranty the loans. Commercial real estate: Commercial real estate (“CRE”) loans include mortgage loans to developers and owners of commercial real estate. The lending policy for CRE loans is designed to address the unique risk attributes of CRE lending. The collateral for these CRE loans is the underlying commercial real estate. Risk of loss on CRE loans largely depends upon the cash flow of the properties, which is influenced by the amount of vacancy experienced with respect to underlying real estate, the credit capacity of the tenants occupying the underlying real estate, and general economic trends, as they may adversely impact the value of a property. These risks are mitigated by generally requiring personal guarantees of the owners of the properties and by requiring appraisals pursuant to government regulations. Construction real estate : The Company defines construction loans as both commercial construction loans and residential construction loans where the loan proceeds are used exclusively for the improvement of real estate. Construction loans may be in the form of a permanent loan or a short-term construction loan, depending on the needs of the individual borrower. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost (including interest) of construction. If the estimate of construction cost proves to be inaccurate, Park may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves inaccurate, Park may be confronted, at or prior to the maturity of the loan, with a project having a value insufficient to assure full repayment, should the borrower default. In the event that a default on a construction loan occurs and foreclosure follows, Park must take control of the project and attempt to either arrange for completion of construction or dispose of the unfinished project. Additional risks exist with respect to loans made to developers who do not have a buyer for the property, as the developer may lack funds to pay the loan if the property is not sold upon completion. Park attempts to reduce such risks on loans to developers by generally requiring personal guarantees and reviewing current personal financial statements and tax returns as well as other projects undertaken by the developer. Residential real estate: The Company defines residential real estate loans as first mortgages on individuals’ primary residences or second mortgages on individuals’ primary residences in the form of HELOCs or installment loans. Credit approval for residential real estate loans requires demonstration of sufficient income to repay the principal and interest and the real estate taxes and insurance, stable employment, an established credit record and a current independent third-party appraisal providing the market value of the real estate securing the loan. Residential real estate loans typically have longer terms and higher balances with lower yields as compared to consumer loans, but generally carry lower risks of default. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires creditors to make a reasonable and good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling. Documentation and verification of income within defined time frames and not-to-exceed limits are bases for affirming ability to repay. Risk of loss largely depends upon factors affecting the borrower's ability to repay as well as the general economic trends as they may adversely impact the value of the property. These risks are mitigated by completing a comprehensive underwriting of the borrower and by requiring appraisals pursuant to government regulations. Consumer: The Company originates direct and indirect consumer loans, primarily automobile, recreational vehicle and watercraft loans, to customers in the Company's primary market areas. Credit approval for consumer loans requires income -89- sufficient to repay principal and interest due, stable employment, an established credit record and sufficient collateral for secured loans. Consumer loans typically have shorter terms and lower balances with higher yields as compared to real estate mortgage loans, but generally carry higher risks of default. Consumer loan collections are dependent on the borrower’s financial stability, and thus are more likely to be affected by adverse personal circumstances. Leases : The Company originates financing leases primarily for the purchase of commercial vehicles, operating/manufacturing equipment, and municipal vehicles/equipment. Repayment terms are structured such that the lease will be repaid within the economic useful life of the leased asset. Risk of losses on financing leases largely depends upon general economic cycles, as they may adversely impact certain industries, competency of the borrower’s management team, the quality and residual value of the leased asset, and the accuracy of the borrower’s financial reporting. These risks are mitigated by underwriting leases considering primary and secondary sources of repayment and requiring guaranteed residual values. Concentration of Credit Risk Park's commercial loan portfolio includes loans to a wide variety of corporations and businesses across many industrial classifications in the 26 Ohio counties, four North Carolina counties, four South Carolina counties and one Kentucky county where PNB operates, with the exception of nationwide aircraft loans and nationwide asset-based lending to consumer finance companies. The primary industries represented by these customers include real estate rental and leasing, finance and insurance, construction, accommodation and food services, health care and social assistance, other services, manufacturing, retail trade, agriculture, forestry, fishing and hunting, and professional, scientific, and technical services. PCD Loans The Company has purchased loans, some of which have shown evidence of credit deterioration since origination. Upon adoption of ASC 326, Park elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. Loans are only removed from the existing pools if they are written off, paid off, or sold. Upon adoption of ASC 326, the allowance for credit losses was determined for each pool and added to the pool's carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the pool and the new amortized cost basis is the noncredit premium or discount, which will be amortized into interest income over the remaining life of the pool. Changes to the allowance for credit losses after adoption are recorded through provision for credit losses expense. ACL - Loans The ACL is a valuation account that is deducted from the amortized cost of total loans to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes that the uncollectibility of a loan balance is confirmed. Expected recoveries cannot exceed the aggregate of the amounts previously charged-off and expected to be charged-off. Management estimates the allowance balance using relevant and available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical credit loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. -90- ACL - Loans - Collectively Evaluated The ACL is measured on a collective pool basis when similar risk characteristics exist. Park has identified the following portfolio segments and measures the allowance for credit losses using the following methods: Portfolio Segment Measurement Method Loss Driver Commercial, financial and agricultural Commercial, financial and agricultural Discounted Cash Flow Ohio Unemployment, Ohio GDP PPP loans Other Not Applicable Overdrafts Historical Loss Experience Not Applicable Commercial real estate Discounted Cash Flow Ohio Unemployment Construction real estate: Commercial Discounted Cash Flow Ohio Unemployment, Ohio GDP Retail Discounted Cash Flow Ohio Unemployment, Ohio GDP Residential real estate: Commercial Discounted Cash Flow Ohio Unemployment, Ohio HPI Mortgage Discounted Cash Flow Ohio Unemployment, Ohio HPI HELOC Discounted Cash Flow Ohio Unemployment, Ohio HPI Installment Discounted Cash Flow Ohio Unemployment, Ohio HPI Consumer: Consumer Discounted Cash Flow Ohio Unemployment, Ohio GDP GFSC Discounted Cash Flow Ohio Unemployment, Ohio GDP Check loans Historical Loss Experience Not Applicable Leases Remaining Life Not Applicable Expected credit losses are estimated over the contractual term of the loans, adjusted for prepayments when appropriate. The contractual term excludes extensions, renewals, and modifications unless renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by Park. In general, Park utilized a DCF method to estimate the quantitative portion of the allowance for credit losses for loans evaluated on a collective pooled basis. For each segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA utilized Park's own Federal Financial Institutions Examination Council's ("FFIEC") Call Report data for the commercial, financial and agricultural and residential real estate segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer segments. In creating the DCF model, Park established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. Park's policy is to utilize its own data, which includes loan-level loss data from 2013 through December 31, 2023, whenever possible. Park and peer FFIEC Call Report data are utilized when there are insufficient defaults for a statistically sound calculation, or if Park does not have its own loan-level detail reflecting similar economic conditions as the forecasted loss drivers. Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, loss history, and forecasted loss drivers. Park utilizes a third party to provide economic forecasts under various scenarios, which are weighted in order to reflect model risk in the then current economic environment. The weighting of the scenarios is evaluated on a quarterly basis considering the various scenarios in the context of the then current economic environment and presumed risk of loss. Additional key assumptions in the DCF model include the PD, LGD, and prepayment/curtailment rates. When possible, Park utilizes its own PDs for the reasonable and supportable forecast period. When it is not possible to use Park's own PDs, the LDA is utilized to determine PDs based on the forecasted economic factors. In all cases, the LDA is then utilized to determine the long-term historical average, which is reached over the reversion period. When possible, Park's utilizes its own LGDs for the reasonable and supportable forecast period. When it is not possible to use Park's own LGDs, the LGD is derived using a method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between -91- LGD and PD over time and projects the LGD based on the level of PD forecasted. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the reversion period and long-term historical average. Prepayment and curtailment rates were calculated based on Park's own data utilizing a three-year average. When the discounted cash flow method is used to determine the allowance for credit losses, management incorporates expected prepayments to determine the effective interest rate utilized to discount expected cash flow. Park reviews various internal and external factors to consider the need for any qualitative adjustments to the quantitative model. Factors considered include the following : • The nature and volume of Park’s financial assets; the existence, growth, and effect of any concentrations of credit 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, charge-offs, and recoveries. • The quality of Park’s credit review function. • The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff. • The effect of other external factors such as the regulatory, legal and technological environments; competition; geopolitical conflict; and events such as natural disasters or pandemics. • Actual and expected changes in international, national, regional, and local economic and business conditions and developments in the markets in which Park operates that affect the collectability of financial assets. • Where the U.S. economy is within a given credit cycle. • The extent that there is government assistance (stimulus). Allowance for Credit Losses - Loans - Individually Evaluated Loans that do not share risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. Park has determined that any commercial loans which have been placed on nonaccrual status are to be individually evaluated. Individual analysis establishes an individual reserve for loans in scope. Reserves on individually evaluated commercial loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as appropriate. Allowance for Credit Losses - Off-Balance Sheet Credit Exposures Park estimates expected credit losses over the contractual period in which Park is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by Park. The allowance for credit losses on off-balance sheet credit exposures is adjusted within "Miscellaneous other expense" on the Consolidated Statements of Income. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over the commitments' respective estimated lives. Funding rates are based on a historical analysis of Park's portfolio, while estimates of credit losses are determined using the same loss rates as funded loans. Bank Owned Life Insurance Park has purchased insurance policies on the lives of directors and certain key officers. Bank owned life insurance is recorded at its cash surrender value (or the amount that can be realized). Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over net identifiable tangible and intangible assets acquired in a purchase business combination. Goodwill is not amortized to expense, but is subject to impairment tests annually, or more frequently, if events or changes in circumstances indicate that the asset might be impaired, by assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing these events or circumstances, it is concluded that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the performance of additional analysis is unnecessary. If the carrying amount of the goodwill exceeds the fair value, an impairment charge must be recorded in an amount equal to the excess, not to exceed the total goodwill allocated to the reporting unit. -92- Other intangible assets consist of core deposit intangibles. Core deposit intangibles are amortized on an accelerated basis over a period of ten years. Premises and Equipment Land is carried at cost and is not subject to depreciation. Premises and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation is generally provided on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the remaining lease period or the estimated useful lives of the improvements. Upon the sale or other disposal of an asset, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Maintenance and repairs are charged to expense as incurred while renewals and improvements that extend the useful life of an asset are capitalized. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset may not be recoverable. The range of depreciable lives over which premises and equipment are being depreciated are: Buildings 30 Years Building improvements 5 to 10 Years Equipment, furniture and fixtures 3 to 12 Years Software 3 Years or the contractual useful life of the software Leasehold improvements Shorter of the remaining lease period or the estimated useful life of the improvement Other Real Estate Owned Management transfers a loan to OREO at the time that Park takes deed/title to the asset. OREO is initially recorded at fair value less anticipated selling costs (net realizable value), establishing a new cost basis, and consists of property acquired through foreclosure and real estate held for sale. If the net realizable value is below the carrying value of the loan at the date of transfer, the difference is charged to the allowance for credit losses. If the net realizable value is above the carrying value of the loan at the date of transfer, any charged-off amounts are recovered and any additional amount is recorded within the line item "OREO valuation markup." These assets are subsequently accounted for at the lower of cost or fair value less costs to sell. Subsequent changes in the value of real estate are classified as OREO valuation adjustments, are reported as adjustments to the carrying amount of OREO, and recorded within the line item “Miscellaneous income". In certain circumstances where management believes the devaluation may not be permanent in nature, Park utilizes a valuation allowance to record OREO devaluations, which is expensed through the line item “Miscellaneous income". Costs relating to development and improvement of such properties are capitalized (not in excess of fair value less estimated costs to sell), and costs relating to holding the properties are charged to the line item "Miscellaneous expense". Foreclosed Assets Foreclosed assets include non-real estate assets where Park, as creditor, has received physical possession of a borrower’s assets, regardless of whether formal foreclosure proceedings take place. Foreclosed assets are initially recorded as fair value less costs to sell when acquired, establishing a new cost basis. Operating costs after acquisition are expensed as incurred. As of December 31, 2023 and 2022, Park had $ 1.1 million and $ 605,000 , respectively, of foreclosed assets included within “Other assets.” Mortgage Servicing Rights When Park sells mortgage loans with servicing retained, MSRs are initially recorded at fair value with the income statement effect recorded in "Other service income". Capitalized MSRs are amortized in proportion to and over the period of the estimated future servicing income of the underlying loan and are included within “Other service income”. MSRs are assessed for impairment quarterly, based on fair value, with any impairment recognized through a valuation allowance. The fair value of MSRs is determined by discounting estimated future cash flows from the servicing assets, using market discount rates and expected future prepayment rates. In order to calculate fair value, the sold loan portfolio is stratified into homogeneous pools of like categories. (See Note 12 - Loan Servicing.) Fees received for servicing mortgage loans owned by investors are based on a percentage of the outstanding monthly principal balance of such loans and are included in income as loan payments are received. The amortization of MSRs is netted against loan servicing fee income and recorded in "Other service income". -93- Leases 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 December 31, 2023 and 2022, all of Park's leases were classified as operating leases. 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. Park recognizes the lease payments associated with its short-term leases as an expense on a cash basis. 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, Park's management cannot determine the interest rate implicit in a 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 Park's management as a baseline to determine Park’s discount rates for leases. • The lease term for all of Park'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 Park 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, Park's management generally models lease cash flows through the first renewal option period unless the contract contains economic incentives or other conditions that increase or decrease the likelihood that additional renewals are reasonably certain to be exercised. • 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. Consolidated Statements of Cash Flows Cash and cash equivalents include cash and cash items, amounts due from banks, and money market instruments. Generally, money market instruments are purchased and sold for one-day periods. Loss Contingencies Park is routinely engaged in various litigation and other legal matters. These include defending against claims of improper loan, deposit account, and other banking practices, as well as trust and investment, intellectual property, contract, and other legal matters, and Park has a number of unresolved lawsuits and open matters pending resolution. In addition, Park is party to litigation involving the collection of delinquent accounts, challenges to security interests in collateral, foreclosure lawsuits, and similar matters which are part of, or incidental to, the ordinary course of business. While the ultimate liability with respect to these matters and claims cannot be determined at this time, management believes that losses, damages, or liabilities, if any, and other amounts relating to pending matters are not likely to be material to Park's consolidated financial position or results of -94- operations. Reserves are established for these various litigation and other legal matters, when appropriate under FASB ASC Topic 450, Contingencies, based in part upon the advice of legal counsel. Income Taxes Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. An uncertain tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The benefit recognized for a tax position that meets the “more-likely-than-not” criteria is measured based on the largest benefit that is more than 50 percent likely to be realized, taking into consideration the amounts and probabilities of the outcome upon settlement. For tax positions not meeting the “more-likely-than-not” test, no tax benefit is recorded. Park recognizes any interest and penalties related to income tax matters in income tax expense. Treasury Shares The purchase of Park’s common shares to be held in treasury is recorded at cost. At the date of retirement or subsequent reissuance, the treasury shares account is reduced by the weighted average cost of the common shares retired or reissued. Dividend Restriction Banking regulations require the maintenance of certain capital levels and may limit the dividends paid by a bank to its parent holding company or by the parent holding company to its shareholders. (See Note 25 - Dividend Restrictions and Note 28 - Capital Ratios.) Comprehensive Income Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on debt securities available for sale, changes in the funded status of the Company’s defined benefit pension plan and unrealized gains and losses on cash flow hedges which are also recognized as separate components of equity. Share-Based Compensation Compensation cost is recognized for restricted stock units and stock awards issued to employees and directors, respectively, based on the fair value of these awards at the date of grant. The market price of Park’s common shares at the date of grant is used to estimate the fair value of restricted stock units and stock awards. Compensation cost is recognized on a straight-line basis over the required service period, generally defined as the vesting period and is recorded in "Salaries" expense. (See Note 20 - Share-Based Compensation.) The Company's accounting policy is to recognize forfeitures as they occur. Loan Commitments and Related Financial Instruments Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Fair Value Measurement Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 27 - Fair Value. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. Derivatives At the inception of a derivative contract, Park designates the derivative as one of three types based on Park's intentions and belief as to the likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). Park does not have any fair value hedges. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income (loss) and is reclassified into net income in the same periods during which the hedged transaction affects net income. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in net income, as non-interest income. -95- Accrued settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Accrued settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the Consolidated Statements of Cash Flow under the same item as the cash flows of the items being hedged. Park formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking the hedge transaction at the inception of the hedging relationship. The documentation includes linking cash flow hedges to specific assets and liabilities on the Consolidated Balance Sheets. Park also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used are highly effective in offsetting changes in cash flows of the hedged items. Park discontinues hedge accounting when it determines that a derivative is no longer effective in offsetting cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended. When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a cash flow hedge is discontinued but the hedged cash flows are still expected to occur, gains or losses that were accumulated in other comprehensive loss are amortized into net income over the same periods that the hedged transactions will affect earnings. The Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the outstanding contracts. All the contracts to which the Company is party settle monthly or quarterly. Transfers of Financial Assets Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain the transferee from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets. Retirement Plans Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. The service cost component of pension expense is recorded within "Employee benefits" on the Consolidated Statements of Income. All other components of pension expense are recorded within "Other components of net periodic benefit income" on the Consolidated Statements of Income. Employee KSOP plan expense is the amount of matching contributions to Park's Employees Stock Ownership Plan. Deferred compensation and supplemental retirement plan expense allocate the benefits over years of service. (See Note 21 - Benefit Plans.) Earnings Per Common Share Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under restricted stock unit awards. (See Note 20 - Share-Based Compensation and Note 24 - Earnings Per Common Share.) Operating Segments The Corporation is a financial holding company headquartered in Newark, Ohio. While the chief decision makers monitor the operating results of its lines of business, operations are managed and financial performance is evaluated on a consolidated basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment. This is aligned with the information that the Chief Operating Decision Maker, Park's Chairman and Chief Executive Officer, utilizes when making key operating and resource allocation decisions. 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, and accounting standards that have been issued but were not effective for Park as of December 31, 2023: Adoption of New Accounting Pronouncements ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures: In March 2022, FASB issued ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures . ASU 2022-02 eliminated the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors , while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when borrowers are experiencing financial difficulty. Additionally, the amendments -96- in this ASU require that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. Park adopted ASU 2022-02 using the modified retrospective transition method on January 1, 2023. Park recorded a $ 383,000 increase to the ACL, a $ 303,000 decrease to retained earnings and an $ 80,000 increase to deferred tax assets as of January 1, 2023 for the cumulative effect of adopting ASU 2022-02. Additionally, as a result of the adoption of this ASU and elimination of the concept of TDRs, total nonperforming loans decreased by $ 20.1 million effective January 1, 2023 and individually evaluated loans decreased by $ 11.5 million. The adoption of ASU 2022-02 impacted disclosures in Note 5 - Loans and Note 6 - Allowance for Credit Losses. SEC Cybersecurity Disclosures: In July 2023, the SEC voted to standardize disclosures about cybersecurity risk management, strategy, governance, and material cybersecurity incidents by public companies subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Current Report on Form 8-K has a new item, Item 1.05, and registrants are required to disclose under this Item 1.05 any cybersecurity incident that is deemed to be material and describe the material aspects of the incident's nature, scope, and timing, as well as its material impact, or reasonably likely material impact on a registrant, including its financial condition and results of operations. The Form 8-K filing is generally due four business days after a registrant determines that the cybersecurity incident is material. Also, SEC Regulation S-K has a new item, Item 106, which requires registrants to describe, on an annual basis, the processes for assessing, identifying, and managing material risks from cybersecurity threats as well as the material effects, or reasonably likely material effects, of risk from cybersecurity threats and previous cybersecurity incidents. Item 106 also requires registrants to describe the board of directors' oversight of risks from cybersecurity threats and management's role and expertise in assessing and managing material risks from cybersecurity threats. These disclosures are required in the annual report on Form 10-K. Compliance with the material incident disclosure requirements in Item 1.05 of Form 8-K began on December 18, 2023 and the annual disclosures are to be provided beginning with annual reports for fiscal years ending on or after December 15, 2023. Management adopted the SEC cybersecurity rules on December 18, 2023 and has included the new annual disclosures in this Annual Report on Form 10-K. Issued But Not Yet Effective Accounting Standards ASU 2023-06 - Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative: In October 2023, FASB issued ASU 2023-06 - Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative. ASU 2023-06 amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. ASU 2023-06 was issued in response to the SEC's August 2018 final rule that updated and simplified disclosure requirements. In the final rule, the SEC identified 27 disclosure requirements that were incremental to those in the ASC and referred them to the FASB for potential incorporation into US GAAP. To avoid duplication, the SEC intended to eliminate those disclosure requirements from existing SEC regulations if the FASB incorporated them into the relevant ASC subtopics. The disclosure requirements are currently included in either SEC Regulation S-X or SEC Regulation S-K. ASU 2023-06 adds 14 of the 27 identified disclosure or presentation requirements to the ASC. For entities, like Park, that are subject to the SEC's existing disclosure requirements, the effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments are to be applied prospectively and if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or S-K, the pending content of the related amendment will be removed from the ASC and will not become effective for any entity. Management intends to adopt the provisions of ASU 2023-06 on their respective effective dates. The adoption of the provisions of ASU 2023-06 is not expected to have a material impact on Park's consolidated financial statements. ASU 2023-07 - Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures In November 2023, FASB issued ASU 2023-07 -Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . ASU 2023-07 will require public entities to disclose information about their reportable segments' significant expenses on an interim and annual basis. Public entities will be required to disclose other segment items for each reportable segment and provide a description of its composition. Significant expense categories are derived from expenses that are regularly reported to an entity's chief operating decision-makers and included in a segments' reported measures of profit or loss. ASU 2023-07 will also require for an entity to disclose the title and position of the chief operating decision-maker and explain how the chief operating decision-maker uses the reported measures of profit or loss to assess segment performance. ASU -97- 2023-07 also requires interim disclosures of certain segment-related disclosures that previously were required only on an annual basis and clarifies that entities with a single reportable segment are subject to both new and existing segment reporting requirements under Topic 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. ASU 2023-07 requires entities to adopt the changes to the segment reporting guidance on a retrospective basis and early adoption is permitted. The adoption of the provisions of ASU 2023-07 is not expected to have an impact on Park's consolidated financial statements. ASU 2023-09- Income Taxes (Topic 740) Improvement to Income Tax Disclosures In December 2023, FASB issued ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 will require entities to disclose more detailed information in the reconciliation of their statutory tax rate to their effective tax rate. ASU 2023-09 also requires entities to disclose more detailed information about income taxes paid, including by jurisdiction. ASU 2023-09 is effective for public business entities for annual reporting periods beginning after December 15, 2024 and interim periods beginning after December 15, 2025. The adoption of the provisions of ASU 2023-09 is not expected to have an impact on Park's consolidated financial statements, but will impact disclosures. 3. Organization Park National Corporation is a financial holding company headquartered in Newark, Ohio. Through PNB, Park is engaged in a general commercial banking and trust business, primarily in Ohio, Kentucky, North Carolina, and South Carolina, with the exception of nationwide aircraft loans and nationwide asset-based lending to consumer finance companies. PNB is headquartered in Newark, Ohio. A wholly-owned subsidiary of Park, GFSC is a consumer finance company located in Central Ohio. PNB provides the following principal services: the acceptance of deposits for demand, savings and time accounts; commercial, industrial, consumer and real estate lending, including installment loans, credit cards (which are largely offered through a third party), home equity lines of credit and commercial leasing; trust and wealth management services; cash management; safe deposit operations; electronic funds transfers; and a variety of additional banking-related services. 4. Investment Securities "Debt securities" and "Other investment securities" are summarized below. Debt Securities The following tables summarize the amortized cost and fair value of debt securities at December 31, 2023 and December 31, 2022 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss. (In thousands) Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value 2023: Debt Securities Available-for-Sale Obligations of states and political subdivisions $ 251,531 $ 1,173 $ 11,520 $ 241,184 U.S. Government sponsored entities’ asset-backed securities 703,645 23 68,193 635,475 Collateralized loan obligations 443,112 31 4,857 438,286 Corporate debt securities 20,482 — 2,585 17,897 Total $ 1,418,770 $ 1,227 $ 87,155 $ 1,332,842 -98- (In thousands) Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value 2022: Debt Securities Available-for-Sale Obligations of U.S. Government sponsored entities $ 39,000 $ — $ 1,787 $ 37,213 Obligations of states and political subdivisions 423,285 1,620 18,194 406,711 U.S. Government sponsored entities’ asset-backed securities 839,399 — 82,638 756,761 Collateralized loan obligations 535,518 — 18,979 516,539 Corporate debt securities 17,650 — 1,178 16,472 Total $ 1,854,852 $ 1,620 $ 122,776 $ 1,733,696 All debt securities were classified as AFS at December 31, 2023 and December 31, 2022. The following tables provide detail on debt securities AFS in an unrealized loss position for which an allowance for credit losses had not been recorded at December 31, 2023 and December 31, 2022, aggregated by major security type and length of time in a continuous unrealized loss position: Less than 12 Months 12 Months or Longer Total (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses 2023: Debt Securities Available-for-Sale Obligations of states and political subdivisions $ 46,685 $ 420 $ 103,993 $ 11,100 $ 150,678 $ 11,520 U.S. Government sponsored entities’ asset-backed securities — — 634,261 68,193 634,261 68,193 Collateralized loan obligations — — 404,019 4,857 404,019 4,857 Corporate debt securities 9,530 702 8,367 1,883 17,897 2,585 Total $ 56,215 $ 1,122 $ 1,150,640 $ 86,033 $ 1,206,855 $ 87,155 Less than 12 Months 12 Months or Longer Total (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses 2022: Debt Securities Available-for-Sale Obligations of U.S. Government sponsored entities $ 37,213 $ 1,787 $ — $ — $ 37,213 $ 1,787 Obligations of states and political subdivisions 270,905 18,194 — — 270,905 18,194 U.S. Government sponsored entities’ asset-backed securities 446,423 27,507 310,338 55,131 756,761 82,638 Collateralized loan obligations 415,491 15,446 101,048 3,533 516,539 18,979 Corporate debt securities 7,388 862 1,684 316 9,072 1,178 Total $ 1,177,420 $ 63,796 $ 413,070 $ 58,980 $ 1,590,490 $ 122,776 -99- At December 31, 2023, Park’s debt security portfolio consisted of $ 1.3 billion of securities, $ 1.2 billion of which were in an unrealized loss position with unrealized losses of $ 87.2 million. Of the $ 1.2 billion of securities in an unrealized loss position, $ 1.2 billion were in an unrealized loss position for 12 months or longer. Of the $ 87.2 million in unrealized losses, an aggregate of $ 68.2 million 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. Quarterly, management reviews the credit profile of each non-agency debt security and assesses whether any impairment to the contractually obligated cash flow is likely to occur. Based on these reviews, management has concluded that the underlying creditworthiness for each security remains sufficient to maintain required payment obligations and, therefore, unrealized losses have not been recognized into net income. Management does not intend to sell, and it is not more likely than not that management would be required to sell, the securities prior to their anticipated recovery in respect of the unrealized losses. Management believes the value will recover as the securities approach maturity or market interest rates change. There was no allowance for credit losses recorded for debt securities AFS at December 31, 2023 and December 31, 2022. Additionally, for the years ended December 31, 2023, 2022, and 2021, there were no credit-related investment impairment losses recognized. The amortized cost and estimated fair value of investments in debt securities at December 31, 2023, are shown in the following table by contractual maturity, except for asset-backed securities and collateralized loan obligations, which are shown as a single total, due to the unpredictability of the timing in principal repayments. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. (In thousands) Amortized Cost Fair Value Tax Equivalent Yield (1) Debt Securities Available-for-Sale Obligations of states and political subdivisions Due one through five years $ 1,510 $ 1,511 3.15 % Due five through ten years 110,685 110,449 3.47 % Due greater than ten years 139,336 129,224 3.08 % Total $ 251,531 $ 241,184 3.25 % U.S. Government sponsored entities’ asset-backed securities $ 703,645 $ 635,475 1.89 % Collateralized loan obligations $ 443,112 $ 438,286 7.30 % Corporate debt securities Due one through five years $ 2,832 $ 2,801 10.39 % Due five through ten years $ 17,650 $ 15,096 3.89 % Total $ 20,482 $ 17,897 4.79 % (1) The tax equivalent yield for obligations of states and political subdivisions includes the effects of a taxable equivalent adjustment using a 21% federal corporate income tax rate. At December 31, 2023, investment securities with a fair value of $ 416.0 million were pledged for government and public fund deposits, $ 180.8 million were pledged to secure repurchase agreements and $ 5.2 million were pledged as collateral for FHLB advance borrowings. At December 31, 2022, investment securities with a fair value of $ 433.8 million were pledged for government and public fund deposits, $ 313.1 million were pledged to secure repurchase agreements and $ 6.8 million were pledged as collateral for FHLB advance borrowings. At December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10 % of shareholders’ equity. During 2023, Park sold certain AFS debt securities with a book value of $ 291.0 million at a gross loss of $ 7.9 million. There were no sales of AFS debt securities during 2022 and 2021. -100- Other Investment Securities Other investment securities (as shown on the Consolidated Balance Sheets) consist of restricted stock investments in the FHLB and the FRB, and equity securities. The FHLB and FRB restricted stock investments are carried at their redemption value. 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 net asset value practical expedient in accordance with ASC 820. The carrying amount of other investment securities at December 31, 2023 and 2022 was as follows: (In thousands) December 31, 2023 December 31, 2022 FHLB stock $ 17,754 $ 11,197 FRB stock 14,653 14,653 Equity investments carried at fair value 2,089 1,859 Equity investments carried at modified cost (1) 15,921 14,725 Equity investments carried at net asset value 45,885 44,657 Total other investment securities $ 96,302 $ 87,091 (1) There have been no impairments or downward adjustments made to equity investments carried at modified cost. There were no adjustments recorded during the year ended December 31, 2023 as a result of observable price changes. An upward adjustment of $ 871,000 was recorded during the year ended December 31, 2022 as a result of observable price changes. During the year ended December 31, 2023, Park purchased 182,289 shares of FHLB stock with a book value of $ 18.2 million. During the year ended December 31, 2023, the FHLB repurchased 116,722 shares of FHLB stock with a book value of $ 11.7 million. During the year ended December 31, 2022, the FHLB repurchased 22,160 shares of FHLB stock with a book value of $ 2.2 million. During the year ended December 31, 2021, the FHLB repurchased 86,770 shares of FHLB stock with a book value of $ 8.7 million. No shares of FHLB stock were purchased in the years ended December 31, 2022 or 2021. No shares of FRB stock were purchased or sold in any of the years ended December 31, 2023, 2022, or 2021. For the years ended December 31, 2023, 2022 and 2021, $ 600,000 , $ 601,000 and $ 552,000 , respectively, of gains on equity investments carried at fair value were recorded within "Gain on equity securities, net" on the Consolidated Statements of Income. For the years ended December 31, 2023, 2022 and 2021, $ 371,000 , $ 2.4 million and $ 4.5 million, respectively, of gains on equity investments carried at NAV were recorded within "Gain on equity securities, net" on the Consolidated Statements of Income. -101- 5. Loans The composition of the loan portfolio at December 31, 2023 and December 31, 2022 was as follows: December 31, 2023 December 31, 2022 (In thousands) Amortized Cost Amortized Cost Commercial, financial and agricultural: (1) Commercial, financial and agricultural (1) $ 1,292,025 $ 1,295,238 PPP loans 2,116 4,206 Overdrafts 1,499 1,489 Commercial real estate (1) 1,875,993 1,794,054 Construction real estate: Commercial 209,226 208,982 Retail 95,873 116,433 Residential real estate: Commercial 609,410 550,183 Mortgage 1,239,861 1,075,446 HELOC 174,349 167,151 Installment 5,904 4,091 Consumer: Consumer 1,943,869 1,902,831 Check loans 2,067 2,150 Leases 24,029 19,637 Total $ 7,476,221 $ 7,141,891 Allowance for credit losses ( 83,745 ) ( 85,379 ) Net loans $ 7,392,476 $ 7,056,512 (1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that were not broken out by class. In order to support customers, Park participated in the CARES Act Paycheck Protection Program ("PPP"). For its assistance in making and retaining these loans, Park received an aggregate of $ 33.1 million in fees from the SBA. During the years ended December 31, 2023, December 31, 2022, and December 31, 2021, $ 41,000 , $ 3.0 million, and $ 16.3 million, respectively, of PPP fee income was recognized within loan interest income. Loans are shown net of deferred origination fees, costs and unearned income of $ 19.1 million at December 31, 2023, and of $ 18.2 million at December 31, 2022, which represented a net deferred income position in both years. At December 31, 2023 and December 31, 2022, loans included purchase accounting adjustments of $ 1.8 million and $ 2.5 million, respectively, which represented a net deferred income position at each date. This fair market value purchase accounting adjustment is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans. Overdrawn deposit accounts of $ 1.5 million were reclassified to loans at both December 31, 2023 and December 31, 2022. -102- Credit Quality Among other things, the adoption of ASU 2022-02 on January 1, 2023 eliminated the concept of TDRs. After the adoption of ASU 2022-02 on January 1, 2023, nonperforming loans consisted of nonaccrual loans and loans past due 90 days or more and still accruing. Prior to the adoption of ASU 2022-02, nonperforming loans consisted of nonaccrual loans, accruing TDRs and loans past due 90 days or more and still accruing. The following table presents the amortized cost of nonaccrual loans and loans past due 90 days or more and still accruing, by class of loan, at December 31, 2023: December 31, 2023 (In thousands) Nonaccrual Loans Loans Past Due 90 Days or More and Accruing Total Nonperforming Loans Commercial, financial and agricultural: Commercial, financial and agricultural $ 21,284 $ 14 $ 21,298 PPP loans — — $ — Overdrafts — — $ — Commercial real estate 20,740 — $ 20,740 Construction real estate: Commercial 504 — $ 504 Retail — 26 $ 26 Residential real estate: Commercial 2,670 — $ 2,670 Mortgage 11,786 206 $ 11,992 HELOC 815 — $ 815 Installment 16 — $ 16 Consumer: Consumer 2,371 613 $ 2,984 Check loans — — $ — Leases 73 — $ 73 Total loans $ 60,259 $ 859 $ 61,118 -103- The following table presents the amortized cost of nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing, by class of loan, at December 31, 2022: December 31, 2022 (In thousands) Nonaccrual Loans Accruing TDRs Loans Past Due 90 Days or More and Accruing Total Nonperforming Loans Commercial, financial and agricultural Commercial, financial and agricultural $ 38,158 $ 3,261 $ — $ 41,419 PPP loans — — 389 389 Overdrafts — — — — Commercial real estate 24,504 7,919 — 32,423 Construction real estate: Commercial 1,712 — — 1,712 Retail 1,254 12 — 1,266 Residential real estate: Commercial 1,894 298 — 2,192 Mortgage 9,260 6,750 182 16,192 HELOC 1,133 187 7 1,327 Installment 51 1,037 — 1,088 Consumer Consumer 1,022 670 703 2,395 Check loans — — — — Leases 708 — — 708 Total loans $ 79,696 $ 20,134 $ 1,281 $ 101,111 -104- The following tables provide additional detail on nonaccrual loans and the related ACL, by class of loan, at December 31, 2023 and December 31, 2022: December 31, 2023 (In thousands) Nonaccrual Loans With No ACL Nonaccrual Loans With an ACL Related ACL Commercial, financial and agricultural: Commercial, financial and agricultural $ 8,634 $ 12,650 $ 4,985 PPP loans — — — Overdrafts — — — Commercial real estate 20,175 565 2 Construction real estate: Commercial 504 — — Retail — — — Residential real estate: Commercial 2,670 — — Mortgage — 11,786 117 HELOC — 815 25 Installment — 16 — Consumer Consumer — 2,371 672 Check loans — — — Leases 73 — — Total loans $ 32,056 $ 28,203 $ 5,801 -105- December 31, 2022 (In thousands) Nonaccrual Loans With No ACL Nonaccrual Loans With an ACL Related ACL Commercial, financial and agricultural: Commercial, financial and agricultural $ 28,291 $ 9,867 $ 3,440 PPP loans — — — Overdrafts — — — Commercial real estate 22,965 1,539 130 Construction real estate: Commercial 1,712 — — Retail — 1,254 19 Residential real estate: Commercial 1,894 — — Mortgage — 9,260 85 HELOC — 1,133 191 Installment — 51 17 Consumer Consumer — 1,022 284 Check loans — — — Leases 680 28 9 Total loans $ 55,542 $ 24,154 $ 4,175 Nonaccrual commercial loans are evaluated on an individual basis and are excluded from the collective evaluation. Management’s general practice is to proactively charge down loans individually evaluated to the fair value of the underlying collateral. Nonaccrual consumer loans are collectively evaluated based on similar risk characteristics. The following tables provide the amortized cost basis of collateral-dependent loans by class of loan, as of December 31, 2023 and December 31, 2022: December 31, 2023 (In thousands) Real Estate Business Assets Other Total Commercial, financial and agricultural Commercial, financial and agricultural $ 8,137 $ 9,377 $ 3,737 $ 21,251 Commercial real estate 22,096 514 — 22,610 Construction real estate: Commercial 1,130 — — 1,130 Residential real estate: Commercial 2,910 — — 2,910 Mortgage 76 — — 76 Leases — 73 — 73 Total loans $ 34,349 $ 9,964 $ 3,737 $ 48,050 -106- December 31, 2022 (In thousands) Real Estate Business Assets Other Total Commercial, financial and agricultural Commercial, financial and agricultural $ 8,242 $ 7,788 $ 23,125 $ 39,155 Commercial real estate 35,908 28 — 35,936 Construction real estate: Commercial 2,372 — — 2,372 Residential real estate: Commercial 2,479 — — 2,479 Mortgage 90 — — 90 HELOC — — — — Leases — 708 — 708 Total loans $ 49,091 $ 8,524 $ 23,125 $ 80,740 Interest income on nonaccrual loans individually evaluated for impairment is recognized on a cash basis only when Park expects to receive the entire recorded investment in the loans. The following table presents interest income recognized on nonaccrual loans for the years ended December 31, 2023, 2022 and 2021: Interest Income Recognized (In thousands) December 31, 2023 December 31, 2022 December 31, 2021 Commercial, financial and agricultural: Commercial, financial and agricultural $ 1,843 $ 438 $ 180 PPP loans — — — Overdrafts — — — Commercial real estate 781 956 1,844 Construction real estate: Commercial 65 32 39 Retail — 13 4 Residential real estate: Commercial 136 88 204 Mortgage 227 157 301 HELOC 20 16 17 Installment 3 3 2 Consumer: Consumer 97 59 106 Check loans Leases — 33 73 Total loans $ 3,172 $ 1,795 $ 2,770 -107- The following tables present the aging of the amortized cost in past due loans at December 31, 2023 and December 31, 2022 by class of loan: December 31, 2023 (In thousands) Accruing Loans Past Due 30-89 Days Past Due Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing (1) Total Past Due Total Current (2) Total Amortized Cost Commercial, financial and agricultural: Commercial, financial and agricultural $ 522 $ 11,629 $ 12,151 $ 1,279,874 $ 1,292,025 PPP loans 9 — 9 2,107 2,116 Overdrafts — — — 1,499 1,499 Commercial real estate 1,656 1,839 3,495 1,872,498 1,875,993 Construction real estate: Commercial — 205 205 209,021 209,226 Retail 554 26 580 95,293 95,873 Residential real estate: Commercial 295 219 514 608,896 609,410 Mortgage 9,831 6,450 16,281 1,223,580 1,239,861 HELOC 788 611 1,399 172,950 174,349 Installment 52 — 52 5,852 5,904 Consumer: Consumer 8,974 1,183 10,157 1,933,712 1,943,869 Check loans 5 — 5 2,062 2,067 Leases — — — 24,029 24,029 Total loans $ 22,686 $ 22,162 $ 44,848 $ 7,431,373 $ 7,476,221 (1) Includes an aggregate of $ 859,000 of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans. (2) Includes an aggregate of $ 39.0 million of nonaccrual loans which were current in regards to contractual principal and interest payments. -108- December 31, 2022 (in thousands) Accruing Loans Past Due 30-89 Days Past Due Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing (1) Total Past Due Total Current (2) Total Amortized Cost Commercial, financial and agricultural Commercial, financial and agricultural $ 378 $ 9,246 $ 9,624 $ 1,285,614 $ 1,295,238 PPP loans 155 389 544 3,662 4,206 Overdrafts — — — 1,489 1,489 Commercial real estate 737 4,738 5,475 1,788,579 1,794,054 Construction real estate: Commercial 751 — 751 208,231 208,982 Retail 1,035 523 1,558 114,875 116,433 Residential real estate: Commercial 519 477 996 549,187 550,183 Mortgage 7,630 5,157 12,787 1,062,659 1,075,446 HELOC 832 587 1,419 165,732 167,151 Installment 57 4 61 4,030 4,091 Consumer Consumer 5,499 964 6,463 1,896,368 1,902,831 Check loans 2 — 2 2,148 2,150 Leases — — — 19,637 19,637 Total loans $ 17,595 $ 22,085 $ 39,680 $ 7,102,211 $ 7,141,891 (1) Includes an aggregate of $ 1.3 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans. (2) Includes an aggregate of $ 58.9 million of nonaccrual loans which were current in regards to contractual principal and interest payments. Credit Quality Indicators Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information at December 31, 2023 and December 31, 2022 is included in the previous tables. The past due information is the primary credit quality indicator within the following classes of loans: (1) overdrafts in the commercial, financial and agricultural portfolio segment; (2) retail loans in the construction real estate portfolio segment; (3) mortgage loans, HELOC and installment loans in the residential real estate portfolio segment; and (4) consumer loans 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 an 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher PD is applied to these loans. Loans classified as special mention have potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of Park’s credit position at some future date. Commercial loans graded a 6 (substandard), also considered watch list credits, are considered to represent higher credit risk and, as a result, a higher 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 an individual 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 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. -109- Based on the most recent analysis performed, the risk category of loans by class of loans as of December 31, 2023 and December 31, 2022 are detailed in the tables below. Also included in the table detailing balances at December 31, 2023 are gross charge offs for the year ended December 31, 2023. December 31, 2023 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Commercial, financial and agricultural: Commercial, financial and agricultural (1) Risk rating Pass $ 204,601 $ 149,386 $ 118,992 $ 93,495 $ 38,205 $ 45,814 $ 600,301 $ 1,250,794 Special Mention 530 1,549 435 128 252 2 16,260 19,156 Substandard 149 894 1,041 1,133 143 582 7,427 11,369 Doubtful — — 39 1,771 96 7,848 952 10,706 Total $ 205,280 $ 151,829 $ 120,507 $ 96,527 $ 38,696 $ 54,246 $ 624,940 $ 1,292,025 Current period gross charge-offs $ — $ 13 $ 73 $ — $ 5 $ 52 $ 19 $ 162 Commercial, financial and agricultural: PPP Risk rating Pass $ — $ — $ 925 $ 1,191 $ — $ — $ — $ 2,116 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ — $ — $ 925 $ 1,191 $ — $ — $ — $ 2,116 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate (1) Risk rating Pass $ 278,922 $ 322,096 $ 334,452 $ 318,473 $ 204,740 $ 347,389 $ 17,174 $ 1,823,246 Special Mention 2,092 2,951 4,637 7,629 — 13,043 98 30,450 Substandard 1,828 1,589 2,509 2,668 3,406 7,495 1,584 21,079 Doubtful 889 — — — — 329 — 1,218 Total $ 283,731 $ 326,636 $ 341,598 $ 328,770 $ 208,146 $ 368,256 $ 18,856 $ 1,875,993 Current period gross charge-offs $ 224 $ — $ — $ — $ — $ 530 $ — $ 754 Construction real estate: Commercial Risk rating Pass $ 89,283 $ 77,988 $ 7,480 $ 18,195 $ 1,090 $ 2,718 $ 11,342 $ 208,096 Special Mention — — — — — — — — Substandard 831 236 63 — — — — 1,130 Doubtful — — — — — — — — Total $ 90,114 $ 78,224 $ 7,543 $ 18,195 $ 1,090 $ 2,718 $ 11,342 $ 209,226 Current period gross charge-offs $ 546 $ — $ — $ — $ — $ — $ — $ 546 -110- December 31, 2023 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Residential Real Estate: Commercial Risk rating Pass $ 128,589 $ 104,008 $ 105,225 $ 117,442 $ 49,797 $ 71,489 $ 23,535 $ 600,085 Special Mention — 333 623 1,964 914 1,578 — 5,412 Substandard 195 560 159 1,192 16 1,601 190 3,913 Doubtful — — — — — — — — Total $ 128,784 $ 104,901 $ 106,007 $ 120,598 $ 50,727 $ 74,668 $ 23,725 $ 609,410 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Leases Risk rating Pass $ 11,440 $ 4,404 $ 2,197 $ 1,941 $ 356 $ 623 $ — $ 20,961 Special Mention 731 1,564 391 297 10 2 — 2,995 Substandard — — — — 67 6 — 73 Doubtful — — — — — — — — Total $ 12,171 $ 5,968 $ 2,588 $ 2,238 $ 433 $ 631 $ — $ 24,029 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Total Commercial Loans Risk rating Pass $ 712,835 $ 657,882 $ 569,271 $ 550,737 $ 294,188 $ 468,033 $ 652,352 $ 3,905,298 Special Mention 3,353 6,397 6,086 10,018 1,176 14,625 16,358 58,013 Substandard 3,003 3,279 3,772 4,993 3,632 9,684 9,201 37,564 Doubtful 889 — 39 1,771 96 8,177 952 11,924 Total $ 720,080 $ 667,558 $ 579,168 $ 567,519 $ 299,092 $ 500,519 $ 678,863 $ 4,012,799 Current period gross charge-offs $ 770 $ 13 $ 73 $ — $ 5 $ 582 $ 19 $ 1,462 (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, 2022 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total Commercial, financial and agricultural: Commercial, financial and agricultural (1) Risk rating Pass $ 197,497 $ 198,999 $ 142,487 $ 60,845 $ 32,887 $ 47,135 $ 546,237 $ 1,226,087 Special Mention 700 313 918 315 4 35 25,536 27,821 Substandard 1,101 18 2,737 226 1,836 8,424 26,464 40,806 Doubtful — — 3 77 80 172 192 524 Total $ 199,298 $ 199,330 $ 146,145 $ 61,463 $ 34,807 $ 55,766 $ 598,429 $ 1,295,238 Commercial, financial and agricultural: PPP Risk rating Pass $ — $ 1,875 $ 2,331 $ — $ — $ — $ — $ 4,206 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ — $ 1,875 $ 2,331 $ — $ — $ — $ — $ 4,206 -111- December 31, 2022 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total Commercial real estate (1) Risk rating Pass $ 323,235 $ 374,763 $ 372,653 $ 220,072 $ 107,467 $ 305,539 $ 14,052 $ 1,717,781 Special Mention 199 3,256 3,388 5,863 16,059 22,220 150 51,135 Substandard 7,856 1,427 3,007 3,561 856 5,471 428 22,606 Doubtful — — — — 1,941 591 — 2,532 Total $ 331,290 $ 379,446 $ 379,048 $ 229,496 $ 126,323 $ 333,821 $ 14,630 $ 1,794,054 Construction real estate: Commercial Risk rating Pass $ 107,976 $ 40,534 $ 21,556 $ 2,686 $ 1,428 $ 3,015 $ 29,183 $ 206,378 Special Mention — — 232 — — — — 232 Substandard 652 800 260 — 660 — — 2,372 Doubtful — — — — — — — — Total $ 108,628 $ 41,334 $ 22,048 $ 2,686 $ 2,088 $ 3,015 $ 29,183 $ 208,982 Residential Real Estate: Commercial Risk rating Pass $ 107,086 $ 120,303 $ 147,802 $ 56,980 $ 33,140 $ 63,499 $ 15,191 $ 544,001 Special Mention — 92 1,477 440 — 1,625 — 3,634 Substandard 610 449 264 29 304 553 339 2,548 Doubtful — — — — — — — — Total $ 107,696 $ 120,844 $ 149,543 $ 57,449 $ 33,444 $ 65,677 $ 15,530 $ 550,183 Leases Risk rating Pass $ 7,629 $ 3,310 $ 3,347 $ 1,167 $ 981 $ 605 $ — $ 17,039 Special Mention 1,085 614 130 60 — — — 1,889 Substandard — — 464 111 12 26 — 613 Doubtful — — — 96 — — — 96 Total $ 8,714 $ 3,924 $ 3,941 $ 1,434 $ 993 $ 631 $ — $ 19,637 Total Commercial Loans Risk rating Pass $ 743,423 $ 739,784 $ 690,176 $ 341,750 $ 175,903 $ 419,793 $ 604,663 $ 3,715,492 Special Mention 1,984 4,275 6,145 6,678 16,063 23,880 25,686 84,711 Substandard 10,219 2,694 6,732 3,927 3,668 14,474 27,231 68,945 Doubtful — — 3 173 2,021 763 192 3,152 Total $ 755,626 $ 746,753 $ 703,056 $ 352,528 $ 197,655 $ 458,910 $ 657,772 $ 3,872,300 (1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class. Park considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential and consumer loan classes, Park also evaluates credit quality based on the aging status of the loan, which was previously presented, and by performing status. The following tables present the amortized cost in residential and consumer loans based on performing status. Also included in the table detailing loan balances at December 31, 2023 are gross charge offs for the year ended December 31, 2023. After the adoption of ASU 2022-02 on January 1, 2023, nonperforming loans consisted of nonaccrual loans and loans past due 90 days or more and still accruing. Prior to the adoption of ASU 2022-02, nonperforming loans consisted of nonaccrual loans, accruing TDRs and loans past due 90 days or more and still accruing. -112- December 31, 2023 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Commercial, financial and agricultural: Overdrafts Performing $ 1,499 $ — $ — $ — $ — $ — $ — $ 1,499 Nonperforming — — — — — — — — Total $ 1,499 $ — $ — $ — $ — $ — $ — $ 1,499 Current period gross charge-offs $ 1,064 $ — $ — $ — $ — $ — $ — $ 1,064 Construction Real Estate: Retail Performing $ 52,904 $ 24,219 $ 7,709 $ 4,251 $ 3,604 $ 2,891 $ 269 $ 95,847 Nonperforming — — — 26 — — — 26 Total $ 52,904 $ 24,219 $ 7,709 $ 4,277 $ 3,604 $ 2,891 $ 269 $ 95,873 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Residential Real Estate: Mortgage Performing $ 209,315 $ 259,076 $ 218,417 $ 177,518 $ 80,627 $ 282,916 $ — $ 1,227,869 Nonperforming 197 1,144 1,172 406 581 8,492 — 11,992 Total $ 209,512 $ 260,220 $ 219,589 $ 177,924 $ 81,208 $ 291,408 $ — $ 1,239,861 Current period gross charge-offs $ — $ — $ — $ — $ — $ 35 $ — $ 35 Residential Real Estate: HELOC Performing $ 99 $ 205 $ 379 $ 98 $ 221 $ 1,838 $ 170,694 $ 173,534 Nonperforming — — — — 32 603 180 815 Total $ 99 $ 205 $ 379 $ 98 $ 253 $ 2,441 $ 170,874 $ 174,349 Current period gross charge-offs $ — $ — $ — $ — $ — $ 9 $ — $ 9 Residential Real Estate: Installment Performing $ 2,225 $ 162 $ — $ 3 $ 144 $ 3,354 $ — $ 5,888 Nonperforming — — — — — 16 — 16 Total $ 2,225 $ 162 $ — $ 3 $ 144 $ 3,370 $ — $ 5,904 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Consumer: Consumer Performing $ 627,985 $ 613,019 $ 319,161 $ 214,714 $ 81,446 $ 65,955 $ 18,605 $ 1,940,885 Nonperforming 395 891 654 435 216 389 4 2,984 Total $ 628,380 $ 613,910 $ 319,815 $ 215,149 $ 81,662 $ 66,344 $ 18,609 $ 1,943,869 Current period gross charge-offs $ 560 $ 3,517 $ 2,371 $ 763 $ 545 $ 480 $ 6 $ 8,242 Consumer: Check loans Performing $ — $ — $ — $ — $ — $ — $ 2,067 $ 2,067 Nonperforming — — — — — — — — Total $ — $ — $ — $ — $ — $ — $ 2,067 $ 2,067 Current period gross charge-offs — — — — — — 51 51 Total Consumer Loans Performing $ 894,027 $ 896,681 $ 545,666 $ 396,584 $ 166,042 $ 356,954 $ 191,635 $ 3,447,589 Nonperforming 592 2,035 1,826 867 829 9,500 184 15,833 Total $ 894,619 $ 898,716 $ 547,492 $ 397,451 $ 166,871 $ 366,454 $ 191,819 $ 3,463,422 Current period gross charge-offs $ 1,624 $ 3,517 $ 2,371 $ 763 $ 545 $ 524 $ 57 $ 9,401 -113- December 31, 2022 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total Commercial, financial and agricultural: Overdrafts Performing $ 1,489 $ — $ — $ — $ — $ — $ — $ 1,489 Nonperforming — — — — — — — — Total $ 1,489 $ — $ — $ — $ — $ — $ — $ 1,489 Construction Real Estate: Retail Performing $ 71,923 $ 26,134 $ 8,218 $ 4,619 $ 1,618 $ 2,580 $ 75 $ 115,167 Nonperforming 731 — 523 — — 12 — 1,266 Total $ 72,654 $ 26,134 $ 8,741 $ 4,619 $ 1,618 $ 2,592 $ 75 $ 116,433 Residential Real Estate: Mortgage Performing $ 207,093 $ 227,131 $ 192,904 $ 90,014 $ 55,648 $ 286,464 $ — $ 1,059,254 Nonperforming — — 700 650 518 14,324 — 16,192 Total $ 207,093 $ 227,131 $ 193,604 $ 90,664 $ 56,166 $ 300,788 $ — $ 1,075,446 Residential Real Estate: HELOC Performing $ 140 $ 299 $ 23 $ 130 $ 141 $ 1,957 $ 163,134 $ 165,824 Nonperforming — — 43 100 — 999 185 1,327 Total $ 140 $ 299 $ 66 $ 230 $ 141 $ 2,956 $ 163,319 $ 167,151 Residential Real Estate: Installment Performing $ 187 $ — $ 1 $ 241 $ 62 $ 2,512 $ — $ 3,003 Nonperforming — — 7 2 16 1,063 — 1,088 Total $ 187 $ — $ 8 $ 243 $ 78 $ 3,575 $ — $ 4,091 Consumer: Consumer Performing $ 823,484 $ 462,014 $ 333,391 $ 150,348 $ 61,219 $ 65,614 $ 4,366 $ 1,900,436 Nonperforming 440 489 424 365 157 520 — 2,395 Total $ 823,924 $ 462,503 $ 333,815 $ 150,713 $ 61,376 $ 66,134 $ 4,366 $ 1,902,831 Consumer: Check loans Performing $ — $ — $ — $ — $ — $ — $ 2,150 $ 2,150 Nonperforming — — — — — — — — Total $ — $ — $ — $ — $ — $ — $ 2,150 $ 2,150 Total Consumer Loans Performing $ 1,104,316 $ 715,578 $ 534,537 $ 245,352 $ 118,688 $ 359,127 $ 169,725 $ 3,247,323 Nonperforming 1,171 489 1,697 1,117 691 16,918 185 22,268 Total $ 1,105,487 $ 716,067 $ 536,234 $ 246,469 $ 119,379 $ 376,045 $ 169,910 $ 3,269,591 Loans and Leases Acquired with Deteriorated Credit Quality PCD loans are individually evaluated on a quarterly basis to determine if a reserve is necessary. At each of December 31, 2023 and December 31, 2022, there was no allowance for credit losses on PCD loans. The carrying amount of accruing loans acquired with deteriorated credit quality at December 31, 2023 and December 31, 2022 was $ 2.8 million and $ 4.7 million, respectively. The carrying amount of nonaccrual loans acquired with deteriorated credit quality was $ 534,000 at December 31, 2023. There were no nonaccrual loans acquired with deteriorated quality at December 31, 2022. -114- Modifications to Borrowers Experiencing Financial Difficulty Management identifies loans as modifications to borrowers experiencing financial difficulty when a borrower is experiencing financial difficulties and Park has altered the cash flow of the loan as part of a modification or in the loan renewal process. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of the borrower's debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy. Park modifies loans to borrowers experiencing financial difficulty by providing principal forgiveness, a term extension, an other-than-insignificant payment delay or an interest rate reduction. In some cases, Park provides multiple types of modifications on one loan. Typically, one type of modification, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another modification, such as principal forgiveness, may be granted. For the loans included in the combination columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. As a result, the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses and a change to the allowance for credit losses is generally not recorded upon modification. When principal forgiveness is provided, the amount of forgiveness is charged off against the allowance for credit losses. -115- The following table presents the amortized cost basis of loans at December 31, 2023 that were both experiencing financial difficulty and modified during the year ended December 31, 2023 by class of and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below. Year ended December 31, 2023 (Dollars in thousands) Principal Forgiveness Payment Delay Term Extension Interest Rate Reduction Combination Term Extension and Interest Rate Reduction Other Total Percent of Total Class of Financing Receivable Commercial, financial and agricultural: Commercial, financial and agricultural $ — $ — $ 11,866 $ 371 $ 363 $ 9 $ 12,609 0.98 % PPP loans — — — — — — — — % Overdrafts — — — — — — — — % Commercial real estate — — 2,458 — — — 2,458 0.13 % Construction real estate: Commercial — — 831 — — — 831 0.40 % Retail — — — — — — — — % Residential real estate: Commercial — — 10 — 144 — 154 0.03 % Mortgage — — — — 428 — 428 0.03 % HELOC — — — — — — — — % Installment — — 448 — 299 — 747 12.65 % Consumer: Consumer — — — 32 — — 32 — % Check loans — — — — — — — — % Leases — — — — — — — — % Total $ — $ — $ 15,613 $ 403 $ 1,234 $ 9 $ 17,259 0.23 % -116- Park has committed to lend additional amounts totaling $ 4.7 million to the borrowers included in the previous table as of December 31, 2023. The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended December 31, 2023: Year ended December 31, 2023 (Dollars in thousands) Weighted Average Interest Rate Reduction Weighted Average Term Extension (years) Commercial, financial and agricultural: Commercial, financial and agricultural ( 1.64 ) % 0.8 PPP loans — % 0.0 Overdrafts — % 0.0 Commercial real estate — % 4.1 Construction real estate: Commercial — % 1.6 Retail — % 0.0 Residential real estate: Commercial ( 2.75 ) % 1.4 Mortgage ( 2.34 ) % 0.5 HELOC — % 0.0 Installment ( 1.00 ) % 12.1 Consumer: Consumer ( 2.52 ) % 0.0 Check loans — % 0.0 Leases — % 0.0 Total ( 1.82 ) % 1.8 -117- Park closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of Park's modification efforts. The following table presents the performance of such loans that have been modified in the last 12 months: Year ended December 31, 2023 (In thousands) 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Commercial, financial and agricultural: Commercial, financial and agricultural $ — $ — $ — $ — PPP loans — — — — Overdrafts — — — — Commercial real estate 219 — — 219 Construction real estate: — Commercial — 205 — 205 Retail — — — — Residential real estate: — Commercial — — — — Mortgage — — — — HELOC — — — — Installment 20 — — 20 Consumer: — Consumer — — — — Check loans — — — — Leases — — — — Total loans $ 239 $ 205 $ — $ 444 -118- The following table presents the amortized cost basis of loans that had a payment default during the year ended December 31, 2023 and were modified in the year prior to that default to borrowers experiencing financial difficulty. For this table, a loan is considered to be in default when it becomes 30 days contractually past due under the modified terms: Year ended December 31, 2023 (In thousands) Term Extension Interest Rate Reduction Combination Term Extension and Interest Rate Reduction Other Commercial, financial and agricultural: Commercial, financial and agricultural $ — $ — $ — $ 9 PPP loans — — — — Overdrafts — — — — Commercial real estate 219 — — — Construction real estate: Commercial 205 — — — Retail — — — — Residential real estate: Commercial — — 144 — Mortgage — — 133 — HELOC — — — — Installment 20 — — — Consumer: Consumer — — — — Check loans — — — — Leases — — — — Total loans $ 444 $ — $ 277 $ 9 Upon the determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged-off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amounts. Related Party Loans Certain of the Corporation’s executive officers, directors and related entities of directors are loan customers of PNB. As of December 31, 2023 and 2022, credit exposure aggregating approximately $ 34.7 million and $ 37.3 million, respectively, was outstanding to such parties. Of this total exposure, approximately $ 28.0 million and $ 28.4 million was outstanding at December 31, 2023 and 2022, respectively, with the remaining balance representing available credit. During 2023, new loans and advances on existing loans were made to these executive officers, directors and related entities of directors totaling $ 0.4 million and $ 3.8 million, respectively. These extensions of credit were offset by aggregate principal payments of $ 4.6 million. During 2022, new loans and advances on existing loans were $ 6.1 million and $ 1.2 million, respectively. These extensions of credit were offset by aggregate principal payments of $ 6.0 million. 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 as discussed within Note 1-Summary of Significant Accounting Policies. -119- During the first quarter of 2023, Park adopted ASU 2022-02. This standard was adopted using a modified retrospective transition method on January 1, 2023, resulting in a $ 383,000 increase to the ACL. A cumulative effect adjustment resulting in a $ 303,000 decrease to retained earnings and an $ 80,000 increase to deferred tax assets was also recorded as a result of the adoption of ASU 2022-02. Quantitative Considerations The ACL is primarily calculated utilizing a DCF model. Key inputs and assumptions used in this model are discussed below: • Forecast model - For each portfolio segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized Park's own FFIEC Call Report data for the commercial, financial and agricultural and residential real estate portfolio segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer portfolio segments. Park updated the LDA in the fourth quarter of 2023. Per review of the correlation of data and subsequent results, management refined the peer group in the LDA and maintained the exclusion of periods impacted by COVID-19. Management reviewed and considered the impact of the inclusion of periods impacted by COVID-19 as part of the LDA update, but the correlation of the inclusion of COVID-19 periods was lower. • Probability of default – PD is the probability that an asset will be in default within a given time frame. Park has defined default to be when a charge-off has occurred, a loan is placed on nonaccrual, or a loan is greater than 90 days past due. Whenever possible, Park utilizes its own loan-level PDs for the reasonable and supportable forecast period. When loan-level data is not available reflecting the forecasted economic conditions, the LDA is utilized to estimate PDs. In all cases, the LDA is then utilized to determine the long-term historical average, which is reached over the reversion period. • 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. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the reversion period and long-term historical average. • 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 2023. • 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. ◦ A s of December 31, 2022, the "most likely" scenario forecasted Ohio unemployment between 4.14% and 4.36% during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2022, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued high levels of inflation, historically low consumer confidence, rising interest rates, geopolitical conflict (including the conflict between Russia and Ukraine), and workforce and supply chain challenges continued to cause uncertainty to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 20 22. ◦ As of December 31, 2023, the "most likely" scenario forecasted Ohio unemployment between 4.05% and 4.66% during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2023, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued elevated levels of inflation, volatile levels of consumer confidence, continued elevated interest rates, financial system stress and geopolitical conflict (including the conflicts between Russia and Ukraine and between Israel and Hamas) and stress in the commercial real estate sector, continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2023. Changes in forecasts, updates to the LDA model and prepayment and curtailment assumptions, as well as changes in the loan mix, resulted in an 11 basis point decrease in the weighted quantitative allowance from December 31, 2022. -120- 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, charge-offs, and recoveries. • The quality of Park’s credit review function. • The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff. • The effect of other external factors such as the regulatory, legal and technological environments; competition; geopolitical conflict; and events such as natural disasters or pandemics. • Actual and expected changes in international, national, regional, and local economic and business conditions and developments in the markets in which Park operates that affect the collectability of financial assets. • Where the U.S. economy is within a given credit cycle. • The extent that there is government assistance (stimulus). Qualitative adjustments amounted to $ 417,000 and $ 384,000 at December 31, 2023 and December 31, 2022, respectively. Other Considerations At December 31, 2023 and 2022, Park had $ 2.1 million and $ 4.2 million, respectively, of PPP loans which were included in the commercial, financial and agricultural portfolio segment. These loans are guaranteed by the SBA and thus have not been reserved for using the same methodology as the rest of Park’s loan portfolio. A 10 basis point reserve was calculated for these loans to reflect minimal credit risk at December 31, 2023 and December 31, 2022. -121- ACL Activity The activity in the allowance for credit losses for the years ended December 31, 2023, 2022, and 2021 is summarized in the following tables. Year ended December 31, 2023 (In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total Allowance for credit losses: Beginning balance $ 16,987 $ 17,829 $ 5,550 $ 16,831 $ 28,021 $ 161 $ 85,379 Impact of adopting ASU 2022-02 222 181 — ( 20 ) — — 383 Charge-offs 1,226 754 546 44 8,293 — 10,863 Recoveries ( 292 ) ( 240 ) ( 548 ) ( 482 ) ( 4,379 ) ( 1 ) ( 5,942 ) Net charge-offs (recoveries) 934 514 ( 2 ) ( 438 ) 3,914 ( 1 ) 4,921 (Recovery of) provision for credit losses ( 779 ) ( 1,122 ) ( 325 ) 1,569 3,606 ( 45 ) 2,904 Ending balance $ 15,496 $ 16,374 $ 5,227 $ 18,818 $ 27,713 $ 117 $ 83,745 Year ended December 31, 2022 (In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total Allowance for credit losses: Beginning balance $ 14,025 $ 25,466 $ 5,758 $ 11,424 $ 26,286 $ 238 $ 83,197 Charge-offs 2,056 1,578 33 81 5,343 42 9,133 Recoveries ( 826 ) ( 627 ) ( 1,343 ) ( 164 ) ( 3,767 ) ( 31 ) ( 6,758 ) Net charge-offs (recoveries) 1,230 951 ( 1,310 ) ( 83 ) 1,576 11 2,375 Provision for (recovery of) credit losses 4,192 ( 6,686 ) ( 1,518 ) 5,324 3,311 ( 66 ) 4,557 Ending balance 16,987 17,829 5,550 16,831 28,021 161 85,379 Year ended December 31, 2021 (In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total Allowance for credit losses: Beginning balance $ 25,608 $ 23,480 $ 7,288 $ 11,363 $ 17,418 $ 518 $ 85,675 Impact of adopting ASC 326 ( 8,257 ) 2,119 ( 1,898 ) 3,121 10,925 80 6,090 Charge-offs 957 35 — 49 4,052 — 5,093 Recoveries ( 639 ) ( 802 ) ( 2,299 ) ( 941 ) ( 3,759 ) ( 1 ) ( 8,441 ) Net charge-offs (recoveries) 318 ( 767 ) ( 2,299 ) ( 892 ) 293 ( 1 ) ( 3,348 ) Recovery of credit losses ( 3,008 ) ( 900 ) ( 1,931 ) ( 3,952 ) ( 1,764 ) ( 361 ) ( 11,916 ) Ending balance $ 14,025 $ 25,466 $ 5,758 $ 11,424 $ 26,286 $ 238 $ 83,197 ACL Summary Loans collectively evaluated for impairment in the following tables include all performing loans at December 31, 2023 and December 31, 2022, as well as nonperforming loans internally classified as consumer loans. Nonperforming consumer loans are not typically individually evaluated for impairment, but receive a portion of the statistical allocation of the ACL. Loans individually evaluated for impairment include all internally classified commercial nonaccrual loans at December 31, 2023 and all loans internally classified as commercial nonaccrual loans and TDRs at December 31, 2022, which are evaluated for impairment in accordance with U.S. GAAP (See Note 1-Significant Accounting Policies). -122- The composition of the ACL at December 31, 2023 and December 31, 2022 was as follows: December 31, 2023 (In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total ACL: Ending allowance balance attributed to loans: Individually evaluated for impairment $ 4,980 $ 3 $ — $ — $ — $ — $ 4,983 Collectively evaluated for impairment 10,516 16,371 5,227 18,818 27,713 117 78,762 Accruing acquired with deteriorated credit quality — — — — — — — Total ending allowance balance $ 15,496 $ 16,374 $ 5,227 $ 18,818 $ 27,713 $ 117 $ 83,745 Loan balance: Loans individually evaluated for impairment $ 21,228 $ 20,740 $ 504 $ 2,670 $ — $ 73 $ 45,215 Loans collectively evaluated for impairment 1,274,390 1,853,383 303,969 2,026,537 1,945,936 23,956 7,428,171 Accruing loans acquired with deteriorated credit quality 22 1,870 626 317 — — 2,835 Total ending loan balance $ 1,295,640 $ 1,875,993 $ 305,099 $ 2,029,524 $ 1,945,936 $ 24,029 $ 7,476,221 ACL as a percentage of loan balance: Loans individually evaluated for impairment 23.46 % 0.01 % — % — % — % — % 11.02 % Loans collectively evaluated for impairment 0.83 % 0.88 % 1.72 % 0.93 % 1.42 % 0.49 % 1.06 % Accruing loans acquired with deteriorated credit quality — % — % — % — % — % — % — % Total 1.20 % 0.87 % 1.71 % 0.93 % 1.42 % 0.49 % 1.12 % -123- December 31, 2022 (In thousands) Commercial, financial and agricultural Commercial real estate Construction real estate Residential real estate Consumer Leases Total ACL: Ending allowance balance attributed to loans: Individually evaluated for impairment $ 3,426 $ 131 $ — $ — $ — $ 9 $ 3,566 Collectively evaluated for impairment 13,561 17,698 5,550 16,831 28,021 152 81,813 Accruing acquired with deteriorated credit quality — — — — — — — Total ending allowance balance $ 16,987 $ 17,829 $ 5,550 $ 16,831 $ 28,021 $ 161 $ 85,379 Loan balance: Loans individually evaluated for impairment $ 41,307 $ 32,423 $ 1,712 $ 2,191 $ — $ 708 $ 78,341 Loans collectively evaluated for impairment 1,259,524 1,758,118 323,043 1,794,302 1,904,981 18,929 7,058,897 Accruing loans acquired with deteriorated credit quality 102 3,513 660 378 — — 4,653 Total ending loan balance $ 1,300,933 $ 1,794,054 $ 325,415 $ 1,796,871 $ 1,904,981 $ 19,637 $ 7,141,891 ACL as a percentage of loan balance: Loans individually evaluated for impairment 8.29 % 0.40 % — % — % — % 1.27 % 4.55 % Loans collectively evaluated for impairment 1.08 % 1.01 % 1.72 % 0.94 % 1.47 % 0.80 % 1.16 % Accruing loans acquired with deteriorated credit quality — % — % — % — % — % — % — % Total 1.31 % 0.99 % 1.71 % 0.94 % 1.47 % 0.82 % 1.20 % 7 . Loans Held for Sale Mortgage loans held for sale are carried at their fair value. Mortgage loans held for sale were $ 3.2 million and $ 2.1 million at December 31, 2023 and 2022, respectively. These amounts are included in "Loans" on the Consolidated Balance Sheets and in the residential real estate loan segments in Note 5 - Loans and Note 6 - Allowance for Credit Losses. The contractual balance was $ 3.2 million and $ 2.1 million at December 31, 2023 and 2022, respectively. The gain expected upon sale was $ 53,000 and $ 41,000 at December 31, 2023 and 2022, respectively. None of these loans were 90 days or more past due or on nonaccrual status at December 31, 2023 or 2022. During 2022, Park transferred certain commercial loans held for investment, previously nonperforming, with an amortized cost of $ 6.3 million, to the loans held for sale portfolio. The transferred loans were recorded at the lower of cost or fair value, recording a charge-off in each instance where the fair value of an individual loan was deemed to be below the carrying cost at the time the loans were moved to the held for sale portfolio. The sale of $ 3.9 million in loans held for sale was subsequently completed and Park recognized a gain on sale of $ 495,000 which is recorded within "Miscellaneous income" on the Consolidated Statements of Income. The remaining $ 2.4 million in loans held for sale were transferred back to loans held for investment at the lower of cost or fair value. No non-performing loans were held for sale or sold during 2023 or 2021. -124- 8. Goodwill and Other Intangible Assets The following table shows the activity in goodwill and other intangible assets for the years ended December 31, 2023, 2022 and 2021. (In thousands) Goodwill Other Intangible Assets Total January 1, 2021 $ 159,595 $ 9,260 $ 168,855 Amortization — 1,798 1,798 December 31, 2021 $ 159,595 $ 7,462 $ 167,057 Amortization — 1,487 1,487 December 31, 2022 $ 159,595 $ 5,975 $ 165,570 Amortization — 1,323 1,323 December 31, 2023 $ 159,595 $ 4,652 $ 164,247 Goodwill Goodwill impairment exists when a reporting unit's carrying value exceeds its fair value. Park evaluates goodwill for impairment on April 1 of each year, with financial data as of March 31. At April 1, 2023, the Company's reporting unit, PNB, had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment. Acquired Intangible Assets The following table shows the balance of acquired intangible assets as of December 31, 2023 and 2022. 2023 2022 (In thousands) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Other intangible assets: Core deposit intangibles $ 14,456 $ 9,804 $ 14,456 $ 8,481 Core deposit intangibles are being amortized, on an accelerated basis, over a period of ten years. Amortization expense for the core deposit intangibles was $ 1.3 million, $ 1.5 million and $ 1.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. The following is a schedule of estimated core deposit intangibles amortization expense for each of the next five years: (In thousands) Total 2024 $ 1,215 2025 1,042 2026 887 2027 754 2028 618 -125- 9. Premises and Equipment The major categories of premises and equipment and accumulated depreciation are summarized as follows: December 31 (In thousands) 2023 2022 Land $ 22,176 $ 22,139 Buildings 98,472 97,510 Equipment, furniture and fixtures 79,662 77,446 Leasehold improvements 5,684 3,575 Software 29,518 28,665 Total $ 235,512 $ 229,335 Less accumulated depreciation ( 161,301 ) ( 147,209 ) Premises and equipment, net $ 74,211 $ 82,126 Depreciation expense amounted to $ 14.0 million, $ 13.8 million and $ 13.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. Park records operating lease assets where Park acts as the lessor within "Other assets" on the Consolidated Balance Sheets. Equipment subject to lease agreements at December 31, 2023 and 2022 is summarized below: December 31 (In thousands) 2023 2022 Equipment $ 4,691 $ 4,427 Less accumulated depreciation ( 2,385 ) ( 3,162 ) Leased assets, net $ 2,306 $ 1,265 Depreciation expense on operating lease assets of $ 693,000 , $ 1.1 million, and $ 1.5 million was recorded for the years ended December 31, 2023, 2022 and 2021, respectively. 10. Investments 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. As permitted by ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects , Park has elected the proportional amortization method of accounting. Under the proportional amortization method, amortization expense and tax benefits are recognized through the provision for income taxes. The table below details the balances of Park’s affordable housing tax credit investments and related unfunded commitments as of December 31, 2023 and 2022. (In thousands) December 31, 2023 December 31, 2022 Affordable housing tax credit investments $ 62,703 $ 60,968 Unfunded commitments 28,768 28,132 Commitments are funded when capital calls are made by the general partner of a limited partnership. Park expects that the commitments as of December 31, 2023 will be funded between 2024 and 2033. During the years ended December 31, 2023, 2022 and 2021, Park recognized amortization expense of $ 8.3 million, $ 7.7 million and $ 7.3 million, respectively, which was included within the provision for income taxes. For the years ended December 31, 2023, 2022 and 2021, Park recognized tax credits and other benefits from its affordable housing tax credit investments of $ 9.8 million, $ 9.3 million and $ 8.8 million, respectively. -126- 11. 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 amount of foreclosed real estate properties held at December 31, 2023 and December 31, 2022 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) December 31, 2023 December 31, 2022 OREO: Commercial real estate $ 983 $ 1,354 Residential real estate — — Total OREO $ 983 $ 1,354 Loans in process of foreclosure: Residential real estate $ 1,957 $ 1,614 Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value, less costs to sell, when acquired. During the year ended December 31, 2022, Park recognized a $ 12.0 million OREO valuation markup related to the foreclosure and subsequent sale of a property collateralizing a former Vision Bank relationship. This income is included in "OREO valuation markup" on the Consolidated Statements of Income. There was no OREO valuation markup related to former Vision Bank relationships during the year ended December 31, 2023. During the year ended December 31, 2022, Park recognized a $ 5.6 million gain on the sale of OREO related to former Vision Bank relationships. This income is included in "(Loss) gain on the sale of OREO, net" on the Consolidated Statements of Income. There was no gain or loss on the sale of OREO related to former Vision Bank relationships during the year ended December 31, 2023. In addition to real estate, Park may also repossess different types of collateral. As of December 31, 2023 and December 31, 2022, Park had $ 1.1 million and $ 0.6 million in other repossessed assets which are included in "Other assets" on the Consolidated Balance Sheets. 12. Loan Servicing Park serviced sold mortgage loans of $ 1,934 million at December 31, 2023, compared to $ 2,051 million at December 31, 2022 and $ 2,132 million at December 31, 2021. At December 31, 2023, $ 2.9 million of the sold mortgage loans were sold with recourse compared to $ 3.2 million at December 31, 2022 and $ 3.3 million at December 31, 2021. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. As of December 31, 2023 and 2022, management had established reserves of $ 54,000 and $ 59,000 , respectively, to account for future loan repurchases. Custodial escrow balances maintained in connection with serviced sold mortgage loans were $ 19.2 million and $ 17.9 million at December 31, 2023 and 2022, respectively. When Park sells mortgage loans with servicing rights retained, servicing rights are initially recorded at fair value. Park 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 of 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 Statements of Income. -127- Activity for MSRs and the related valuation allowance follows: December 31 (In thousands) 2023 2022 2021 MSRs: Carrying amount, net, beginning of year $ 15,792 $ 15,264 $ 12,210 Additions 535 1,455 4,945 Amortization ( 1,759 ) ( 2,313 ) ( 3,512 ) Change in valuation allowance 88 1,386 1,621 Carrying amount, net, end of year $ 14,656 $ 15,792 $ 15,264 Valuation allowance: Beginning of year $ 182 $ 1,568 $ 3,189 Change in valuation allowance ( 88 ) ( 1,386 ) ( 1,621 ) End of year $ 94 $ 182 $ 1,568 The fair value of MSRs was $ 16.7 million and $ 17.4 million at December 31, 2023 and 2022, respectively. The fair value of MSRs at December 31, 2023 was established using a discount rate of 12 % and constant prepayment speeds ranging from 6.12 % to 27.50 %. The fair value of MSRs at December 31, 2022 was established using a discount rate of 12 % and constant prepayment speeds ranging from 6.96 % to 19.14 %. Servicing fees included in "Other service income" were $ 5.2 million, $ 5.4 million and $ 5.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. 13. 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 year to five years. Park’s leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. Payments due under the lease arrangements include fixed payments plus, for many of Park’s real estate leases, variable payments such as Park's proportionate share of property taxes, insurance and common area maintenance. Park's operating lease ROU asset and lease liability are presented in “Operating lease right-of-use asset" and "Operating lease liability," respectively, on Park's Consolidated Balance Sheets. The carrying amounts of Park's ROU asset and lease liability at December 31, 2023 were $ 15.7 million and $ 16.6 million, respectively. At December 31, 2022, the carrying amounts of Park's ROU assets and lease liability were $ 17.6 million and $ 19.3 million, respectively. Park's operating lease expense is recorded in "Occupancy expense" on the Company's Consolidated Statements of Income. Other information related to operating leases for the years ended December 31, 2023, 2022 and 2021 follows: (In thousands) Year ended December 31, 2023 Year ended December 31, 2022 Year ended December 31, 2021 Lease cost Operating lease cost $ 2,874 $ 3,073 $ 2,827 Sublease income ( 273 ) ( 252 ) ( 253 ) Total lease cost $ 2,601 $ 2,821 $ 2,574 Other information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 3,630 $ 3,116 $ 3,199 ROU assets obtained in exchange for new operating lease liabilities $ 545 $ 7,867 $ 1,190 Reductions to ROU assets resulting from reductions to lease obligations $ ( 3,062 ) $ ( 2,812 ) $ ( 2,865 ) -128- Park's operating leases had a weighted average remaining term of 10.1 years and 10.0 years at December 31, 2023 and 2022, respectively. The weighted average discount rate of Park's operating leases was 3.5 % and 3.3 % at December 31, 2023 and 2022, respectively. Undiscounted cash flows included in lease liabilities at December 31, 2023 have expected contractual payments as follows: (In thousands) December 31, 2023 2024 $ 2,495 2025 2,169 2026 2,107 2027 2,014 2028 2,027 Thereafter 9,435 Total undiscounted minimum lease payments $ 20,247 Less: imputed interest ( 3,642 ) Total lease liabilities $ 16,605 14. Deposits At December 31, 2023 and 2022, non-interest bearing and interest bearing deposits were as follows: December 31 (In thousands) 2023 2022 Non-interest bearing $ 2,628,234 $ 3,074,276 Interest bearing 5,414,332 5,160,439 Total $ 8,042,566 $ 8,234,715 The table below details the maturities of time deposits at December 31, 2023. Time deposits below include $ 165.0 million of brokered deposits. (In thousands) 2024 $ 659,791 2025 91,375 2026 24,776 2027 20,828 2028 9,828 After 5 years 2 Total $ 806,600 At December 31, 2023 and 2022, respectively, Park had approximately $ 13.7 million and $ 17.5 million of deposits received from Park's executive officers, Park directors and related entities of Park directors. Time deposits that met or exceeded the FDIC insurance limit of $250,000 at December 31, 2023 and 2022 were $ 132.8 million and $ 44.3 million, respectively. 15. 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 Balance Sheets. All repurchase agreements are subject to the terms and conditions of repurchase/security agreements between Park and the customer 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. -129- At December 31, 2023 and December 31, 2022, Park's repurchase agreement borrowings totaled $ 108.2 million and $ 227.3 million, respectively. These borrowings were collateralized with U.S. government sponsored entities' asset-backed securities with a fair value of $ 180.8 million and $ 313.1 million at December 31, 2023 and December 31, 2022, respectively. Declines in the value of the collateral would require Park to pledge additional securities. As of December 31, 2023 and December 31, 2022, Park had $ 847 million and $ 1,147 million, respectively, of available unpledged securities. The following table presents the carrying value of Park's repurchase agreement borrowings by remaining contractual maturity and collateral pledged at December 31, 2023 and December 31, 2022: December 31, 2023 (In thousands) Remaining Contractual Maturity of the Agreements Overnight and Continuous Up to 30 days 30 - 90 days Greater than 90 days Total U.S. government sponsored entities' asset-backed securities $ 108,182 $ — $ — $ — $ 108,182 December 31, 2022 (In thousands) Remaining Contractual Maturity of the Agreements Overnight and Continuous Up to 30 days 30 - 90 days Greater than 90 days Total U.S. government sponsored entities' asset-backed securities $ 227,342 $ — $ — $ — $ 227,342 See Note 16 - Short-Term Borrowings for additional information related to repurchase agreements. 16. Short-Term Borrowings Short-term borrowings were as follows: December 31 (In thousands) 2023 2022 Securities sold under agreements to repurchase $ 108,182 $ 227,342 FHLB advances 220,000 — Total short-term borrowings $ 328,182 $ 227,342 -130- The outstanding balances for all short-term borrowings as of December 31, 2023 and 2022 and the weighted-average interest rates as of and paid during each of the years then ended were as follows: (In thousands) Repurchase agreements FHLB Advances 2023 Ending balance $ 108,182 $ 220,000 Highest month-end balance 218,126 247,000 Average daily balance 146,388 36,634 Weighted-average interest rate: As of year-end 1.88 % 5.44 % Paid during the year 1.76 % 5.83 % 2022 Ending balance $ 227,342 $ — Highest month-end balance 227,342 25,000 Average daily balance 199,813 7,195 Weighted-average interest rate: As of year-end 1.39 % N.A. Paid during the year (1) 0.57 % 0.04 % (1) Interest rate swaps with notional amounts of zero at December 31, 2022 (the swap was paid off during 2022) were designated as cash flow hedges of certain FHLB advances. Including interest expense related to the swaps, the weighted average interest rate paid during the year ended December 31, 2022 on FHLB advances was 3.62 %. During 2022 and 2023, outstanding FHLB advances were collateralized by investment securities owned by PNB and by various loans pledged under a blanket agreement by PNB. At December 31, 2023 and December 31, 2022, $ 5.2 million and $ 6.8 million, respectively, of investment securities were pledged as collateral for FHLB advances. At December 31, 2023 and December 31, 2022, $ 1,959 million and $ 1,832 million, respectively, of commercial real estate and residential mortgage loans were pledged under a blanket agreement to the FHLB by PNB. See Note 15 - Repurchase Agreement Borrowings for information related to investment securities collateralizing repurchase agreements. 17. Long-Term Debt Park did not have long-term borrowings at either December 31, 2023 or December 31, 2022. On June 20, 2019, Park issued a $ 50 million term note to U.S. Bank National Association. This term note had a maturity date of June 21, 2022 and accrued interest at a floating rate of one-month LIBOR plus 1.65%. On August 2, 2021, Park prepaid the outstanding balance of $ 27.5 million of the term note to U.S. Bank National Association. 18. Subordinated Notes As part of the acquisition of Vision's parent bank holding company ("Vision Parent") on March 9, 2007, Park became the successor to Vision Parent under (i) the Amended and Restated Trust Agreement of Vision Bancshares Trust I (the “Trust”), dated as of December 5, 2005, (ii) the Junior Subordinated Indenture, dated as of December 5, 2005, and (iii) the Guarantee Agreement, also dated as of December 5, 2005. On December 1, 2005, Vision Parent formed a wholly-owned Delaware statutory business trust, Vision Bancshares Trust I (“Trust I”), which issued $ 15.0 million of Trust I's floating rate preferred securities (the “Trust Preferred Securities”) to institutional investors. These Trust Preferred Securities qualify as Tier I capital under FRB guidelines. All of the common securities of Trust I are owned by Park. The proceeds from the issuance of the common securities and the Trust Preferred Securities were used by Trust I to purchase $ 15.5 million of junior subordinated notes, which, following the cessation of LIBOR on June 30, 2023, carry a floating rate based on three-month CME Term SOFR plus 174 basis points. The junior subordinated notes represent the sole asset of Trust I. The Trust Preferred Securities accrue and pay distributions at a floating rate of three-month CME Term SOFR plus 174 basis points per annum. The Trust Preferred Securities are mandatorily redeemable upon maturity of the junior subordinated notes in December 2035, or upon earlier redemption as provided in the junior subordinated notes. Since December 30, 2010, Park has had the right to redeem the junior subordinated notes purchased by Trust I in whole or in part. As specified in the indenture, if the junior subordinated notes are redeemed prior to maturity, the redemption price will be the principal amount, plus any unpaid accrued interest. In accordance with U.S. GAAP, Trust I is not consolidated with Park’s financial statements, but rather the subordinated notes are reflected as a liability. -131- On August 20, 2020, Park completed the issuance and sale of $ 175 million aggregate principal amount of its 4.50 % Fixed-to-Floating Rate Subordinated Notes due 2030 (the "Subordinated Notes"). The Subordinated Notes initially bear a fixed interest rate of 4.50 % per year, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on March 1, 2021. Commencing on September 1, 2025, the Subordinated Notes will bear interest at a floating rate per annum equal to the Benchmark rate, which is expected to be Three-Month Term SOFR, plus a spread of 439 basis points for each quarterly interest period during the floating rate period, payable quarterly in arrears; provided, however, that if the Benchmark rate is less than zero, then the Benchmark rate will be deemed to be zero. The Company may, at its option, beginning with the interest payment date of September 1, 2025 and on any interest payment date thereafter, redeem the Subordinated Notes, in whole or in part, from time to time, subject to obtaining the prior approval of the holders of the Company’s senior indebtedness and of the Federal Reserve Board to the extent the approval of the Federal Reserve Board is then required under the capital adequacy rules of the Federal Reserve Board, at a redemption price equal to 100% of the principal amount of the Subordinated Notes being redeemed, plus accrued and unpaid interest thereon to but excluding the date of redemption. The issuance costs of the Subordinated Notes totaled $ 2.4 million, which amount is being amortized through the Subordinated Note call date. At December 31, 2023 and 2022, the Subordinated Notes, net of unamortized issuance costs, totaled $ 174.1 million and $ 173.7 million, and qualify as Tier 2 capital for Park under the Federal Reserve Board capital adequacy rules. 19. Derivatives Park uses certain derivative financial instruments (or "derivatives") to meet the needs of its customers 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 (or "interest rate swaps") as part of its asset-liability management strategy to help manage its interest rate risk position and as a means to meet the financing, interest rate and other risk management needs of qualifying commercial banking customers. The notional amount of the interest rate swaps does not represent the amount exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. Borrowing Derivatives : At each of December 31, 2023 and 2022 , Park had no borrowing derivatives. 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 $ 18.2 million and $ 21.7 million at December 31, 2023 and December 31, 2022, respectively. All of the Company's interest rate swaps were determined to be fully effective during the years ended December 31, 2023 and 2022 . As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in "Other assets" and "Other liabilities" with changes in fair value recorded in "Other comprehensive income (loss)". The amount included in "Accumulated other comprehensive loss, net of tax" would be reclassified to net income should the hedges no longer be considered effective. During the year ended December 31, 2022, Park recognized expense of $ 66,000 , or $ 52,000 , net of taxes, as the result of the early termination of a borrowing interest rate swap. No expense related to early termination was recognized during the years ended December 31, 2023 and 2021 . Park expects the outstanding hedges to remain fully effective during the remaining respective terms of the swaps. -132- Summary information about Park's interest rate swaps as of December 31, 2023 and December 31, 2022 was as follows: December 31, 2023 December 31, 2022 (In thousands, except weighted average data) Loan Derivatives Loan Derivatives Notional amounts $ 18,199 $ 21,700 Weighted average pay rates 4.517 % 4.553 % Weighted average receive rates 4.517 % 4.553 % Weighted average maturity (years) 6.5 7.9 Unrealized losses $ — $ — Interest expense recorded on swap transactions was $ 171,000 and $ 614,000 for the years ended December 31, 2022 and 2021, respectively. No interest expense was recorded on swap transactions for the year ended December 31, 2023. Additionally, Park recognized gains of $ 154,000 and $ 492,000 , net of income taxes, related to borrowing swaps that was recorded in "Other comprehensive income (loss)" on the Consolidated Statements of Comprehensive Income (Loss) during the years ended December 31, 2022 and 2021, respectively. No gain or loss related to borrowing swaps was recorded during the year ended December 31, 2023. Interest Rate Swaps The following table reflects the interest rate swaps included in the Consolidated Balance Sheets as of December 31, 2023 and 2022: (In thousands) December 31, 2023 December 31, 2022 Notional Amount Fair Value Notional Amount Fair Value Included in "Other assets": Loan derivatives - instruments associated with loans Matched interest rate swaps with borrower $ — $ — $ — $ — Matched interest rate swaps with counterparty 18,199 1,069 21,700 1,508 Total included in "Other assets" $ 18,199 $ 1,069 $ 21,700 $ 1,508 Included in "Other liabilities": Loan derivatives - instruments associated with loans Matched interest rate swaps with borrower $ 18,199 $ ( 1,069 ) $ 21,700 $ ( 1,508 ) Matched interest rate swaps with counterparty — — — — Total included in "Other liabilities" $ 18,199 $ ( 1,069 ) $ 21,700 $ ( 1,508 ) Mortgage Banking Derivatives Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. In order to hedge the change in interest rates resulting from its commitments to fund the loans, the Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into. These mortgage banking derivatives are not designated as hedge relationships. The fair value of an interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Fair values of these mortgage banking derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in "Other service income" in the Consolidated Statements of Income. At December 31, 2023 and December 31, 2022 , Park had $ 4.0 million and $ 2.1 million, respectively, of interest rate lock commitments. The fair value of these mortgage banking derivatives was reflected by a derivative asset of $ 87,000 and $ 46,000 at December 31, 2023 and December 31, 2022 , respectively. -133- 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 December 31, 2023 and 2022, the fair value of the swap liability of $ 123,000 and $ 243,000 , respectively, represented an estimate of the exposure based upon probability-weighted potential Visa litigation losses. 20. 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 December 31, 2023, 300,000 common shares were available for future grants under the 2017 Employee LTIP. The Park National Corporation 2017 Long-Term Incentive Plan for Non-Employee Directors (the "2017 Non-Employee Directors LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. The 2017 Non-Employee Directors LTIP makes equity-based awards and cash-based awards available for grant to non-employee director participants in the form of nonqualified stock options, SARs, Restricted Stock, Restricted Stock Units, Other Stock-Based Awards, and cash-based awards. Under the 2017 Non-Employee Directors LTIP, 150,000 common shares are authorized to be delivered in connection with grants under the 2017 Non-Employee Directors LTIP. The common shares to be delivered under the 2017 Non-Employee Directors LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At December 31, 2023, 60,000 common shares were available for future grants under the 2017 Non-Employee Directors LTIP. During 2023, 2022 and 2021, Park granted 13,054 , 9,789 and 13,400 common shares, respectively, to directors of Park and to directors of PNB (and its divisions) under the 2017 Non-Employee Directors LTIP. The common shares granted to directors were not subject to a vesting period and resulted in expense of $ 1.2 million, $ 1.3 million, and $ 1.7 million in 2023, 2022, and 2021, respectively, which is included in "Professional fees and services" on the Consolidated Statements of Income. During 2023, 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 54,698 , 52,335 and 61,890 common shares, respectively, to certain employees of Park and its subsidiaries. As of December 31, 2023, Park reported 186,936 nonvested PBRSUs. The number of PBRSUs earned or settled will depend on the level of achievement with respect to certain performance criteria and will also be subject to subsequent service-based vesting. -134- A summary of changes in the common shares subject to nonvested PBRSUs for the years ended December 31, 2023 and 2022 follows: Common shares subject to PBRSUs Nonvested at January 1, 2022 211,819 Granted 52,335 Vested ( 55,464 ) Forfeited ( 8,406 ) Adjustment for performance conditions of PBRSUs (1) ( 634 ) Nonvested at January 1, 2023 199,650 Granted 54,698 Vested ( 62,815 ) Forfeited ( 4,597 ) Adjustment for performance conditions of PBRSUs (1) — Nonvested at December 31, 2023 (2) 186,936 (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. As of December 31, 2023, an aggregate of 184,199 PBRSUs are expected to vest. A summary of awards that vested during the twelve months ended December 31, 2023 and 2022 follows: Twelve Months Ended December 31, 2023 2022 PBRSU and TBRSU vested 62,815 55,464 Common shares withheld to satisfy employee income tax withholding obligations 23,973 21,219 Net common shares issued 38,842 34,245 Share-based compensation expense of $ 6.8 million, $ 5.9 million and $ 6.3 million was recognized for the years ended December 31, 2023, 2022 and 2021, respectively, related to PBRSU and TBRSU awards to employees. The following table details expected additional share-based compensation expense related to PBRSUs outstanding at December 31, 2023: (In thousands) 2024 $ 4,393 2025 2,885 2026 1,206 2027 194 Total $ 8,678 21. Benefit Plans The Corporation has a noncontributory Defined Benefit Pension Plan (the “Pension Plan”) covering substantially all of the employees of Park National Corporation and its subsidiaries. The Pension Plan provides benefits based on an employee’s years of service and compensation. There was no pension contribution in 2023 or 2022 and no contribution is expected to be made in 2024. -135- Using accrual measurement dates of December 31, 2023 and 2022, plan assets and benefit obligation activity for the Pension Plan are listed below: (In thousands) 2023 2022 Change in fair value of plan assets Fair value at beginning of measurement period $ 209,138 $ 263,473 Actual return on plan assets 34,764 ( 37,319 ) Benefits paid ( 11,008 ) ( 17,016 ) Fair value at end of measurement period $ 232,894 $ 209,138 Change in benefit obligation Projected benefit obligation at beginning of measurement period $ 127,394 $ 182,964 Service cost 6,236 9,749 Interest cost 6,523 5,705 Plan amendments — 558 Actuarial loss (gain) 10,072 ( 54,566 ) Benefits paid ( 11,008 ) ( 17,016 ) Projected benefit obligation at the end of measurement period $ 139,217 $ 127,394 Funded status at end of year (fair value of plan assets less benefit obligation) $ 93,677 $ 81,744 The increase in the projected benefit obligation ("PBO") from $ 127.4 million as of December 31, 2022 to $ 139.2 million as of December 31, 2023, was the result of demographic losses driven by salary increases greater than assumed and a decrease in the discount rate from 5.32 % to 5.14 %, partially offset by assumption updates for a change in the mortality table for lump sum distributions, reflecting updates for the 2023 assumption study, and a decrease in the interest credit rate. The asset allocation for the Pension Plan as of each measurement date, by asset category, was as follows: Percentage of Plan Assets Asset category Target Allocation 2023 2022 Equity securities 50% - 100% 85 % 84 % Fixed income and cash equivalents remaining balance 15 % 16 % Total 100 % 100 % The investment policy, as established by the Retirement Plan Committee, is to invest assets according to the target allocation stated above. Assets will be reallocated periodically based on the investment strategy of the Retirement Plan Committee. The investment policy is reviewed periodically. The expected long-term rate of return on plan assets used to measure the benefit obligation was 6.92 % at both December 31, 2023 and December 31, 2022. This return was based on the expected long-term return of each of the asset categories, weighted based on the median of the target allocation for each class. The accumulated benefit obligation for the Pension Plan was $ 113.4 million and $ 106.3 million at December 31, 2023 and 2022, respectively. On November 17, 2009, the Park Pension Plan completed the purchase of 115,800 common shares of Park for $ 7.0 million or $ 60.45 per share. At December 31, 2023 and 2022, the fair value of the 115,800 common shares held by the Pension Plan was $ 15.4 million, or $ 132.86 per share and $ 16.3 million, or $ 140.75 per share, respectively. -136- The weighted average assumptions used to determine benefit obligations at December 31, 2023, 2022 and 2021 were as follows: 2023 2022 2021 Discount rate 5.14 % 5.32 % 3.23 % Rate of compensation increase Under age 25 (under age 30 for 2022 and 2021) 7.50 % 8.25 % 8.25 % Ages 25-29 (ages 30-39 for 2022 and 2021) 7.00 % 6.00 % 6.00 % Ages 30-34 (ages 40-49 for 2022 and 2021) 6.75 % 5.00 % 5.00 % Ages 35-39 (ages 50-54 for 2022 and 2021) 6.00 % 4.25 % 4.25 % Ages 40-44 (ages 55-59 for 2022 and 2021) 5.25 % 3.75 % 3.75 % Ages 45-54 (ages 60-64 for 2022 and 2021) 4.75 % 3.50 % 3.50 % Ages 55-69 (ages 65 and over for 2022 and 2021) 3.75 % 3.25 % 3.25 % Ages 70 and over (for 2023) 3.00 % N/A N/A Interest crediting rate 3.89 % 4.07 % N/A The estimated future pension benefit payments reflecting expected future service for the next ten years are shown below (in thousands): 2024 $ 10,966 2025 11,164 2026 11,246 2027 11,245 2028 10,896 2029-2033 54,844 Total $ 110,361 The following table shows ending balances of accumulated other comprehensive income (loss) at December 31, 2023 and 2022. (In thousands) 2023 2022 Prior service cost $ ( 388 ) $ ( 436 ) Net actuarial gain (loss) 2,529 ( 8,020 ) Total 2,141 ( 8,456 ) Deferred tax (liability) asset ( 449 ) 1,776 Accumulated other comprehensive income (loss) $ 1,692 $ ( 6,680 ) -137- Using actuarial measurement dates of December 31 for 2023, 2022 and 2021, components of net periodic benefit income (loss) and other amounts recognized in other comprehensive income (loss) were as follows: (In thousands) 2023 2022 2021 Affected Line Item in the Consolidated Statements of Income Components of net periodic benefit income (loss) and other amounts recognized in other comprehensive income (loss) Service cost $ ( 6,236 ) $ ( 9,749 ) $ ( 9,916 ) Employee benefits Interest cost ( 6,523 ) ( 5,705 ) ( 5,359 ) Other components of net periodic benefit income Expected return on plan assets 14,143 17,798 15,731 Other components of net periodic benefit income Recognized net actuarial loss and prior service cost ( 48 ) 15 ( 2,220 ) Other components of net periodic benefit income Net periodic benefit income (loss) $ 1,336 $ 2,359 $ ( 1,764 ) Net actuarial gain (loss) and prior service credit (cost) $ 10,549 $ ( 1,109 ) $ 34,019 Amortization of net loss (gain) 48 ( 15 ) 2,220 Total recognized in other comprehensive income (loss) 10,597 ( 1,124 ) 36,239 Total recognized in net benefit income (loss) and other comprehensive income (loss) $ 11,933 $ 1,235 $ 34,475 The weighted average assumptions used to determine net periodic benefit income (loss) for the years ended December 31, 2023, 2022 and 2021 are listed below: 2023 2022 2021 Discount rate 5.32 % 3.23 % 3.00 % Rate of compensation increase Under age 30 8.25 % 8.25 % 8.25 % Ages 30-39 6.00 % 6.00 % 6.00 % Ages 40-49 5.00 % 5.00 % 5.00 % Ages 50-54 4.25 % 4.25 % 4.25 % Ages 55-59 3.75 % 3.75 % 3.75 % Ages 60-64 3.50 % 3.50 % 3.50 % Ages 65 and over 3.25 % 3.25 % 3.25 % Expected long-term return on plan assets 6.92 % 6.92 % 7.00 % U.S. GAAP defines fair value as the price that would be received by Park for an asset or paid by Park to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date, using the most advantageous market for the asset or liability. The fair values of equity securities, consisting of mutual fund investments and common stock held by the Pension Plan, are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). Additionally, due to their short-term nature, the fair value of interest bearing demand deposits is determined by reference to their face value (Level 1 inputs). Interest bearing time deposits, United States Government agency obligations and corporate bonds are valued by the trustee based on yields available on comparable securities of issuers with similar credit ratings as of the end of the year (Level 2 inputs). No investments were categorized as Level 3 inputs. -138- The fair value of the plan assets at December 31, 2023 and December 31, 2022, by asset class, is as follows. Fair Value Measurements Fair Value Measurements at December 31, 2023, Using at December 31, 2022, Using (In thousands) (Level 1) (Level 2) (Level 1) (Level 2) Interest-bearing account $ 1,395 $ 4,758 $ 1,959 $ 3,910 Mutual funds 49,740 — 46,093 — U.S. Government agency obligations — 12,466 — 12,513 Corporate bonds — 15,572 — 12,562 Common stocks 148,963 — 132,101 — Total $ 200,098 $ 32,796 $ 180,153 $ 28,985 Salary Deferral Plan The Corporation has a voluntary salary deferral plan (the Corporation's Employees Stock Ownership Plan) covering substantially all of the employees of the Corporation and its subsidiaries. Eligible employees may contribute a portion of their compensation subject to a maximum statutory limitation. The Corporation provides a matching contribution established annually by the Corporation. Contribution expense for the Corporation was $ 5.0 million, $ 4.6 million, and $ 4.3 million for 2023, 2022 and 2021, respectively. Supplemental Executive Retirement Plan The Corporation has entered into Supplemental Executive Retirement Plan Agreements (the "SERP Agreements") with certain key officers of Park National Corporation and its subsidiaries which provide defined pension benefits in excess of limits imposed by federal income tax law. The accrued benefit cost for the SERP Agreements totaled $ 15.2 million and $ 14.2 million for 2023 and 2022, respectively, and is recorded within "Other liabilities" on the Consolidated Balance Sheet. The expense for the Corporation was as follows: (In thousands) 2023 2022 2021 Affected Line Item in the Consolidated Statements of Income Service cost $ 1,224 $ 1,091 $ 1,345 Employee benefits Interest cost 567 564 510 Miscellaneous expense Total SERP expense $ 1,791 $ 1,655 $ 1,855 -139- 22. Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation’s deferred tax assets and liabilities are as follows: December 31 (In thousands) 2023 2022 Deferred tax assets: Allowance for credit losses $ 18,248 $ 18,615 Accumulated other comprehensive loss – Pension Plan — 1,776 Accumulated other comprehensive loss – Unrealized losses on debt securities AFS 18,045 25,443 Deferred compensation 6,177 6,255 OREO valuation adjustments 100 11 Net deferred loan fees 1,384 1,898 Deferred contract bonus 205 317 Nonvested equity-based compensation 3,019 2,827 Net operating loss ("NOL") carryforward 2,222 2,654 Capital loss carryforward — 299 Fixed assets 1,243 510 Operating lease liability 3,620 4,206 Other 1,759 1,950 Total deferred tax assets $ 56,022 $ 66,761 Deferred tax liabilities: Accumulated other comprehensive gain – Pension Plan $ 449 $ — Deferred investment income 2,455 4,890 Pension Plan 19,962 19,678 MSRs 3,196 3,445 Partnership adjustments 1,540 884 Purchase accounting adjustments 807 952 Operating lease right-of-use asset 3,426 3,837 Lessor adjustments 2,308 2,325 Other 614 565 Total deferred tax liabilities $ 34,757 $ 36,576 Net deferred tax asset $ 21,265 $ 30,185 As of December 31, 2023 and 2022, Park had a net deferred tax asset balance related to federal NOL carryforwards of approximately $ 2.0 million and $ 2.4 million, respectively, which expire at various dates from 2030-2039. Park also had a net deferred tax asset balance related to state NOL carryforwards of approximately $ 0.2 million and $ 0.3 million at December 31, 2023 and 2022, respectively, which expire at various dates from 2030-2039. Park performs an analysis to determine if a valuation allowance against deferred tax assets is required in accordance with U.S. GAAP. Management determined that it was not required to establish a valuation allowance against the December 31, 2023 or 2022 deferred tax assets in accordance with U.S. GAAP since it was more likely than not that the deferred tax asset will be fully utilized in future periods. -140- The components of the provision for federal income taxes are shown below: December 31, (In thousands) 2023 2022 2021 Currently payable Federal $ 18,118 $ 22,574 $ 28,726 State 1,190 1,180 1,382 Amortization of qualified affordable housing projects 8,265 7,743 7,313 Deferred Federal ( 708 ) 464 ( 3,006 ) State 5 147 ( 125 ) Total $ 26,870 $ 32,108 $ 34,290 The following is a reconciliation of income tax expense to the amount computed at the statutory federal corporate income tax rate of 21 % for the years ended December 31, 2023, 2022 and 2021. 2023 2022 2021 Statutory federal corporate income tax rate 21.0 % 21.0 % 21.0 % Changes in rates resulting from: Tax exempt interest income, net of disallowed interest ( 1.9 ) % ( 1.6 ) % ( 1.2 ) % Bank owned life insurance ( 0.7 ) % ( 0.7 ) % ( 0.5 ) % Investments in qualified affordable housing projects, net of tax benefits ( 1.0 ) % ( 0.8 ) % ( 0.8 ) % KSOP dividend deduction ( 0.6 ) % ( 0.5 ) % ( 0.5 ) % Other 0.7 % 0.4 % 0.2 % Effective Tax Rate 17.5 % 17.8 % 18.2 % Park National Corporation and its subsidiaries do not pay state income tax to the state of Ohio, but pay a franchise tax based on equity. The franchise tax expense is included in "State tax expense" on Park’s Consolidated Statements of Income. Park is also subject to state income tax in various states, including North Carolina and South Carolina. State income tax expense is included in “Income taxes” on Park’s Consolidated Statements of Income. Park’s state income tax expense was $ 1.2 million, $ 1.3 million and $ 1.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. Unrecognized Tax Benefits The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits. (In thousands) 2023 2022 2021 January 1 Balance $ 69 $ 339 $ 633 Additions based on tax positions related to the current year 47 — — Additions for tax positions of prior years 52 25 10 Reductions due to statute of limitations ( 23 ) ( 295 ) ( 304 ) December 31 Balance $ 145 $ 69 $ 339 The amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in the future periods at December 31, 2023, 2022 and 2021 was $ 0.1 million, $ 0.1 million and $ 0.3 million, respectively. Park does not expect the total amount of unrecognized tax benefits to significantly increase or decrease during 2024. The expense (income) related to interest and penalties recorded on unrecognized tax benefits in the Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021 was $ 1,500 , $( 56,000 ), and $( 45,500 ), respectively. The amount accrued for interest and penalties at December 31, 2023, 2022 and 2021 was $ 11,000 , $ 9,500 and $ 65,500 , respectively. Park National Corporation and its subsidiaries are subject to U.S. federal income tax and income tax in various state jurisdictions. The Corporation is subject to routine audits of tax returns by the Internal Revenue Service and states in which we -141- conduct business. No material adjustments have been made on closed federal and state tax audits. Generally, all tax years ended prior to December 31, 2020 are closed to examination by federal and state taxing authorities. 23. Accumulated Other Comprehensive Income (Loss) Other comprehensive income (loss) components, net of income tax, are shown in the following table for the years ended December 31, 2023, 2022 and 2021. (in thousands) Changes in Pension Plan assets and benefit obligations Unrealized (losses) gains on AFS debt securities Unrealized net holding loss on cash flow hedge Total Beginning balance at January 1, 2023 $ ( 6,680 ) $ ( 95,714 ) $ — $ ( 102,394 ) Other comprehensive income before reclassifications 8,334 21,610 — 29,944 Amounts reclassified from accumulated other comprehensive income 38 6,221 — 6,259 Net current period other comprehensive income $ 8,372 $ 27,831 $ — $ 36,203 Ending balance at December 31, 2023 $ 1,692 $ ( 67,883 ) $ — $ ( 66,191 ) Beginning balance at January 1, 2022 $ ( 5,792 ) $ 21,153 $ ( 206 ) $ 15,155 Other comprehensive (loss) income before reclassifications ( 876 ) ( 116,867 ) 154 ( 117,589 ) Amounts reclassified from accumulated other comprehensive loss ( 12 ) — 52 40 Net current period other comprehensive (loss) income $ ( 888 ) $ ( 116,867 ) $ 206 $ ( 117,549 ) Ending balance at December 31, 2022 $ ( 6,680 ) $ ( 95,714 ) $ — $ ( 102,394 ) Beginning balance at January 1, 2021 $ ( 34,421 ) $ 40,690 $ ( 698 ) $ 5,571 Other comprehensive income (loss) before reclassifications 26,875 ( 19,537 ) 492 7,830 Amounts reclassified from accumulated other comprehensive income 1,754 — — 1,754 Net current period other comprehensive income (loss) $ 28,629 $ ( 19,537 ) $ 492 $ 9,584 Ending balance at December 31, 2021 $ ( 5,792 ) $ 21,153 $ ( 206 ) $ 15,155 -142- The following table provides information concerning amounts reclassified out of accumulated other comprehensive (loss) income for the years ended December 31, 2023, 2022 and 2021: Amount Reclassified from Accumulated Other Comprehensive (Loss) Income Affected Line Item in the Consolidated Statements of Income (In thousands) 2023 2022 2021 Amortization of defined benefit pension items Amortization of prior service cost (credit) $ 48 $ ( 15 ) $ ( 15 ) Employee benefits Amortization of net actuarial loss — — 2,235 Employee benefits Income (loss) before income taxes 48 ( 15 ) 2,220 Income before income taxes Income tax effect 10 ( 3 ) 466 Income taxes Net of income tax $ 38 $ ( 12 ) $ 1,754 Net income Unrealized losses on AFS debt securities Net loss on the sale of debt securities $ 7,875 $ — $ — Loss on the sale of debt securities, net Loss before income taxes 7,875 — — Income before income taxes Income tax effect 1,654 — — Income taxes Net of income tax $ 6,221 $ — $ — Net income Unrealized net holding loss on cash flow hedge Loss due to early termination of borrowing interest rate swap $ — $ 66 $ — Miscellaneous expense Loss before income taxes — 66 — Income before income taxes Income tax effect — 14 — Income taxes Net of income tax $ — $ 52 $ — Net income 24. Earnings Per Common Share U.S. GAAP requires the reporting of basic and diluted earnings per common share. Basic earnings per common share excludes any dilutive effects of PBRSUs and TBRSUs. The following table sets forth the computation of basic and diluted earnings per common share: Year ended December 31 (In thousands, except share data) 2023 2022 2021 Numerator: Net income $ 126,734 $ 148,351 $ 153,945 Denominator: Weighted-average common shares outstanding 16,163,500 16,246,009 16,291,016 Effect of dilutive PBRSUs and TBRSUs 86,519 119,300 134,190 Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs 16,250,019 16,365,309 16,425,206 Earnings per common share: Basic earnings per common share $ 7.84 $ 9.13 $ 9.45 Diluted earnings per common share $ 7.80 $ 9.06 $ 9.37 Park awarded 54,698 , 52,335 and 61,890 PBRSUs to certain employees during the years ended December 31, 2023, 2022 and 2021, respectively. -143- During the years ended December 31, 2023 and 2021, Park repurchased 199,000 and 137,659 common shares, respectively, to fund the PBRSUs, TBRSUs and common shares awarded to directors of Park and to directors of PNB (and its divisions) as well as pursuant to Park's previously announced stock repurchase authorizations. There were no common shares repurchased during the year ended December 31, 2022. 25. Dividend Restrictions Bank regulators limit the amount of dividends a subsidiary bank can declare in any calendar year without obtaining prior approval. At December 31, 2023, approximately $ 112.9 million of the total shareholders’ equity of PNB was available for the payment of dividends to Park National Corporation, without approval by the applicable regulatory authorities. 26. Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk The Corporation is 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 financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Financial Statements. The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those financial instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers. The total amounts of off-balance sheet financial instruments with credit risk were as follows: December 31 (In thousands) 2023 2022 Loan commitments $ 1,527,577 $ 1,416,699 Standby letters of credit 31,261 30,468 The loan commitments are generally for variable rates of interest. Commitments to originate new loans are generally made for periods of 180 days or less. The Corporation grants retail, commercial and commercial real estate loans to customers primarily located in Ohio, Kentucky, North Carolina and South Carolina with the exception of nationwide aircraft loans and nationwide asset-based lending to consumer finance companies. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon the extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and real estate. Although the Corporation has a diversified loan portfolio, a substantial portion of the borrowers’ ability to honor their contracts is dependent upon the economic conditions of the borrowers' respective geographic locations and industries. 27. 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 -144- 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. Assets and Liabilities Measured at Fair Value on a Recurring Basis : The following tables present assets and liabilities measured at fair value on a recurring basis: Fair Value Measurements at December 31, 2023 using: (In thousands) Level 1 Level 2 Level 3 Balance at December 31, 2023 Assets Investment securities: Obligations of states and political subdivisions $ — $ 241,184 $ — $ 241,184 U.S. Government sponsored entities’ asset-backed securities — 635,475 — 635,475 Collateralized loan obligations — 438,286 — 438,286 Corporate debt securities — 11,548 6,349 17,897 Equity securities 1,616 — 473 2,089 Mortgage loans held for sale — 3,235 — 3,235 Mortgage IRLCs — 87 — 87 Loan interest rate swaps — 1,069 — 1,069 Liabilities Fair value swap $ — $ — $ 123 $ 123 Loan interest rate swaps — 1,069 — 1,069 Fair Value Measurements at December 31, 2022 using: (In thousands) Level 1 Level 2 Level 3 Balance at December 31, 2022 Assets Investment securities: Obligations of U.S. Government sponsored entities $ — $ 37,213 $ — $ 37,213 Obligations of states and political subdivisions — 406,711 — 406,711 U.S. Government sponsored entities’ asset-backed securities — 756,761 — 756,761 Collateralized loan obligations — 516,539 — 516,539 Corporate debt securities — 9,472 7,000 16,472 Equity securities 1,420 — 439 1,859 Mortgage loans held for sale — 2,149 — 2,149 Mortgage IRLCs — 46 — 46 Loan interest rate swaps — 1,508 — 1,508 Liabilities Fair value swap $ — $ — $ 243 $ 243 Loan interest rate swaps — 1,508 — 1,508 -145- The following methods and assumptions were used by the Company in determining the fair value of the financial assets and liabilities discussed above: Interest rate swaps: The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2). Investment securities: Fair values for investment securities are based on quoted market prices, where available (Level 1). If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows (Level 3). Fair value swap: The fair value of the swap agreement entered into with the purchaser of the Visa Class B shares represents an internally developed estimate of the exposure based upon probability-weighted potential Visa litigation losses and is classified as Level 3. Mortgage interest rate lock commitments: Mortgage IRLCs are based on current secondary market pricing and are classified as Level 2. Mortgage loans held for sale: Mortgage loans held for sale are carried at their fair value. Mortgage loans held for sale are estimated using market prices for similar product types and, therefore, are classified in Level 2. The following tables present a reconciliation of the beginning and ending balances of the Level 3 inputs for the years ended December 31, 2023 and 2022, for financial instruments measured on a recurring basis and classified as Level 3: Level 3 Fair Value Measurements (In thousands) Corporate debt securities Equity securities Fair value swap Balance at January 1, 2023 $ 7,000 $ 439 $ ( 243 ) Transfers into (out of) level 3, net 11 — — Total gains / (losses) Included in other income / other (expense) — 34 ( 175 ) Included in other comprehensive income ( 662 ) — — Purchases, sales, issuances and settlements, other, net — — 295 Balance at December 31, 2023 $ 6,349 $ 473 $ ( 123 ) Balance at January 1, 2022 $ — $ 499 $ ( 226 ) Total losses Included in other income / other (expense) — ( 60 ) ( 221 ) Transfers into level 3 7,000 — — Purchases, sales, issuances and settlements, other, net — — 204 Balance at December 31, 2022 $ 7,000 $ 439 $ ( 243 ) 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 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 -146- 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, valuations for all collateral dependent loans are updated annually, either through independent valuations by a licensed appraiser or a verification of value ("VOV") performed by an internal licensed appraiser, in accordance with Company policy. A VOV can only be used in select circumstances and verifies that the original appraised value has not deteriorated through property inspection, consideration of market conditions, and performance of all valuation methods utilized in a prior valuation. After the adoption of ASU 2022-02 on January 1, 2023, loans individually evaluated for impairment include all internally classified commercial nonaccrual loans. Prior to the adoption of ASU 2022-02, loans individually evaluated for impairment included all internally classified commercial nonaccrual loans and accruing TDRs. OREO: Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs. Fair value is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value. Appraisals for both individually evaluated collateral dependent loans and OREO are performed by licensed appraisers. Appraisals are generally obtained to support the fair value of collateral. In general, there are three types of appraisals received by the Company: real estate appraisals, income approach appraisals, and lot development loan appraisals. These are discussed below: • Real estate appraisals typically incorporate measures such as recent sales prices for comparable properties. Appraisers may make adjustments to the sales prices of the comparable properties as deemed appropriate based on the age, condition or general characteristics of the subject property. Management generally applies a 15 % discount to real estate appraised values which management expects will cover all disposition costs (including selling costs). This 15 % discount is based on historical discounts to appraised values on sold OREO properties. • Income approach appraisals typically incorporate the annual net operating income of the business divided by an appropriate capitalization rate, as determined by the appraiser. Management generally applies a 15 % discount to income approach appraised values which management expects will cover all disposition costs (including selling costs). • Lot development loan appraisals are typically performed using a discounted cash flow analysis. Appraisers determine an anticipated absorption period and a discount rate that takes into account an investor’s required rate of return based on recent comparable sales. Management generally applies a 6 % discount to lot development appraised values, which is an additional discount above the net present value calculation included in the appraisal, to account for selling costs. MSRs: MSRs are carried at the lower of cost or fair value. MSRs do not trade in active, open markets with readily observable prices. For example, sales of MSRs do occur, but precise terms and conditions typically are not readily available. As such, management, with the assistance of a third-party specialist, determines fair value based on the discounted value of the future cash flows estimated to be received. Significant inputs include the discount rate and assumed prepayment speeds. The calculated fair value is then compared to market values where possible to ascertain the reasonableness of the valuation in relation to current market expectations for similar products. Accordingly, MSRs are classified as Level 2. -147- 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 December 31, 2023 and 2022, there were no PCD loans carried at fair value. A new cost basis is established at the time a property is initially recorded in OREO. OREO properties are carried at fair value if a devaluation has been taken with respect to the property's value subsequent to the initial measurement. Fair Value Measurements at December 31, 2023 Using: (In thousands) Level 1 Level 2 Level 3 Balance at December 31, 2023 Individually evaluated collateral dependent loans recorded at fair value: Commercial real estate $ — $ — $ 2,315 $ 2,315 Residential real estate — — 182 182 Total individually evaluated collateral dependent loans recorded at fair value $ — $ — $ 2,497 $ 2,497 MSRs $ — $ 866 $ — $ 866 OREO recorded at fair value: Commercial real estate $ — $ — $ 938 $ 938 Total OREO recorded at fair value $ — $ — $ 938 $ 938 Fair Value Measurements at December 31, 2022 Using: (In thousands) Level 1 Level 2 Level 3 Balance at December 31, 2022 Individually evaluated collateral dependent loans recorded at fair value: Commercial real estate $ — $ — $ 5,573 $ 5,573 Residential real estate — — 200 200 Total individually evaluated collateral dependent loans recorded at fair value $ — $ — $ 5,773 $ 5,773 MSRs $ — $ 1,717 $ — $ 1,717 OREO recorded at fair value $ — $ — $ — $ — -148- The tables below provide additional detail on those individually evaluated loans which are recorded at fair value as well as the remaining individually evaluated loan portfolio not included above. The remaining individually evaluated loans consist of 1) loans which are not collateral dependent, 2) loans which are not secured by real estate, and 3) loans carried at cost as the fair value of the underlying collateral or the present value of expected future cash flows on each of the loans exceeded the book value for each respective credit. December 31, 2023 (In thousands) Loan Balance Prior Charge-Offs Specific Valuation Allowance Carrying Balance Total individually evaluated collateral dependent loans recorded at fair value $ 2,499 $ 2,048 $ 2 $ 2,497 Remaining individually evaluated loans 42,716 301 4,981 37,735 Total individually evaluated loans $ 45,215 $ 2,349 $ 4,983 $ 40,232 December 31, 2022 (In thousands) Recorded Investment Prior Charge-Offs Specific Valuation Allowance Carrying Balance Total individually evaluated collateral dependent loans recorded at fair value $ 5,903 $ 1,523 $ 130 $ 5,773 Remaining individually evaluated loans 72,438 252 3,436 69,002 Total individually evaluated loans $ 78,341 $ 1,775 $ 3,566 $ 74,775 The (expense) income from credit adjustments related to individually evaluated loans carried at fair value for the years ended December 31, 2023, 2022 and 2021 was $( 1.0 ) million, $( 0.9 ) million, and $ 0.5 million, respectively. MSRs totaled $ 14.7 million at December 31, 2023. Of this $ 14.7 million MSR carrying balance, $ 0.9 million was recorded at fair value and included a valuation allowance of $ 0.1 million. The remaining $ 13.8 million was recorded at cost, as the fair value exceeded cost at December 31, 2023. At December 31, 2022, MSRs totaled $ 15.8 million. Of this $ 15.8 million MSR carrying balance, $ 1.7 million was recorded at fair value and included a valuation allowance of $ 0.2 million. T he remaining $ 14.1 million was recorded at cost, as the fair value exceeded cost at December 31, 2022. The income related to MSRs carried at fair value for the years ended December 31, 2023, 2022 and 2021 was $ 0.1 million, $ 1.4 million and $ 1.6 million, respectively. Total OREO held by Park at December 31, 2023 and 2022 was $ 1.0 million and $ 1.4 million, respectively. At December 31, 2023 , there was $ 938,000 of OREO held by Park that was carried at fair value due to fair value adjustments made subsequent to the initial OREO measurement. At December 31, 2022 , there was no OREO carried at fair value. The net (expense) income related to OREO fair value adjustments was $( 0.4 ) million, $ 11.3 million and $ 32,000 for the years ended December 31, 2023, 2022 and 2021, respectively. -149- The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2023 and December 31, 2022: December 31, 2023 (In thousands) Fair Value Valuation Technique Unobservable Input(s) Range (Weighted Average) Individually evaluated collateral dependent loans: Commercial real estate $ 2,315 Sales comparison approach Adj to comparables 0.2 % - 89.0 % ( 21.2 %) Income approach Capitalization rate 7.5 % - 9.5 % ( 8.9 %) Residential real estate $ 182 Sales comparison approach Adj to comparables 1.2 % - 78.6 % ( 7.6 %) Other real estate owned: Commercial real estate $ 938 Sales comparison approach Adj to comparables 5.0 % - 10.0 % ( 7.5 %) Cost approach Entrepreneurial profit 5.0 % ( 5.0 %) Cost approach Accumulated depreciation 50.0 % ( 50.0 %) December 31, 2022 (In thousands) Fair Value Valuation Technique Unobservable Input(s) Range (Weighted Average) Individually evaluated collateral dependent loans: Commercial real estate $ 5,573 Sales comparison approach Adj to comparables 0.0 % - 202.0 % ( 19.4 %) Income approach Capitalization rate 7.0 % - 10.0 % ( 7.9 %) Cost approach Entrepreneurial profit 10.0 % - 12.0 % ( 11.4 %) Cost approach Accumulated depreciation 38.8 % ( 38.8 %) Residential real estate $ 200 Sales comparison approach Adj to comparables 1.9 % - 119.8 % ( 17.4 %) Assets Measured at Net Asset Value: Park's portfolio of Partnership Investments are valued using the NAV practical expedient in accordance with ASC 820. At December 31, 2023 and December 31, 2022, Park had Partnerships Investments with a NAV of $ 27.5 million and $ 24.4 million, respectively. At December 31, 2023 and December 31, 2022, Park had $ 18.4 million and $ 20.3 million in unfunded commitments related to these Partnership Investments. For the years ended December 31, 2023, 2022 and 2021, Park recognized income of $ 0.4 million, $ 2.4 million and $ 4.5 million, respectively, related to these Partnership Investments. -150- The fair value of certain financial instruments at December 31, 2023 and December 31, 2022 was as follows: December 31, 2023 Fair Value Measurements (In thousands) Carrying value Level 1 Level 2 Level 3 Total fair value Financial assets: Cash and money market instruments $ 218,268 $ 218,268 $ — $ — $ 218,268 Investment securities (1) 1,332,842 — 1,326,493 6,349 1,332,842 Other investment securities (2) 2,089 1,616 — 473 2,089 Mortgage loans held for sale 3,235 — 3,235 — 3,235 Mortgage IRLCs 87 — 87 — 87 Individually evaluated loans carried at fair value 2,497 — — 2,497 2,497 Other loans, net 7,386,657 — — 7,200,851 7,200,851 Loans receivable, net $ 7,392,476 $ — $ 3,322 $ 7,203,348 $ 7,206,670 Financial liabilities: Time deposits $ 641,615 $ — $ 641,180 $ — $ 641,180 Brokered deposits and Bid Ohio CDs 164,985 — 165,059 — 165,059 Other 1,261 1,261 — — 1,261 Deposits (excluding demand deposits) $ 807,861 $ 1,261 $ 806,239 $ — $ 807,500 Short-term borrowings $ 328,182 $ — $ 328,182 $ — $ 328,182 Subordinated notes 189,147 — 172,059 — 172,059 Derivative financial instruments - assets: Loan interest rate swaps $ 1,069 $ — $ 1,069 $ — $ 1,069 Derivative financial instruments - liabilities: Fair value swap $ 123 $ — $ — $ 123 $ 123 Loan interest rate swaps 1,069 — 1,069 — 1,069 (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. -151- December 31, 2022 Fair Value Measurements (In thousands) Carrying value Level 1 Level 2 Level 3 Total fair value Financial assets: Cash and money market instruments $ 189,728 $ 189,728 $ — $ — $ 189,728 Investment securities (1) 1,733,696 — 1,726,696 7,000 1,733,696 Other investment securities (2) 1,859 1,420 — 439 1,859 Mortgage loans held for sale 2,149 — 2,149 — 2,149 Mortgage IRLCs 46 — 46 — 46 Individually evaluated loans carried at fair value 5,773 — — 5,773 5,773 Other loans, net 7,048,544 — — 6,918,326 6,918,326 Loans receivable, net $ 7,056,512 $ — $ 2,195 $ 6,924,099 $ 6,926,294 Financial liabilities: Time deposits $ 554,445 $ — $ 552,443 $ — $ 552,443 Other 1,325 1,325 — — 1,325 Deposits (excluding demand deposits) $ 555,770 $ 1,325 $ 552,443 $ — $ 553,768 Short-term borrowings $ 227,342 $ — $ 227,342 $ — $ 227,342 Subordinated notes 188,667 — 177,928 — 177,928 Derivative financial instruments - assets: Loan interest rate swaps $ 1,508 $ — $ 1,508 $ — $ 1,508 Derivative financial instruments - liabilities: Fair value swap $ 243 $ — $ — $ 243 $ 243 Loan interest rate swaps 1,508 — 1,508 — 1,508 (1) Includes debt securities AFS. (2) Excludes FHLB stock and FRB stock which are carried at their respective redemption values, investment securities accounted for at modified cost as these investments do not have a readily determinable fair value, and Partnership Investments valued using the NAV practical expedient. 28. Capital Ratios 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 2.50 % 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 requirements Park must maintain to be deemed "well-capitalized" and to remain a financial holding company. -152- Each of PNB and Park met all of the well-capitalized ratio guidelines applicable to it at December 31, 2023. The following table indicates the capital ratios for PNB and Park at December 31, 2023 and 2022. As of December 31, 2023 Leverage Tier 1 Risk-Based Common Equity Tier 1 Total Risk-Based PNB 9.11 % 10.95 % 10.95 % 12.35 % Park 10.74 % 12.97 % 12.79 % 16.19 % 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 % As of December 31, 2022 Leverage Tier 1 Risk-Based Common Equity Tier 1 Total Risk-Based PNB 8.34 % 10.69 % 10.69 % 12.15 % Park 9.90 % 12.76 % 12.57 % 16.07 % Adequately capitalized ratio 4.00 % 6.00 % 4.50 % 8.00 % Adequately capitalized ratio plus capital conservation buffer 4.00 % 8.50 % 7.00 % 10.50 % Well-capitalized ratio - PNB 5.00 % 8.00 % 6.50 % 10.00 % Well-capitalized ratio - Park N/A 6.00 % N/A 10.00 % -153- The following table reflects various measures of capital for Park and PNB: To Be Adequately Capitalized To Be Well-Capitalized (In thousands) Actual Amount Ratio Amount Ratio Amount Ratio At December 31, 2023 Total Risk-Based Capital (to risk-weighted assets) PNB $ 1,005,211 12.35 % $ 651,130 8.00 % $ 813,913 10.00 % Park 1,323,588 16.19 % 654,197 8.00 % 817,747 10.00 % Tier 1 Risk-Based Capital (to risk-weighted assets) PNB $ 891,363 10.95 % $ 488,348 6.00 % $ 651,130 8.00 % Park 1,060,593 12.97 % 490,648 6.00 % 490,648 6.00 % Leverage Ratio (to average total assets) PNB $ 891,363 9.11 % $ 391,376 4.00 % $ 489,220 5.00 % Park 1,060,593 10.74 % 395,131 4.00 % N/A N/A Common Equity Tier 1 (to risk-weighted assets) PNB $ 891,363 10.95 % $ 366,261 4.50 % $ 529,043 6.50 % Park 1,045,593 12.79 % 367,986 4.50 % N/A N/A At December 31, 2022 Total Risk-Based Capital (to risk-weighted assets) PNB $ 965,470 12.15 % $ 635,769 8.00 % $ 794,711 10.00 % Park 1,283,409 16.07 % 639,102 8.00 % 798,877 10.00 % Tier 1 Risk-Based Capital (to risk-weighted assets) PNB $ 849,886 10.69 % $ 476,827 6.00 % $ 635,769 8.00 % Park 1,019,149 12.76 % 479,326 6.00 % 479,326 6.00 % Leverage Ratio (to average total assets) PNB $ 849,886 8.34 % $ 407,836 4.00 % $ 509,795 5.00 % Park 1,019,149 9.90 % 411,838 4.00 % N/A N/A Common Equity Tier 1 (to risk-weighted assets) PNB 849,886 10.69 % 357,620 4.50 % 516,562 6.50 % Park 1,004,149 12.57 % 359,495 4.50 % N/A N/A 29. Parent Company Statements The Parent Company statements should be read in conjunction with the consolidated financial statements and the information set forth below. Investments in subsidiaries are accounted for using the equity method of accounting. Cash represents non-interest bearing deposits with PNB. Net cash provided by operating activities reflects cash payments (received from subsidiaries) partially offset by cash payments to government entities for income taxes of $ 6.1 million, $ 2.2 million and $ 4.3 million in 2023, 2022 and 2021, respectively. -154- Condensed Balance Sheets December 31, 2023 and 2022 (In thousands) 2023 2022 Assets: Cash $ 282,151 $ 274,464 Investment in subsidiaries 1,007,342 941,826 Debentures receivable from PNB 25,000 25,000 Other receivables from subsidiaries 1,160 — Other investments 1,170 1,177 Other assets 35,610 36,636 Total assets $ 1,352,433 $ 1,279,103 Liabilities: Subordinated notes $ 189,147 $ 188,667 Other payables to subsidiaries 455 3,625 Other liabilities 17,538 17,585 Total liabilities $ 207,140 $ 209,877 Total shareholders’ equity $ 1,145,293 $ 1,069,226 Total liabilities and shareholders’ equity $ 1,352,433 $ 1,279,103 Condensed Statements of Income for the years ended December 31, 2023, 2022 and 2021 (In thousands) 2023 2022 2021 Income: Dividends from subsidiaries $ 110,000 $ 120,000 $ 115,500 Interest and dividends 1,678 1,250 1,250 Other 163 2,478 2,016 Total income 111,841 123,728 118,766 Expense: Interest expense $ 9,383 $ 8,833 $ 8,887 Other, net 9,536 10,504 10,707 Total expense 18,919 19,337 19,594 Income before income taxes and equity in undistributed income of subsidiaries $ 92,922 $ 104,391 $ 99,172 Income tax benefit 4,196 5,142 4,897 Income before equity in undistributed income of subsidiaries 97,118 109,533 104,069 Equity in undistributed income of subsidiaries 29,616 38,818 49,876 Net income $ 126,734 $ 148,351 $ 153,945 Other comprehensive income (loss) (1) 36,203 ( 117,549 ) 9,584 Comprehensive income $ 162,937 $ 30,802 $ 163,529 (1) See Consolidated Statements of Comprehensive Income for other comprehensive income (loss) detail. -155- Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 (In thousands) 2023 2022 2021 Operating activities: Net income $ 126,734 $ 148,351 $ 153,945 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed income of subsidiaries ( 29,616 ) ( 38,818 ) ( 49,876 ) Compensation expense for issuance of treasury shares to directors 1,223 1,320 1,676 Share-based compensation expense 6,787 5,879 6,345 Loss (gain) on equity securities, net 151 207 ( 1,218 ) Decrease (increase) in other assets 828 ( 2,514 ) 8,249 (Decrease) increase in other liabilities ( 2,752 ) 4,896 ( 2,407 ) Net cash provided by operating activities 103,355 119,321 116,714 Investing activities: Proceeds from sales of securities 1,370 — 934 Purchase of equity securities ( 2,195 ) ( 9,165 ) — Other, net ( 31 ) 144 2,332 Net cash (used in) provided by investing activities ( 856 ) ( 9,021 ) 3,266 Financing activities: Cash dividends paid ( 68,951 ) ( 76,604 ) ( 74,306 ) Repayment of long-term debt — — ( 32,500 ) Repurchase of common shares to be held as treasury shares ( 23,017 ) — ( 16,048 ) Cash payment for fractional shares — ( 2 ) ( 6 ) Value of common shares withheld to pay employee income taxes ( 2,844 ) ( 2,761 ) ( 2,403 ) Net cash used in financing activities ( 94,812 ) ( 79,367 ) ( 125,263 ) Increase (decrease) in cash 7,687 30,933 ( 5,283 ) Cash at beginning of year 274,464 243,531 248,814 Cash at end of year $ 282,151 $ 274,464 $ 243,531 30. 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 Statements of Income. All of Park's operations are considered by management to be aggregated in one reportable segment. -156- The following table presents the Corporation's sources of other income by revenue stream for the years ended December 31, 2023, 2022, and 2021: Year ended December 31, 2023 Year ended December 31, 2022 Year ended December 31, 2021 Revenue by Operating Segment (in thousands) PRK PRK PRK Income from fiduciary activities Personal trust and agency accounts $ 10,297 10,091 10,264 Employee benefit and retirement-related accounts 9,894 9,698 9,705 Investment management and investment advisory agency accounts 13,242 12,442 12,620 Other 2,041 1,860 1,860 Service charges on deposit accounts Non-sufficient funds (NSF) fees 3,744 6,095 5,244 Demand deposit account (DDA) charges 4,229 3,439 3,074 Other 472 557 514 Other service income (1) Credit card 2,799 2,808 2,563 HELOC 369 397 389 Installment 177 163 148 Real estate 5,795 9,952 24,907 Commercial 1,160 1,975 1,805 Debit card fee income 26,522 26,046 25,865 Bank owned life insurance income (2) 5,338 6,100 4,897 ATM fees 2,178 2,273 2,379 (Loss) gain on the sale of OREO, net ( 3 ) 5,611 ( 4 ) OREO valuation markup 60 12,039 64 Loss on the sale of debt securities, net (2) ( 7,875 ) — — Gain on equity securities, net (2) 971 2,955 5,011 Other components of net periodic pension benefit income (2) 7,572 12,108 8,152 Miscellaneous (3) 3,652 9,326 10,487 Total other income $ 92,634 $ 135,935 $ 129,944 (1) "Other Service Income" totaled $ 10.3 million, $ 15.3 million, and $ 29.8 million for the years ended December 31, 2023, 2022, and 2021, respectively. Of this aggregate service revenue, approximately, $ 5.2 million, $ 5.6 million, and $ 5.3 million is within the scope of ASC 606, with the remaining $ 5.1 million, $ 9.7 million, and $ 24.5 million consisting primarily of residential real estate loan fees which are out of scope for each respective year. (2) Not within the scope of ASC 606. (3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $ 3.7 million, $ 9.3 million, and $ 10.5 million for the years ended December 31, 2023, 2022, and 2021, respectively, all of which are within the 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. Fees for transaction-based services, 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. -157- 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. Debit card fee income : Park earns interchange fees from debit cardholder transactions conducted primarily through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, net of card network fees, concurrently with the transaction processing services provided to the cardholder. Gain or loss on sale of OREO, net : The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of delivery of an executed deed. When Park finances the sale of OREO to the buyer, the Corporation assesses whether the buyer is committed to perform the buyer's obligation under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Corporation adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. OREO valuation markup : The Corporation records an OREO valuation markup immediately prior to the transfer of a loan to OREO when the fair market value of the property less costs to sell exceeds the principal balance of the loan. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. No response required.