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PARK NATIONAL CORP /OH/ - Annual Report: 2021 (Form 10-K)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K 
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ____________ to ____________
 
Commission File Number1-13006

PARK NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
  
Ohio 31-1179518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

50 North Third Street,P.O. Box 3500Newark,Ohio43058-3500
(Address of principal executive offices) (Zip Code)
 
(740)349-8451
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares, without par valuePRKNYSE American
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
xYes ¨No
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
¨Yes xNo
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
xYes ¨No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
xYes ¨No
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐

Indicate by check mark whether the Registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262 (b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
☐Yes xNo
 
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter: As of June 30, 2021, the aggregate market value of the Registrant’s common shares (the only common equity of the Registrant) held by non-affiliates of the Registrant was $1,869,456,331 based on the closing sale price as reported on NYSE American. For this purpose, executive officers and directors of the Registrant are considered affiliates.
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date:
16,219,554 Common Shares, no par value per share, outstanding at February 23, 2022. 
DOCUMENT INCORPORATED BY REFERENCE
Document Part Into Which Incorporated
Portions of the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2022 Part III

 



Glossary of Abbreviations and Acronyms

Park has identified the following list of abbreviations and acronyms that are used in this Annual Report on Form 10-K

    

ACLAllowance for credit lossesLGDLoss given default
AFSAvailable-for-saleLIBORLondon Inter-bank Offered Rate
AllowanceAllowance for credit lossesMSRsMortgage servicing rights
AOCIAccumulated other comprehensive incomeNAVNet asset value
ASCAccounting standards codificationNewDominionNewDominion Bank
ASUAccounting standards updateOCIOther comprehensive income
AUCLAllowance for unfunded credit lossesOREOOther real estate owned
CABFCAB Financial Corporation and its subsidiariesOWSOne-way sell
CARES ActCoronavirus Act, Relief, and Economic Security ActParkPark National Corporation and its subsidiaries unless context otherwise requires
Carolina AllianceCAB Financial Corporation and its subsidiariesPark National BankThe Park National Bank
CECLCurrent expected credit lossPBRSUsPerformance-based restricted stock units
CorporationPark National Corporation and its subsidiariesPCDPurchased credit deteriorated
COVID-19Novel coronavirusPCIPurchased credit impaired
DCFDiscounted cash flowPDProbability of default
FASBFinancial Accounting Standards BoardPNBThe Park National Bank
Federal Reserve BoardBoard of Governors of Federal Reserve SystemPPPCARES Act Paycheck Protection Program
FHLBFederal Home Loan BankROURight-of-use
FRBFederal Reserve BankSARsStock appreciation rights
GDPGross domestic productSBASmall Business Administration
GFSCGuardian Financial Services CompanySEPHSE Property Holdings, LLC
Guardian FinanceGuardian Financial Services CompanyTBRSUsTime-based restricted stock units
HPIHome price indexTDRsTroubled debt restructurings
HTMHeld-to-maturityU.S.United States
IRLCInterest rate lock commitmentU.S. GAAPUnited States Generally Accepted Accounting Principles
LDALoss driver analysisVisionVision Bancshares, Inc.



PART I

ITEM 1. BUSINESS.
The disclosures set forth in this Item are qualified by "ITEM 1A. RISK FACTORS" and the section captioned "FORWARD-LOOKING STATEMENTS" in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K and other cautionary statements set forth elsewhere in this Annual Report on Form 10-K.
General
Park National Corporation (“Park”) is a financial holding company subject to regulation under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”). Park was initially incorporated under Delaware law in 1986 and began operations as a bank holding company in 1987.  In 1992, Park changed its state of incorporation to Ohio. Park’s principal executive offices are located at 50 North Third Street, Newark, Ohio 43055, and its telephone number is (740) 349-8451. Park’s common shares, each without par value (the “Common Shares”), are listed on NYSE American, under the symbol “PRK.”
Park maintains an internet site which can be accessed at http://www.parknationalcorp.com. Information contained in Park’s internet site does not constitute part of, and is not incorporated into, this Annual Report on Form 10-K. Park makes available free of charge on or through its internet site Park’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as Park’s definitive proxy statements filed pursuant to Section 14 of the Exchange Act, in each case as soon as reasonably practicable after Park electronically files such material with, or furnishes it to, the Securities and Exchange Commission (the “SEC”).
Park’s principal business consists of owning and supervising its subsidiaries. Although Park directs the overall policies of its subsidiaries, including lending policies and financial resources, most day-to-day affairs are managed by the respective officers of Park’s subsidiaries.
Human Capital
Park National Corporation is a family of community banking teams that deliver an exceptional breadth and depth of resources to individuals and businesses. Our culture is deeply rooted in the values of service and philanthropy, and we believe strong communities are built with local volunteers, donations and leadership.

We believe the way we treat our clients, associates, and communities is what sets us apart from the competition and sustains our success.

Our associates are our most valued resource. We provide opportunities for growth and advancement by empowering our associates and offering ongoing training to develop knowledge and skills. We strive to provide a safe, fair, caring and courteous work environment.

Associate Profile

We operate 98 financial service offices in Ohio, northern Kentucky, and the Carolinas, with support staff located throughout our footprint and at various administration offices. As of December 31, 2021, we had 1,733 active associates, consisting of 1,573 full-time and 160 part-time.

Our branch delivery channels employ 32% of those associates. At December 31, 2021, our associate population was 70% female and 30% male, with an average tenure of nine years.

Talent

We are committed to providing equal employment opportunities for all individuals. Our policy is to hire and promote individuals who best meet the requirements of available positions and who have the best potential for advancement.

Our Performance Management philosophy is to reward for performance. We have an annual goal setting process, with prompts for quarterly updates for supervisors and associates to review progress. We conduct an annual associate evaluation
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process that directly correlates with annual base salary reviews. Associates are encouraged to seek opportunities for improvement, both personally and professionally. We rely on their experience and knowledge to help us identify areas for improvement.

We have a Management Associate training program for exceptional college graduates. Selected candidates spend two years working through different areas of the bank, learning about the financial industry from a variety of perspectives, including customer-facing and operational support roles.

Through Learning & Development (L&D), we work to foster professional growth by providing development opportunities to maximize associate performance and engagement, and drive our competitive advantage. In 2021, our L&D team continued building a strategic infrastructure for the development of associates aligned with overall business outcomes. This included streamlining training, orientation, and onboarding; overseeing associate development; and supporting training needs across all lines of business.

Compensation & Benefits

Our compensation plan includes market-aligned salary grades, an annual incentive compensation program for eligible associates, referral and rewards incentive programs available to associates based on job function, a long-term incentive plan (LTIP) for select associates, and premium pay for associates working extended hours. We are in the process of reviewing and updating our compensation strategy to ensure we conduct regular reviews and comparisons to current market data.

Comprehensive benefit options are available to associates to encourage healthy and financially secure lives. Available benefits include an Employees Stock Ownership Plan (KSOP) with a company matching contribution and a defined benefit pension plan; health and life insurance; dependent care assistance and health flexible spending plans; long-term disability; paid time off (including vacation for part-time associates); tuition reimbursement for qualified schooling; financial hardship resources; and an employee assistance program. A project is currently underway to review all benefits offered to ensure we continue to have competitive options to attract and retain top talent.

Health and Safety

We are committed to providing a safe environment for associates and customers, and the safe preservation and maintenance of our facilities and equipment.

Many of the initiatives deployed in 2020 were continued into 2021 and evolved to ensure the safety of our associates and customers. Initiatives included remote work for applicable positions; providing over $400,000 in calamity pay for associates with COVID-related absences; and continuing an incentive recognition program that paid over $1.7 million to associates for their extraordinary efforts in serving our customers during the COVID-19 pandemic.

D&I

Diversity and inclusion are embedded in Park National Bank’s values and culture. We respect excellence, character and integrity – and we believe these virtues transcend culture, race, gender and age. We abhor prejudice on any level or any grounds. Our commitment to diversity and inclusion means providing every client or prospective client an equal opportunity to succeed financially. We believe it also means supporting a wide variety of community organizations and programs, and hiring associates from different backgrounds, locations and experiences.

In 2021, we held multiple virtual sessions of unconscious bias training entitled “Redefining Diversity and Exercising Inclusion”, which were attended by 576 managers and leaders. The DEI consultant that led those sessions also recorded three short videos on the concepts covered which were uploaded to our Learning Management System for on-demand viewing.

In 2021, the Diversity Equity and Inclusion ("DEI") Taskforce met monthly and held open discussion sessions two times a month. Goals were created by the DEI Task Force around DEI topics and initiatives.

Summary

Our organization is a wonderful blend of promising rookies, top draft picks, and seasoned veterans. Each of us has a different story for why we came here and why we remain. A couple common threads knit us together: we love to serve, and we value an environment where we can grow personally and professionally. Bound by these ideals, our colleagues tend to stay around for a long time.

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Our voluntary turnover was 21% for 2021. At the end of our KSOP plan year, October 1, 2021, over 85% of our associates were shareholders through participation in our KSOP plan, under which we provide a discretionary 50% match for each associate’s regular contribution.

Our associate tenure reflects the effect of our efforts -- by the end of 2021, 36% of our associates had been with our organization 10 years or more.

Banking Operations
Park’s banking operations are conducted through The Park National Bank, a national banking association ("Park National Bank" or "PNB"). Park National Bank engages in the commercial banking and trust business, generally in small and medium population areas in Ohio, North Carolina and South Carolina communities in addition to operations within the metropolitan areas of Columbus and Cincinnati, Ohio, Charlotte, North Carolina, and Louisville, Kentucky. As of the date of this Annual Report on Form 10-K, Park National Bank operated 96 financial service offices, including 93 branches, in Ohio, Kentucky, North Carolina and South Carolina. Park National Bank delivers financial products and services through its 96 financial service offices and a network of 116 automated teller machines, as well as telephone and internet-based banking through both personal computers and mobile devices, including ParkDirect, a mobile bank experience.
The reportable segment for the Corporation is PNB.
Consumer Finance Subsidiary
Guardian Finance, an Ohio consumer finance company based in Hilliard, Ohio, operates as a separate subsidiary of Park. Guardian Finance provides consumer finance services in the central Ohio area. As of the date of this Annual Report on Form 10-K, Guardian Finance had one administrative office in Licking County, Ohio. During 2019, Guardian Finance stopped seeking new loans.
SE Property Holdings, LLC ("SEPH")
SEPH is a limited liability company, organized in 2011 under the laws of the State of Ohio, and a direct subsidiary of Park. The initial purpose of SEPH was to purchase other real estate owned (“OREO”) from Vision Bank, a bank subsidiary of Park until February 16, 2012, and continue to market such properties for sale. By letter dated January 30, 2012, the Federal Reserve Board authorized Park to engage in the business of extending credit through SEPH. As a result, SEPH is permitted to engage in lending activities and was able to succeed to the rights and obligations of Vision Bank in respect of the loans held by Vision Bank when Vision Bank merged into SEPH on February 16, 2012 (the "Vision Bank-SEPH Merger"). SEPH has operations in Ohio, with the sole purpose of such operations being to sell OREO in an effective and efficient manner and work out or sell problem loan situations with the respective borrowers.
Scope Leasing, Inc.
Scope Leasing, Inc. (which does business as “Scope Aircraft Finance”), a subsidiary of Park National Bank, specializes in aircraft financing. The customers of Scope Aircraft Finance include small businesses and entrepreneurs who utilize the aircraft for business or pleasure. Scope Aircraft Finance serves customers throughout the United States of America (the “United States”) and Canada.
Vision Bancshares Trust I
In connection with the merger of Vision Bancshares, Inc. (“Vision”) into Park in March of 2007 (the “Vision Merger”), Park became the successor to Vision under (i) the Junior Subordinated Indenture, dated as of December 5, 2005 (the “Indenture”), pursuant to which Vision issued $15.5 million of junior subordinated notes to Vision Bancshares Trust I, a Delaware statutory trust (the “Vision Trust”). The junior subordinated notes were issued by Vision in connection with the sale by the Vision Trust of $15.0 million of floating rate preferred securities to institutional investors on December 5, 2005. Park also became the successor to Vision (i) in the Amended and Restated Trust Agreement of the Vision Trust, dated as of December 5, 2005 (the “Trust Agreement”), and (ii) in the Guarantee Agreement, dated as of December 5, 2005 (the “Guarantee Agreement”). Through these contractual obligations, Park has fully and unconditionally guaranteed all of the Vision Trust’s obligations with respect to the floating rate preferred securities.
Both the junior subordinated notes and the floating rate preferred securities mature on December 30, 2035 (which maturity may be shortened), and carry a floating interest rate per annum, reset quarterly, equal to the sum of three-month
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LIBOR plus 148 basis points. Payment of interest on the junior subordinated notes, and payment of cash distributions on the floating rate preferred securities, may be deferred at any time or from time to time for a period not to exceed 20 consecutive quarters, subject to specified conditions.
Under the terms of the Indenture and the related Guarantee Agreement, Park, as successor to Vision, is prohibited, subject to limited exceptions, from declaring or paying dividends or distributions on, or redeeming, repurchasing, acquiring or making any liquidation payments with respect to, any shares of Park’s capital stock (i) if an event of default under the Indenture has occurred and continues; (ii) if Park is in default with respect to the payment of any obligations under the Guarantee Agreement; or (iii) during any period in which the payment of interest on the junior subordinated notes by Park (and the payment of cash distributions on the floating rate preferred securities by the Vision Trust) is being deferred. The floating rate preferred securities are considered Tier 1 Capital under regulatory capital standards.

Other Subsidiaries
Park Investments, Inc. ("PII"), which is a subsidiary of Park National Bank, operates as an asset management company. Commencing in 2015, Park began purchasing and holding municipal bonds within PII. As of December 31, 2021, PII held municipal securities with an amortized cost of $366.9 million.
NSCB 2, LLC, River Park Properties, LLC, and Park ABQ, LLC, and X Holdings, LLC are subsidiaries of Park National Bank that hold certain OREO properties or other nonperforming assets. The operations of these subsidiaries are not significant to the consolidated Park entity.
87A Orange Beach, LLC, Morningside Holding, LLC, Swindall Holdings, LLC, Swindall Partnership Holdings, LLC, Marina Holdings Z, LLC, Marina Holding WE, LLC, Alabama Apartment Holdings, LLC and Vision-Park Properties, L.L.C. are subsidiaries of SEPH that hold certain OREO properties. The operations of these subsidiaries are not significant to the consolidated Park entity.
Recent Developments
COVID-19 Considerations
Banking has been identified by federal and state governmental authorities to be an essential service and Park is fully committed to continuing serving our customers and communities through the COVID-19 public health crisis. For those in our communities experiencing a financial hardship, Park has offered various methods of support including loan modifications, payment deferral programs, participation in the CARES Act Paycheck Protection Program ("PPP"), participation in additional PPP loans authorized under the Consolidated Appropriations Act, 2021, and various other case by case accommodations. Park has implemented various guidelines to help protect associates, such as allowing associates to work from home where practical and required physical distancing, masks if working on-site. COVID vaccines and boosters have also been encouraged for all associates.

During 2021, Park provided calamity pay and special one-time bonuses to certain associates. Calamity pay was used to encourage those who are sick to stay home without any financial impact. The bonus program was used to recognize those associates who consistently worked on-site or played vital roles in keeping our offices open. The aggregate cost of calamity pay and special bonuses amounted to $2.1 million for the year ended December 31, 2021, and is included within salaries expense.

While all current retail offices remained fully open for the duration of 2021, customers were encouraged to continue utilizing our online banking services, the mobile app, including Park Direct, ATMs, and drive-thru services to safely do their banking.

Due to the uncertainty of the COVID-19 pandemic, 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 net proceeds from the sale of the Subordinated Notes provide Park with additional flexibility in managing its liquidity. Park intends to use the net proceeds for general corporate purposes, which may include providing capital to support Park's growth organically or through strategic acquisitions, repaying other indebtedness, financing investments, capital expenditures, repurchasing Park Common Shares and making investments in PNB as regulatory capital.

In order to adapt to changing customer behavior, lower transaction volume, service area overlap and to continue to focus on reducing operating expenses, Park closed 23 branches during 2020 and one branch during 2021.

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Services Provided by Park’s Subsidiaries
Park National Bank provides the following principal services:
•the acceptance of deposits for demand, savings and time accounts and the servicing of those accounts;

•commercial, industrial, consumer and real estate lending, including installment loans, credit cards (which are offered through a third party), home equity lines of credit and commercial leasing;

•a national portfolio of loans to non-bank consumer finance companies;

•trust and wealth management services;

•aircraft financing;

•cash management;

•safe deposit operations;

•electronic funds transfers;

•internet and mobile banking solutions with bill pay service; and

•ParkDirect, a personal banking app.

Park believes that the deposit mix of Park National Bank is currently such that no material portion has been obtained from a single customer and, consequently, the loss of any one customer of Park National Bank would not have a materially adverse effect on the business of Park National Bank.
Guardian Finance provides consumer finance services.
Lending Activities
Park National Bank deals with consumers and a wide cross-section of businesses and corporations located primarily in the 26 Ohio counties, one Kentucky county, three North Carolina counties and four South Carolina counties served by the financial service offices of Park National Bank. For those in our communities experiencing a financial hardship related to the COVID-19 public health crisis, Park has offered various methods of support including loan modifications, payment deferral programs, participation in the PPP, participation in additional PPP loans authorized under the Consolidated Appropriations Act, 2021, and various other case by case accommodations. At December 31, 2021, Park National Bank had no concentration of loans to borrowers engaged in the same or similar industries that exceeded 10% of total loans nor did it have any loans outstanding to persons domiciled outside the United States. As a result of the Vision Bank-SEPH Merger, SEPH holds loans originated by Vision Bank previously serviced by the financial service offices of Vision Bank. It is expected that SEPH will originate loans only to further the collection efforts with respect to the loans transferred to SEPH by operation of law as a result of the Vision Bank-SEPH Merger. Such origination (or modification) volume has been and is expected to continue to be insignificant to the consolidated Park entity.
Park National Bank makes lending decisions in accordance with the written loan policies adopted by Park which are designed to maintain acceptable loan quality. Park National Bank originates and retains for its own portfolio commercial and commercial real estate loans, commercial leases, residential real estate loans, home equity lines of credit, and installment loans. Park National Bank also originates fixed-rate residential real estate loans for sale to the secondary market.
There are certain risks inherent in making loans. These risks include changes in the credit worthiness of borrowers over the time period in which loans may be repaid, interest rate changes over the time period in which loans may be repaid, risks resulting from changes in the national and local economies, risks inherent in dealing with borrowers and, in the case of loans secured by collateral, risks resulting from uncertainties about the future value of the collateral.


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Commercial Loans
At December 31, 2021, Park’s subsidiaries (including Scope Aircraft Finance) had approximately $3,121 million in commercial loans (commercial, financial and agricultural loans and commercial real estate loans) and commercial leases outstanding, representing approximately 45.4% of their total aggregate loan portfolio as of that date. Of this amount, approximately $1,299 million represented commercial, financial and agricultural loans, $1,802 million represented commercial real estate loans, and $21 million represented commercial leases.
Commercial loans are made for a wide variety of general corporate purposes, including financing for industrial and commercial 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. Information concerning the loan maturity distribution within the commercial loan portfolio is provided in "Table 15 - Loan Maturity Distribution" included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K.
The commercial loan portfolio of Park’s current subsidiaries includes loans to a wide variety of corporations and businesses across many industrial classifications in the 26 Ohio counties, one Kentucky county, three North Carolina counties and four South Carolina counties where Park National Bank 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, health care and social assistance, accommodation and food services, manufacturing, other services, retail trade, and agriculture, forestry, fishing and hunting.
Commercial loans are evaluated for the adequacy of repayment sources at the time of approval and are regularly reviewed for any possible deterioration in the ability of the borrower to repay the loan. The credit information required generally includes, depending on the amount of money lent, financial statements, third-party prepared financial statements, two years of federal income tax returns and a current credit report. Loan terms include amortization schedules commensurate with the purpose of each loan, identification of the source of each repayment and the risk involved. In most instances, collateral is required to provide an additional source of repayment in the event of default by a commercial borrower. The structure of the collateral package, including the type and amount of the collateral, varies from loan to loan depending on the financial strength of the borrower, the amount and terms of the loan and the collateral available to be pledged by the borrower. Most often, the collateral is inventory, machinery, accounts receivable and/or real estate. The guarantee of the business owners/principals is generally required on loans made to closely-held business entities.
Commercial real estate loans (“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 CRE loans is the underlying commercial real estate. Park National Bank generally requires that the CRE loan amount be no more than 85% of the purchase price or the appraised value of the commercial real estate securing the CRE loan, whichever is less. CRE loans made for Park National Bank’s portfolio generally have a variable interest rate. For more information concerning the loan maturity distribution in the CRE loan portfolio, please see "Table 15 - Loan Maturity Distribution" included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K.
The regulatory limit for loans made to one borrower by Park National Bank was $140.0 million at December 31, 2021. Participations in a loan by Park National Bank in an amount larger than $46.0 million are generally sold to third-party banks or financial institutions. While Park National Bank has a loan limit of $140.0 million, the total exposure of the largest single borrower within the commercial portfolio was $75.0 million at December 31, 2021.
Park has an independent, internal loan review program which annually evaluates all loans greater than $1 million, all new loans greater than $500,000 and a risk-based sample of loans less than $1 million. If a loan has deteriorated, the lending subsidiary takes prompt action designed to increase the likelihood that it will be repaid. Upon detection of the reduced ability of a borrower to service interest and/or principal on a loan, the subsidiary may downgrade the loan and, under certain circumstances, place the loan on nonaccrual status. The subsidiary then works with the borrower to develop a payment schedule which the subsidiary anticipates will permit service of the principal and interest on the loan by the borrower. Loans which deteriorate and show the inability of a borrower to repay principal are charged down to the net realizable value of collateral. A collection specialist/work-out officer is available to assist each subsidiary when a credit deteriorates. Information about Park’s policy for placing loans on nonaccrual status is included under the caption “Loans” in "Note 1 - Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements found in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
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Commercial loans are generally viewed as having a higher credit risk than consumer loans because commercial loans typically involve larger loan balances to a single borrower and are more susceptible to a risk of default during an economic downturn. Commercial loans also generally have variable interest rates. Park uses several indices for commercial loans that help determine loan interest rates, but the national prime rate is the most common index used. Credit risk for commercial loans arises from borrowers lacking the ability or willingness to pay principal or interest and, in the case of secured loans, by a shortfall in the collateral value in relation to the outstanding loan balance in the event of a default and subsequent liquidation of collateral. The underwriting of generally all commercial loans, regardless of type, includes cash flow analyses with rates shocked by 400 basis points. In the case of commercial loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of each borrower to collect amounts due from the borrower's customers. In the case of Park's commercial loans to non-bank consumer finance companies, the underlying cash flows are supported at times by sub-prime individual borrowers and present a higher level of risk compared to a more typical commercial loan to a business. Other collateral securing commercial loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the borrower’s business. Information concerning the loan loss experience and the allocation of the allowance for credit losses related to the commercial, financial and agricultural loan portfolio, the commercial real estate portfolio and the commercial lease portfolio is provided in "Table 30 - Summary of Loan Credit Loss Experience" and "Table 32 - Allocation of Allowance for Credit Losses", respectively, included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" found in Annual Report on Form 10-K.
Loans to Non-Bank Consumer Finance Companies
At December 31, 2021, Park National Bank had $323 million in loans outstanding to non-bank consumer finance companies. This is a national lending unit of Park National Bank. These asset-based loans are collateralized by cash flows from individuals, typically auto loans issued by a consumer finance company that is, in turn, a borrower of Park National Bank. These loans typically present a higher level of risk due to the underlying collateral and such risks are mitigated by more conservative underwriting and an intensive loan monitoring regimen commensurate with asset-based lending.
Aircraft Financing

Scope Aircraft Finance specializes in aircraft financing. The customers of Scope Aircraft Finance include small businesses and entrepreneurs intending to use the aircraft for business or pleasure. The customers of Scope Aircraft Finance are located throughout the United States. The lending officers of Scope Aircraft Finance are experienced in the aircraft financing industry and rely upon such experience and certain industry guides in determining whether to grant an aircraft loan or lease. At December 31, 2021, Scope Aircraft Finance had $328 million in loans outstanding, primarily secured by aircraft (which are included in the commercial loan portfolio).
Consumer Loans
At December 31, 2021, Park's subsidiaries had outstanding consumer loans (including automobile loans) in an aggregate amount of $1,690 million, constituting approximately 24.6% of their aggregate total loan portfolio. Park makes installment credit available to customers and prospective customers in their primary market areas through direct and indirect loans. Indirect loans are facilitated through an automobile and other vehicle dealer; whereas, direct loans are originated through direct customer interaction with Park's regions. For both direct and indirect loans, the final credit decisions are made by Park with the assistance of an automated underwriting system. At December 31, 2021, of the $1,690 million in consumer loans, $1,485 million were originated through indirect lending, while the remaining $205 million were considered direct loans. At December 31, 2021, of the $1,690 million in consumer loans, GFSC had outstanding consumer loans of $2 million and Park National Bank held the balance.
Credit approval for direct and indirect consumer loans requires income sufficient to repay principal and interest due, stability of employment, an established credit record and sufficient collateral for secured loans. It is the policy of Park to adhere strictly to all laws and regulations governing consumer lending. A compliance officer, along with the appropriate line of business leaders, is responsible for monitoring each subsidiary’s performance and advising and updating loan personnel in this area. Loans are charged off in accordance with Park's policy. Information about Park’s policy for placing loans on nonaccrual status and charging off loans is included under the caption “Loans” in "Note 1 - Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements found in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
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 borrowers' continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of
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various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on these loans. Information concerning the loan credit loss experience and the allocation of the allowance for credit losses related to the consumer loan portfolio is provided in "Table 30 - Summary of Loan Credit Loss Experience" and "Table 32 - Allocation of Allowance for Credit Losses", respectively, included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K.
Residential Real Estate and Construction Loans
At December 31, 2021, Park's subsidiaries had outstanding approximately $2,060 million in construction real estate loans and residential real estate loans, representing approximately 30.0% of total loans outstanding. Of the $2,060 million, approximately $1,739 million was included within the residential real estate loan segment, which included $534 million of commercial loans secured by residential real estate, $1,034 million of mortgage loans, $166 million of home equity lines of credit and $6 million of installment loans. The remaining $322 million was included within the construction real estate loan segment, which included $215 million of commercial land and development loans and $107 million of 1-4 family residential construction loans. The market area for real estate lending by Park National Bank is concentrated in Ohio, Kentucky, North Carolina and South Carolina.
Credit approval for residential real estate loans requires demonstration of sufficient income to repay the principal and interest and the real estate taxes and insurance, stability of employment, an established credit record and a current independent third-party appraisal providing the market value of the real estate securing the loan. Residential real estate loans are generally analyzed through an automated underwriting platform (system) to determine a risk classification. All loans receiving a risk classification of caution require review by a senior lender and generally require additional documentation if the loan is approved.
Park National Bank generally requires that the residential real estate loan amount be no more than 80% of the purchase price or the appraised value of the real estate securing the loan, whichever is less, unless private mortgage insurance is obtained by the borrower. Loans in this lending category that are made to be held in Park National Bank's portfolio are both fixed-rate and adjustable-rate, fully amortized mortgages. The rates used are generally fully-indexed rates. From time to time, Park may offer a limited-time promotional rate on funds advanced on newly-originated home equity lines of credit. Park National Bank also originates fixed-rate real estate loans for sale to the secondary market. Park’s management may decide to retain certain 15-year, fixed-rate residential mortgage loans, rather than sell in the secondary market. Park's management made a decision to retain certain 15-year, fixed-rate residential mortgage loans in 2021. At December 31, 2021 and 2020, Park reported $573 million and $592 million, respectively, of 15-year, fixed-rate residential mortgage loans on Park's Consolidated Balance Sheets. Real estate loans are typically secured by first mortgages with evidence of title in favor of the lender in the form of an attorney’s opinion of title or a title insurance policy. Park National Bank has also required proof of hazard insurance with the lender named as the mortgagee and as the loss payee. Independent third-party appraisals are generally obtained for consumer real estate loans.
Home equity lines of credit are generally secured by second mortgages in favor of Park National Bank. The maximum amount of a home equity line of credit is generally limited to 85% of the appraised value of the property less the balance of the first mortgage. The home equity lines of credit are written with ten-year terms. A variable interest rate is generally charged on the home equity lines of credit.
Information concerning the loan credit loss experience and the allocation of the allowance for credit losses related to the residential real estate portfolio is provided in "Table 30 - Summary of Loan Credit Loss Experience" and "Table 32 - Allocation of Allowance for Credit Losses", respectively, included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K.
Construction loans include commercial construction loans as well as residential construction loans. 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. Generally, the permanent construction loans have a variable interest rate although a permanent construction loan may be made with a fixed interest rate for a term generally not exceeding five years. Short-term construction loans are generally made with variable interest rates. Information concerning the loan maturity distribution within the construction financing portfolio is provided in "Table 15 - Loan Maturity Distribution" included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS of this Annual Report on Form 10-K.
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
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construction cost proves to be inaccurate, Park National Bank 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 National Bank 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 a default on a construction loan occurs and foreclosure follows, Park National Bank must take control of the project and attempt either to arrange for completion of construction or to dispose of the unfinished project. Additional risk exists with respect to a loan made to a developer who does 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 National Bank attempts to reduce such risks on loans to developers by requiring personal guarantees and reviewing current personal financial statements and tax returns as well as other projects undertaken by the developer. For additional information concerning the loan credit loss experience, please see “ITEM 1A. RISK FACTORS – Economic, Political and Market Risks – Changes in economic and political conditions could adversely affect our earnings and capital through declines in deposits, quality of investment securities, loan demand, our borrowers’ ability to repay loans, and the value of the collateral securing our loans.” and “– Business Operations Risks – Our allowance for credit losses may prove to be insufficient to absorb the expected, lifetime losses in our loan portfolio.” in this Annual Report on Form 10-K. Information concerning the loan credit loss experience and the allocation of the allowance for credit losses related to the construction financing portfolio is provided in "Table 30 - Summary of Loan Credit Loss Experience" and "Table 32 - Allocation of Allowance for Credit Losses", respectively, included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K.
SEPH

SEPH is a non-bank subsidiary of Park that holds OREO property and non-performing loans. In addition to approximately $594,000 in OREO property, SEPH also held non-performing loans that were fully charged off as of December 31, 2021, all of which were on nonaccrual status. SEPH has one office in Licking County, Ohio. The SEPH employees work with a third-party work-out specialist to ensure effective and efficient resolution to the non-performing loans and OREO, while working closely with the borrowers of the loans to maximize collection efforts. Park expects that the OREO will reduce over time and result in cash inflow to Park.

Competition

The financial services industry is highly competitive. Park’s subsidiaries compete with other local, regional and national service providers, including banks, savings associations, credit unions and other types of financial institutions and finance companies. Other competitors include securities dealers, brokers, mortgage bankers, investment advisors and financial services subsidiaries of commercial and manufacturing companies. Competition for quality customers has intensified as a result of changes in regulations, mergers and acquisitions, advances in technology and product delivery systems, consolidation among financial service providers, bank failures and the conversion of former investment banks to bank holding companies.

The primary factors in competing for loans are the terms of the loan, interest rates charged and overall services provided to borrowers. The primary factors in competing for deposits are interest rates paid on deposits, account liquidity, convenience and hours of office locations, convenience and availability of mobile banking options, and accessibility to trained and competent staff. Competitors of Park may have greater resources and, as such, additional technology offerings and higher lending limits, which may adversely affect the ability of Park to compete. In addition, certain nonfinancial institutions with which Park competes enjoy the benefits of fewer regulatory constraints, broader geographic service areas, greater capital and lower cost structures. Financial technology companies, or "fintechs," are also providing nontraditional, but increasingly strong competition for our borrowers, depositors and other customers.
Associates
At December 31, 2021, Park and its subsidiaries had 1,685 full-time equivalent associates.
Supervision and Regulation of Park and its Subsidiaries
Park, Park National Bank and Park’s other subsidiaries are subject to extensive regulation by federal and state agencies. The regulation of financial holding companies and their subsidiaries is intended primarily for the protection of consumers, depositors, borrowers, the Deposit Insurance Fund (the "DIF") of the Federal Deposit Insurance Corporation (the "FDIC") and the banking system as a whole and not for the protection of shareholders. Applicable laws and regulations restrict permissible activities and investments and require actions to protect loan, deposit, brokerage, fiduciary and other customers, as well as the DIF. Such laws and regulations may also restrict Park’s ability to repurchase its Common Shares or to receive dividends from Park National Bank and may impose capital adequacy and liquidity requirements.
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As a financial holding company, Park is subject to regulation by the Federal Reserve Board under the Bank Holding Company Act and to inspection, examination and supervision by the Federal Reserve Board. Park is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act, as administered by the SEC. Park’s Common Shares are listed on NYSE American under the trading symbol “PRK,” which subjects Park to the requirements under the applicable sections of the NYSE American Company Guide for listed companies.
Park National Bank, as a national banking association, is subject to regulation, supervision and examination primarily by the Office of the Comptroller of the Currency (the "OCC") and secondarily by the FDIC.
    The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended (the "Dodd-Frank Act"), established the Consumer Financial Protection Bureau (the "CFPB"), which regulates consumer financial products and services and certain financial services providers. The CFPB is authorized to prevent unfair, deceptive or abusive acts or practices and ensures consistent enforcement of laws so that consumers have access to fair, transparent and competitive markets for consumer financial products and services. Since its establishment, the CFPB has extensively exercised its rulemaking and interpretative authority.

Guardian Finance, a subsidiary of Park and an Ohio state-chartered consumer finance company, is subject to regulation, supervision and examination by the Ohio Division of Financial Institutions (the "ODFI") and the Federal Reserve Board.

As a subsidiary of Park, SEPH is also subject to inspection, examination and supervision by the Federal Reserve Board.

The following information describes selected federal and state statutory and regulatory provisions and is qualified in its entirety by reference to the full text of such provisions. These statutes and regulations are continually under review by the U.S. Congress and state legislatures and federal and state regulatory agencies. A change in statutes, regulations or regulatory policies applicable to Park and its subsidiaries could have a material effect on their respective businesses.

Regulation of Financial Holding Companies
As a financial holding company, Park’s activities are subject to regulation by the Federal Reserve Board. Park is subject to regular examinations by the Federal Reserve Board and is required to file reports and such additional information as the Federal Reserve Board may require.

The Federal Reserve Board also has enforcement authority over financial holding companies, including, but not limited to, the ability to:
•assess civil money penalties;

•issue cease and desist or removal orders; and

•require that a financial holding company divest subsidiaries (including a subsidiary bank).

In general, the Federal Reserve Board may initiate enforcement actions for violations of laws and regulations and unsafe or unsound practices.
A financial holding company is required by law and Federal Reserve Board policy to act as a source of financial and managerial strength to each subsidiary bank and to commit resources to support each such subsidiary bank. The Federal Reserve Board may require a financial holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound practice.
The Bank Holding Company Act requires the prior approval of the Federal Reserve Board in any case where a financial holding company proposes to:
•acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that is not already majority-owned by the financial holding company;


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•acquire all or substantially all of the assets of another bank or another financial or bank holding company; or

•merge or consolidate with any other financial or bank holding company.

A qualifying bank holding company may elect to become a financial holding company and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature and not otherwise permissible for a bank holding company, if: (i) the holding company is "well managed" and "well capitalized" and (ii) each of its subsidiary banks (a) is well capitalized under the Federal Deposit Insurance Corporation Act of 1991 prompt corrective action provisions, (b) is well managed, and (c) has at least a "satisfactory" rating under the Community Reinvestment Act (the “CRA”). Park became a financial holding company in 2014. No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.

The Financial Services Modernization Act defines “financial in nature” to include:

•securities underwriting, dealing and market making;

•sponsoring mutual funds and investment companies;

•insurance underwriting and agency;

•merchant banking; and

•activities that the Federal Reserve Board has determined to be closely related to banking.

A national bank also may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real estate development and real estate investment, through a financial subsidiary of the bank, if the bank is well capitalized and well managed and has at least a satisfactory CRA rating. If a financial holding company or a subsidiary bank fails to maintain all requirements for the holding company to maintain financial holding company status, material restrictions may be placed on the activities of the holding company and its subsidiaries and on the ability of the holding company to enter into certain transactions and obtain regulatory approvals for new activities and transactions. The holding company could also be required to divest itself of subsidiaries that engage in activities that are not permitted for bank holding companies that are not financial holding companies. If restrictions are imposed on the activities of a financial holding company, the existence of such restrictions may not be made publicly available pursuant to confidentiality regulations of the bank regulatory agencies.

Each subsidiary bank of a financial holding company is subject to certain restrictions on the maintenance of reserves against deposits, extensions of credit to the financial holding company and its subsidiaries, investments in the stock and other securities of the financial holding company and its subsidiaries and the taking of such stock and securities as collateral for loans to borrowers. Further, a financial holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property or furnishing of any services. Various consumer laws and regulations also affect the operations of these subsidiaries.

In April 2020, the Federal Reserve Board adopted a final rule to revise its regulations related to determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the Bank Holding Company Act. The final rule expands and codifies the presumptions for use in such determinations. By codifying the presumptions, the final rule provides greater transparency on the types of relationships that the Federal Reserve Board generally views as supporting a facts-and-circumstances determination that one company controls another company. The Federal Reserve Board’s final rule applies to questions of control under the Bank Holding Company Act, but does not extend to the Change in Bank Control Act.
Economic Growth, Regulatory Relief and Consumer Protection Act
On May 25, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the "Regulatory Relief Act") was enacted, which repealed or modified certain provisions of the Dodd-Frank Act and eased restrictions on all but the largest banks (those with consolidated assets in excess of $250 billion). Bank holding companies with consolidated assets of less than $100 billion, including Park, are no longer subject to enhanced prudential standards. The Regulatory Relief Act also relieves bank holding companies and banks with consolidated assets of less than $100 billion, including Park, from certain record-keeping, reporting and disclosure requirements. Certain other regulatory requirements applied only to banks with
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consolidated assets in excess of $50 billion and so did not apply to Park even before the enactment of the Regulatory Relief Act.

Transactions with Affiliates, Directors, Executive Officers and Shareholders
Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Board Regulation W generally:
•limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of the bank's capital stock and surplus;

•limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with all affiliates to an amount equal to 20.0% of the bank's capital stock and surplus; and

•require that all such transactions be on terms substantially the same, or at least as favorable to the bank or subsidiary, as those provided to a non-affiliate.

An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. The term “covered transaction” includes the making of loans to the affiliate, the purchase of assets from the affiliate, the issuance of a guarantee on behalf of the affiliate, the purchase of securities issued by the affiliate and other similar types of transactions.
 
A bank’s authority to extend credit to executive officers, directors and greater than 10.0% shareholders, as well as entities such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder by the Federal Reserve Board. Among other things, these loans must be made on terms (including interest rates charged and collateral required) substantially similar to those offered to unaffiliated individuals or be made as part of a benefit or compensation program on terms widely available to employees and must not involve a greater than normal risk of repayment. In addition, the amount of loans a bank may make to these persons is based, in part, on the bank’s capital position, and specified approval procedures must be followed in making loans which exceed specified amounts.

Regulation of Nationally-Chartered Banks
As a national banking association, Park National Bank is subject to regulation under the National Bank Act and is periodically examined by the OCC. OCC regulations govern permissible activities, capital requirements, dividend limitations, investments, loans and other matters. Furthermore, Park National Bank is subject, as a member bank, to certain rules and regulations of the Federal Reserve Board, many of which restrict activities and prescribe documentation to protect consumers. Park National Bank is an insured depository institution and a member of the DIF. As a result, it is subject to regulation and deposit insurance assessments by the FDIC. In addition, the establishment of branches by Park National Bank is subject to prior approval of the OCC. The OCC has broad enforcement powers over national banks, including the power to impose fines and other civil and criminal penalties and to appoint a conservator or receiver if any of a number of conditions are met.
The CFPB regulates consumer financial products and services provided by Park National Bank through regulations designed to protect consumers.
Federal Deposit Insurance
The FDIC is an independent federal agency which insures the deposits, up to prescribed statutory limits, of federally-insured banks and savings associations and safeguards the safety and soundness of the financial institution industry. The general insurance limit is $250,000 per separately insured depositor. This insurance is backed by the full faith and credit of the United States government.
As insurer, the FDIC is authorized to conduct examinations of and to require reporting by insured institutions, including Park National Bank, to prohibit any insured institution from engaging in any activity the FDIC determines by regulation or order to pose a threat to the DIF, and to take enforcement actions against insured institutions. The FDIC may terminate insurance of deposits of any insured institution if the FDIC finds that the insured institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or any other regulatory agency.

The FDIC assesses a quarterly deposit insurance premium on each insured institution based on risk characteristics of the insured institution and may also impose special assessments in emergency situations. The premiums fund the DIF.
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Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio ("DRR"), which is the amount in the DIF as a percentage of all DIF insured deposits. In March 2016, the FDIC adopted final rules designed to meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act. The Dodd-Frank Act requires the FDIC to offset the effect on insured institutions with assets of less than $10 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%. Although the FDIC's rules reduced assessment rates on all banks, they imposed a surcharge on banks with assets of $10 billion or more to be paid until the DRR reached 1.35%. The DRR reached 1.35% on September 30, 2018. As a result, the previous surcharge imposed on banks with assets of $10 billion or more was lifted. In addition, preliminary assessment credits were determined by the FDIC for banks with assets of less than $10 billion for the portion of their assessments that contributed to the increase of the DRR to 1.35%. On June 30, 2019, the DRR reached 1.40%, and the FDIC applied credits for banks with assets of less than $10 billion ("small bank credits") beginning September 30, 2019. As of June 30, 2020, the DRR fell below the minimum DRR to 1.30%. As a result, the FDIC adopted a restoration plan requiring the restoration of the DRR to 1.35% within eight years of the plan establishment, by September 30, 2028. This restoration plan maintained the scheduled assessments rates for all insured institutions. The DRR was 1.27% as of September 30, 2021. The FDIC rules further changed the method of determining risk-based assessment rates for established banks with less than $10 billion in assets to better ensure that banks taking on greater risks pay more for deposit insurance than banks that take on less risk.

Federal Home Loan Bank

The Federal Home Loan Banks (“FHLBs”) provide credit to their members in the form of advances. Park National Bank is a member of the FHLB of Cincinnati. As an FHLB member, Park National Bank must maintain an investment in the capital stock of the FHLB of Cincinnati.
Upon the origination or renewal of a loan or advance, each FHLB is required by law to obtain and maintain a security interest in certain types of collateral. Each FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLB. The standards take into account a member’s performance under the CRA, and the member’s record of lending to first-time home buyers.
The Coronavirus Aid, Relief, and Economic Security Act of 2020 and Initiatives Related to COVID-19

In response to the COVID-19 pandemic, the CARES Act, was signed into law on March 27, 2020, to provide national emergency economic relief measures. Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions, such as Park and Park National Bank, and have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve Board and other federal banking agencies, including those with direct supervisory jurisdiction over Park and Park National Bank. Furthermore, as the ongoing COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation, including amendments to the CARES Act or new bills comparable in scope to the CARES Act. Park is continuing to assess the impact of the CARES Act and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.

Section 1102 of the CARES Act amended the loan program of the SBA, in which Park National Bank participates, to create a guaranteed, unsecured loan program, the PPP, to fund operational costs of eligible businesses, organizations and self-employed persons during the COVID-19 pandemic. These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which, among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. After previously being extended by Congress, the application deadline for PPP loans expired on May 31, 2021. No collateral or personal guarantees were required for PPP loans. In addition, neither the government nor lenders have been permitted to charge the recipients of PPP loans any fees. On December 27, 2020, the President signed into law omnibus federal spending and economic stimulus legislation titled the "Consolidated Appropriations Act, 2021" that included the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the "HHSB Act"). Among other things, the HHSB Act renewed the PPP, allocating $284.45 billion for both new first-time PPP loans under the existing PPP and the expansion of existing PPP loans for certain qualified, existing PPP borrowers. In addition to extending and amending the PPP, the HHSB Act also creates a new grant program for "shuttered venue operators". As a participating lender in the PPP, Park National Bank continues to monitor legislative, regulatory, and supervisory developments related thereto.

On September 29, 2020, the federal bank regulatory agencies issued a final rule that neutralizes the regulatory capital and liquidity coverage ratio effects of participating in certain COVID-19 liquidity facilities due to the fact there is no credit or
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market risk in association with exposures pledged to such facilities. As a result, the final rule supports the flow of credit to households and businesses affected by COVID-19.

On December 2, 2020, the federal bank regulatory agencies announced an interim final rule that provides temporary relief for specified community banking organizations related to certain regulations and reporting requirements as a result, in large part, of their growth in size from the response to COVID-19. Community banking organizations are subject to different rules and requirements based on their risk profile and asset size. Due to their involvement in federal COVID-19 response programs (such as the PPP) and other lending that supports the U.S. economy, many community banking organizations experienced rapid and unexpected increases in their sizes, which were generally expected to be temporary. The temporary increase in size could have subjected community banking organizations to new regulations or reporting requirements. However, community banking organizations, such as Park and Park National Bank, under $10.0 billion in total assets as of December 31, 2019 were permitted to use asset data as of December 31, 2019, to determine the applicability of various regulatory asset thresholds during calendar years 2020 and 2021. As such, it was not until January 1, 2022 that asset growth again triggered new regulatory requirements for these community banking organizations.

Regulatory Capital
The Federal Reserve Board has adopted risk-based capital guidelines for financial holding companies and other bank holding companies as well as state member banks. The OCC and the FDIC have adopted risk-based capital guidelines for national banks and state non-member banks, respectively. The guidelines provide a systematic analytical framework which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy, and minimizes disincentives to holding liquid, low-risk assets. Capital levels, as measured by these standards, are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.
In July 2013, the U.S. banking regulators issued capital rules applicable to smaller banking organizations which also implement certain of the provisions of the Dodd-Frank Act (the “Basel III Capital Rules”). Community banking organizations, including Park and Park National Bank, began transitioning to the new rules on January 1, 2015. The minimum capital requirements became effective on January 1, 2015; whereas, the capital conservation buffer and deductions from common equity capital phased in from January 1, 2016 through January 1, 2019, and most deductions from common equity tier 1 capital phased in from January 1, 2015 through January 1, 2019.

The Basel III Capital Rules include: (i) a minimum common equity tier 1 capital ratio of 4.5%; (ii) a minimum tier 1 capital ratio of 6.0%; (iii) a minimum total capital ratio of 8.0%; and (iv) a minimum leverage ratio of 4.0%.

Common equity for the common equity tier 1 capital ratio generally consists of common stock (plus related surplus), retained earnings, accumulated other comprehensive income (unless an institution elects to exclude such income from regulatory capital), and limited amounts of minority interests in the form of common stock, subject to applicable regulatory adjustments and deductions.
Tier 1 capital generally consists of common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus, trust preferred securities that have been grandfathered (but which are not otherwise permitted), and limited amounts of minority interests in the form of additional tier 1 capital instruments, less certain deductions.

Tier 2 capital, which can be included in the total capital ratio, generally consists of other preferred stock and subordinated debt meeting certain conditions plus limited amounts of the allowance for credit losses, subject to specified eligibility criteria, less applicable deductions.

The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels).

Under the guidelines, capital is compared to the relative risk included in the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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The Basel III Capital Rules also place restrictions on the payment of capital distributions, including dividends and stock repurchases, and certain discretionary bonus payments to executive officers if the banking organization does not hold a capital conservation buffer of greater than 2.5% composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter.

In December 2018, the federal banking agencies issued a final rule to address regulatory treatment of credit loss allowances under CECL. The rule revised the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day-one adverse effects on regulatory capital that may result from the adoption of the CECL model. Concurrent with the enactment of the CARES Act, in March 2020, federal banking agencies issued an interim final rule that delayed the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provided banking organizations that implemented CECL prior to the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. On August 26, 2020, the federal banking agencies issued a final rule that made certain technical changes to the interim final rule, including expanding the pool of eligible institutions. The changes in the final rule applied only to those banking organizations that elected the CECL transition relief provided for under the rule. Under the Consolidated Appropriations Act, 2021, bank holding companies and their affiliates have the option of postponing implementation of CECL until the earlier of (i) the first day of the fiscal year that begins after the date on which the national emergency concerning COVID-19 terminates or (ii) January 1, 2022. Congress provided this reprieve for a variety of reasons, including the fact that COVID-19 has created a volatile, uncertain lending environment that may result in significant credit losses for banks. Park adopted CECL on January 1, 2021.

In September 2019, consistent with Section 201 of the Regulatory Relief Act, the Federal Reserve Board, along with the other federal bank regulatory agencies, issued a final rule, effective January 1, 2020, that gave community banks, including Park National Bank, the option to calculate a simple leverage ratio to measure capital adequacy, if the community banks met certain requirements. Under the rule, a community bank was eligible to elect the Community Bank Leverage Ratio (“CBLR”) framework if it had less than $10 billion in total consolidated assets, limited amounts of certain trading assets and liabilities, limited amounts of off-balance sheet exposures and a leverage ratio greater than 9.0%. The final rule adopted tier 1 capital and the existing leverage ratio into the CBLR framework. The tier 1 numerator took into account the modifications made in relation to the capital simplifications and CECL methodology transition rules as of the compliance dates of those rules. Qualifying institutions that elected to use the CBLR framework (each, a “CBLR Bank”) and that maintained a leverage ratio of greater than 9.0% were considered to have satisfied the risk-based and leverage capital requirements in the regulatory agencies’ generally applicable capital rules and to have met the well-capitalized ratio requirements. No CBLR Bank was required to calculate or report risk-based capital, and each CBLR Bank could opt out of the framework at any time, without restriction, by reverting to the generally applicable risk-based capital rule. Pursuant to the CARES Act, on August 26, 2020, the federal banking agencies adopted a final rule that temporarily lowered the CBLR threshold and provided a gradual transition back to the prior level. Specifically, the CBLR threshold was reduced to 8.0% for the remainder of 2020, increased to 8.5% for 2021, and returned to 9.0% on January 1, 2022. This final rule became effective on October 1, 2020. Park did not utilize the CBLR in assessing capital adequacy.

In October 2021, effective in November 2021, the FDIC issued a final rule to incorporate the CBLR rule into the Real Estate Lending Standards. This rule calculates the ratio of loans in excess of the supervisory loan-to-value limits (“LTV Limits”) using tier 1 capital plus the appropriate allowance for credit losses in the denominator. This rule was adopted to allow a consistent approach for calculating the ratio of loans in excess of the supervisory LTV Limits at all FDIC supervised institutions, and to avoid any regulatory burden that could arise if an FDIC supervised institution subsequently decides to switch between different capital frameworks.

The federal banking agencies have established a system of prompt corrective action to resolve certain of the problems of undercapitalized depository institutions. This system is based on five capital level categories for insured depository institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.”

The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a bank’s capital level. For example, the banking agencies must appoint a receiver or conservator for a bank within 90 days after the bank becomes “critically undercapitalized” unless the bank’s primary regulator determines, with the concurrence of the FDIC, that other action would better achieve regulatory purposes. Banking operations otherwise may be significantly affected depending on a bank’s capital category. For example, a bank that is not “well capitalized” generally is prohibited from accepting brokered
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deposits and offering interest rates on deposits higher than the prevailing rate in its market, and the holding company of any undercapitalized depository institution must guarantee, in part, specific aspects of the bank’s capital plan for the plan to be acceptable.

In order to be “well-capitalized,” a bank must have a common equity tier I capital ratio of at least 6.5%, a total risk-based capital of at least 10.0%, a tier 1 risk-based capital ratio of at least 8.0% and a leverage ratio of at least 5.0%, and the bank must not be subject to any written agreement, order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. Park’s management believes that Park National Bank meets the ratio requirements to be deemed “well-capitalized” according to the guidelines described above. See "Note 28 - Capital Ratios" of the Notes to Consolidated Financial Statements found in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
Fiscal and Monetary Policies
The business and earnings of Park and its subsidiaries are affected significantly by the fiscal policies of the U.S. government and its agencies. Park National Bank is particularly affected by the monetary policies of the Federal Reserve Board, which regulates the supply of money and credit in the United States primarily through open market operations in U.S. government securities, changes in the discount rate on bank borrowings, and changes in the reserve requirements against deposits of depository institutions. These policies are used in varying degrees and combinations to directly affect the overall growth and distribution of bank loans, investments and deposits, as well as the interest rates charged on loans and paid on deposits. In light of the changing conditions in the U.S. economy, including changes brought about by COVID-19, the money markets and the activities of fiscal and monetary authorities, Park can make no definitive predictions as to future changes in interest rates, credit availability or deposit levels.

Limits on Dividends and Other Payments
There are various legal limitations on the extent to which a subsidiary bank may finance or otherwise supply funds to its parent holding company. Under applicable federal and state laws, a subsidiary bank may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its parent holding company. A subsidiary bank is also subject to collateral security requirements for any loan or extension of credit permitted by such exceptions.
The ability of Park to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by Park National Bank. The Federal Reserve Board also expects Park to serve as a source of strength to Park National Bank, which may require Park to retain capital for further investment in Park National Bank, rather than pay dividends to the Park shareholders.

Park National Bank may not pay dividends out of its surplus if, after paying these dividends, Park National Bank would fail to satisfy all of the capital adequacy regulations and guidelines established by the OCC, including having a capital conservation buffer that is greater than 2.5%. In addition, Park National Bank must have the approval of the OCC if a dividend in any year would cause the total dividends for that year to exceed the sum of Park National Bank’s net income for the current year and the retained net income for the preceding two years, less required transfers to surplus. Payment of dividends by Park National Bank may be restricted at any time at the discretion of its regulatory authorities, if such regulatory authorities deem such dividends to constitute unsafe and/or unsound banking practices or if necessary to maintain adequate capital. These provisions could have the effect of limiting Park’s ability to pay dividends on Park's Common Shares.
At December 31, 2021, approximately $116.8 million of the total shareholders’ equity of Park National Bank was available for payment to Park without the approval of the OCC. See "Note 23 - Dividend Restrictions" of the Notes to Consolidated Financial Statements found in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
The Federal Reserve Board has also issued a policy statement with regard to the payment of cash dividends by financial holding companies and other bank holding companies. The policy statement provides that, as a matter of prudent banking, a financial holding company or bank holding company should not maintain a rate of cash dividends unless its net income available to common shareholders over the past year has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears to be consistent with the financial holding company's or bank holding company’s capital needs, asset quality, and overall financial condition. Accordingly, a financial holding company or a bank holding company should not pay cash dividends that exceed its net income or that can only be funded in ways that weaken the financial holding company's or bank holding company’s financial health, such as by borrowing. In addition, Park may not pay dividends that
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would cause Park to fail to satisfy the capital adequacy regulations applicable to bank holding companies which qualify as financial holding companies, including having a capital conservation buffer that is greater than 2.5%.

Park is subject to contractual restrictions on the declaration and payment of dividends under the terms of certain of Park's debt instruments.

Under the terms of the Indenture governing the $15.5 million of junior subordinated notes issued by Vision to the Vision Trust and the related Guarantee Agreement, Park, as successor to Vision in accordance with the First Supplemental Indenture, is prohibited, subject to limited exceptions, from declaring or paying any dividends or distributions on any shares of its capital stock: (i) if an event of default under the Indenture has occurred and continues; (ii) if Park is in default with respect to the payment of any obligations under the Guarantee Agreement; or (iii) during any period in which the payment of interest on the junior subordinated notes by Park (and the payment of cash distributions on the floating rate preferred securities of the Vision Trust) is being deferred.

Volcker Rule
In December 2013, five federal agencies adopted a final regulation implementing the Volcker Rule provision of the Dodd-Frank Act (the "Volcker Rule"). The Volcker Rule placed limits on the trading activity of insured depository institutions and entities affiliated with depository institutions, subject to certain exceptions. Such trading activity included the purchase or sale as principal of a security, derivative, commodity, future, option or similar instrument in order to benefit from short-term price movements or to realize short-term profits. The Volcker Rule exempted trading in specified U.S. government, agency, state and/or municipal obligations. The Volcker Rule also excepted (i) trading conducted in certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a fiduciary on behalf of customers; (ii) trading to satisfy a debt previously contracted; (iii) trading under certain repurchase and securities lending agreements; and (iv) trading in connection with risk-mitigating hedging activities. In addition, the Volcker Rule prohibited a banking entity from having an ownership interest in, or certain relationships with, a hedge fund or private equity fund, also known as “covered funds,” subject to a number of exceptions.

In July 2019, the federal bank regulatory agencies that adopted the Volcker Rule adopted a final rule to exempt certain community banks, including Park National Bank, from such rule consistent with the Regulatory Relief Act. Under the final rule, community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5.0% or less of total consolidated assets were excluded from the restrictions of the Volcker Rule. On June 25, 2020, the federal bank regulatory agencies also finalized a rule modifying the Volcker Rule’s prohibition on banking entities investing in or sponsoring covered funds. Such rule permits certain banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was originally intended to address.

To the extent that Park National Bank engages in any of the trading activities or has any ownership interest in or relationship with any of the types of funds regulated by the Volcker Rule, Park National Bank believes that its activities and relationships comply with such rule, as amended.

Financial Privacy Provisions
Federal and state regulations limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.
Park National Bank is also subject to regulatory guidelines establishing standards for safeguarding customer information. These guidelines describe the federal bank regulatory agencies' expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.
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Cybersecurity
In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish several lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the financial institution’s operations after a cyber attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the financial institution or its critical service providers fall victim to this type of cybersecurity attack. If Park National Bank fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.

In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

In November 2021, the OCC, the Federal Reserve Board and the FDIC issued a final rule requiring banking organizations that experience a computer-security incident to notify certain entities. A computer-security incident occurs when actual or potential harm to the confidentiality, integrity or availability of an information system or the information occurs, or there is a violation or imminent threat of a violation to banking security policies and procedures. The affected bank must notify its respective federal regulator of the computer-security incident as soon as possible and no later than 36 hours after the bank determines a computer-security incident has occurred. These notifications are intended to promote early awareness of threats to banking organizations and will help banks react to those threats before they manifest into bigger incidents. This rule also requires bank service providers to notify their customers of a computer-security incident.

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. Park expects this trend of state-level activity in those areas to continue, and continues to monitor developments in the states in which our customers are located.

In the ordinary course of business, Park relies on electronic communications and information systems to conduct its operations and to store sensitive data. Park employs an in-depth, layered, defensive approach that leverages people, processes, encryption and multi-factor authentication technology to manage and maintain cybersecurity controls. Park employs a variety of preventative and detective tools to monitor, block and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of Park’s defensive measures, the threat from cybersecurity attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date, Park has not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, Park’s systems and those of its customers and third-party service providers are under constant threat and it is possible that Park could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking and other technology-based products and services by us and our customers. See “ITEM 1A. RISK FACTORS” for a further discussion of risks related to cybersecurity.

Anti-Money Laundering and the Patriot Act

A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended (the “Patriot Act”), substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The Patriot Act gives the U.S. government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. Title III of the Patriot Act encourages information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions. Among other requirements, Title III and related regulations require regulated financial institutions to establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to
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detect and report suspicious activity. Park National Bank has established policies and procedures that Park National Bank believes comply with the requirements of the Patriot Act.
The Anti-Money Laundering Act of 2020 (the "AMLA"), which amends the Bank Secrecy Act of 1970 (the "BSA"), was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; and expands enforcement-related and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower initiatives and protections.
Office of Foreign Assets Control Regulation
The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. Park is responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.
Community Reinvestment Act

The CRA requires Park National Bank's primary federal regulatory agency, the OCC, to assess Park National Bank's record in meeting the credit needs of the communities served by Park National Bank consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market area by, among other things, providing credit to low-income and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings that must be publically disclosed. The OCC assigns one of four ratings: outstanding, satisfactory, needs to improve or substantial noncompliance. The rating assigned to a financial institution is considered in connection with various applications submitted by the financial institution or its holding company to its banking regulators, including applications to acquire another financial institution or to open or close a branch office. In addition, all subsidiary banks of a financial holding company must maintain a satisfactory or outstanding rating in order for the financial holding company to avoid limitations on its activities. Park National Bank received a rating of "satisfactory" in its latest CRA examination.

Corporate Governance
As mandated by the Sarbanes-Oxley Act of 2002, as amended, the SEC has adopted rules and regulations governing, among other issues, corporate governance, auditing and accounting, executive compensation and enhanced and timely disclosure of corporate information. NYSE American has also adopted corporate governance rules. The Board of Directors of Park has taken a series of actions to strengthen and improve Park’s already strong corporate governance practices in light of the rules of the SEC and NYSE American. The Board of Directors has adopted and annually reviews charters for the Audit Committee, the Compensation Committee, the Executive Committee, the Nominating and Corporate Governance Committee (including as Exhibit A thereto, Corporate Governance Guidelines) and the Risk Committee, as well as a Code of Business Conduct and Ethics governing the directors, officers and associates of Park and its subsidiaries.
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Executive and Incentive Compensation
The Dodd-Frank Act requires that the federal bank regulatory agencies, including the Federal Reserve Board and the OCC, establish joint regulations or guidelines related to incentive-based compensation. No final rule implementing this provision of the Dodd-Frank Act has, as of the date of the filing of this Annual Report on Form 10-K, been adopted, but a proposed rule was published in 2016 that expanded upon a prior proposed rule published in 2011. The proposed rule is intended to: (i) prohibit incentive-based payment arrangements that the bank regulatory agencies determine could encourage certain financial institutions to take inappropriate risks by providing excessive compensation or that could lead to material financial loss; (ii) require the board of directors of those financial institutions to take certain oversight actions related to incentive-based compensation; and (iii) require those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate federal regulator. Although a final rule has not been issued, Park and Park National Bank have undertaken efforts to ensure that their incentive compensation plans do not encourage inappropriate risks, consistent with the principles identified above.

In June 2010, the Federal Reserve Board, the OCC and the FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization's incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization's ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management and (iii) be supported by strong corporate governance, including active and effective oversight by the organization's board of directors. These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank Act, described above.

The Federal Reserve Board and the OCC review, as part of their respective regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as Park and Park National Bank, that are not "large, complex banking organizations." These reviews are tailored to each organization based on the scope and complexity of the organization's activities and the prevalence of incentive compensation arrangements. Deficiencies will be incorporated into the organization's supervisory ratings, which can affect the organization's ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization's safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

Public company compensation committee members must meet heightened independence requirements and consider the independence of compensation consultants, legal counsel and other advisors to the compensation committee. A compensation committee must have the authority to hire advisors and the public company must fund the reasonable compensation of such advisors.
SEC regulations require public companies to provide various disclosures about executive compensation in annual reports and proxy statements and to present to their shareholders a non-binding vote on the approval of executive compensation.

Public companies will be required, once stock exchanges adopt additional listing requirements under the Dodd-Frank Act, to implement "clawback" procedures for incentive compensation payments and to disclose the details of the procedures which allow recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating an accounting restatement due to material noncompliance with financial reporting requirements. This clawback policy is intended to apply to compensation paid within a three-year look-back window of the restatement and would cover all executives (including former executives) who received incentive awards.
Consumer Protection Laws and Regulations

Banks are subject to regular examination to ensure compliance with federal consumer protection statutes and regulations, including, but not limited to, the following:

•Equal Credit Opportunity Act (prohibiting discrimination in any credit transaction on the basis of any of various criteria)

•Truth in Lending Act (requiring that credit terms be disclosed in a manner that permits a consumer to understand and compare credit terms more readily and knowledgeably)

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•Fair Housing Act (making it unlawful for a lender to discriminate in its housing-related lending activities against any person on the basis of certain criteria)

•Home Mortgage Disclosure Act (requiring financial institutions to collect data that enables regulatory agencies to determine whether financial institutions are serving the housing credit needs of the communities in which they are located)

•Real Estate Settlement Procedures Act (requiring that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits abusive practices that increase borrowers' costs)

•Fair Credit Reporting Act (governing the provision of consume information to credit reporting agencies and the use of consumer information)

•Fair Debt Collection Practices Act (governing the manner in which consumer debts may be collected by collection agencies)

•Truth in Savings Act (requiring disclosure of deposit terms to consumers)

•Electronic Funds Transfer Act (governing automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of ATMs and other electronic banking services)

The bank regulators also use their authority under the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices by banks that may not necessarily fall within the scope of a specific banking or consumer finance law.

In October 2017, the OCC rescinded its guidance on deposit advance products in light of the CFPB’s pending small dollar loan rule related to payday, vehicle title and certain high cost installment loans that was issued in November 2013 (the “Small Dollar Rule”). The Small Dollar Rule, however, has been the subject of further regulatory review and a court order staying compliance in connection with a legal challenge. The CFPB issued its final Small Dollar Rule on July 22, 2020, which became fully effective on October 20, 2020. Specifically, the CFPB revoked provisions that: (i) provide that it is an unfair and abusive practice for a lender to make a covered short-term or longer term balloon-payment loan, including payday and vehicle title loans, without reasonably determining that consumers have the ability to repay those loans according to their terms; (ii) prescribe mandatory underwriting requirements for making the ability-to-repay determination; (iii) exempt certain loans from the mandatory underwriting requirements; and (iv) establish related definitions, reporting, and recordkeeping requirements. In August 2021, the court overseeing the litigation challenging the Small Dollar Rule found in the CFPB’s favor, and ordered the compliance date to be 286 days after the final judgment. Lenders are required to comply by June 13, 2022.

Separately, in May 2018, the OCC published guidance that encourages national banks and federal savings associations to offer responsible short-term, small-dollar installment loans with terms between two and twelve months and equal amortizing payments. Pursuant to the OCC’s guidance on this issue, banks are encouraged to offer these products in a manner that is consistent with sound risk management principles and clear, documented underwriting guidelines. Further, the federal bank regulatory agencies issued interagency guidance on May 20, 2020, to encourage banks, savings associations, and credit unions to offer responsible small-dollar loans to customers for consumer and small business purposes. As of the date of the filing of this Annual Report on Form 10-K, Park National Bank has not decided to offer such products, although this position may change as Park National Bank refines its business plan in the future.
             
As a consumer finance company incorporated under Ohio law, Guardian Finance is subject to regulation and supervision by the ODFI. ODFI regulation and supervision are designed to protect consumers and can affect the lending activities of Guardian Finance, including interest rates, loan terms, advertising and record retention. If grounds provided by law exist, the ODFI may suspend or revoke an Ohio consumer finance company’s ability to make loans.
Legislative and Regulatory Initiatives
From time to time, various legislative and regulatory initiatives are introduced in the U.S. Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of Park and Park National Bank in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions and other financial
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institutions. Park cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of Park. A change in statutes, regulations or regulatory policies applicable to Park or any of its subsidiaries could have a material effect on Park's business, financial condition and results of operations.
Effect of Environmental Regulation
Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position of Park and its subsidiaries. Park believes the nature of the operations of its subsidiaries has little, if any, environmental impact. As a result, Park, anticipates no material capital expenditures for environmental control facilities for Park's current fiscal year or for the foreseeable future.
Park believes its primary exposure to environmental risk is through the lending activities of its subsidiaries. In cases where management believes environmental risk potentially exists, Park’s subsidiaries mitigate their environmental risk exposures by requiring environmental site assessments at the time of loan origination to confirm collateral quality as to commercial real estate parcels posing higher than normal potential for environmental impact, as determined by reference to present and past uses of the subject property and adjacent sites. In addition, environmental assessments are typically required prior to any foreclosure activity involving non-residential real estate collateral.

ITEM 1A.RISK FACTORS.

Cautionary Statement Regarding Forward-Looking Information
Certain statements contained in this Annual Report on Form 10-K and the documents incorporated herein by reference that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, the statements specifically identified as forward-looking statements within this Annual Report on Form 10-K. In addition, certain statements in future filings by Park with the SEC, in press releases, and in oral and written statements made by or with the approval of Park which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include: (i) projections of income or expense, earnings per share, the payment or non-payment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of Park or our management or Board of Directors, including those relating to products or services or to potential or pending acquisitions; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the forward-looking statements. Park desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including those factors and events identified below. There is also the risk that Park’s management or Park's Board of Directors incorrectly analyzes these risks and uncertainties or that the strategies Park develops to address such risks and uncertainties are unsuccessful. Forward-looking statements speak only as of the date on which they are made, and, except as may be required by law, Park undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made. All subsequent written and oral forward-looking statements attributable to Park or any person acting on Park’s behalf are qualified in their entirety by the preceding cautionary statements.
Economic, Political and Market Risks

The economic impact of COVID-19 or any other pandemic could adversely affect our business, financial condition, liquidity, and results of operations.

COVID-19 has negatively impacted global, national and local economies, disrupted global and national supply chains, lowered equity market valuations, and created significant volatility and disruption in financial markets. In addition, the pandemic resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities and may result in the same or similar restrictions in the future. As a result, the demand for our products and services have been and may continue to be significantly impacted, which could adversely affect
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our revenue and results of operations. Furthermore, the pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain required to operate at diminished capacities or are required to close again, the impact on the global, national and local economies worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses.

The effects of COVID-19 could be particularly pronounced with respect to certain of the higher risk portions of PNB's loan portfolio:
•Strip shopping centers, due to declining interest in such spaces by their users and declining interest in visiting shared spaces. As of December 31, 2021, excluding PPP loans, this portfolio was $265.5 million, or 3.9% of PNB's loan portfolio.
•Restaurants and food service, due to stay at home orders and requirements that restaurants provide carry-out only service. As of December 31, 2021, excluding PPP loans, this portfolio was $53.3 million, or 0.8% of PNB's loan portfolio.
•Hotel and accommodations, due to travel limitations implemented by governments and businesses as well as declining interest in travel, generally. As of December 31, 2021, excluding PPP loans, this portfolio was $220.1 million, or 3.2% of PNB's loan portfolio.

Additionally, there is risk in our non-bank consumer finance companies and indirect consumer (auto) lending, due to the impact of the disrupted global supply chains on the availability and price of automobiles--both new and used. As of December 31, 2021, excluding PPP loans, the portions of these portfolios dedicated to automobile-based loans aggregated to $1.8 billion, or 26.3% of PNB's loan portfolio.

Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with COVID-19. The extent to which COVID-19 impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

As of December 31, 2021, we hold and service PPP loans. These PPP loans are subject to the provisions of the CARES Act and to complex and evolving rules and guidance issued by the SBA and other government agencies. While a large number of our PPP borrowers have applied for and received full or partial forgiveness of their loan obligations, we still have credit risk on the remaining PPP loans in the event the SBA determines that there is a deficiency in the manner in which we originated, funded or serviced such PPP loans, including any issue with the eligibility of a borrower to receive funding. We could face additional risks in our administrative capabilities to service our PPP loans and to properly determine loan forgiveness. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which we originated, funded or serviced the PPP loan, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if the SBA has already paid under the guaranty, seek recovery of any loss related to the deficiency.

The spread of COVID-19, including new variants thereof, has also caused us to modify our business practices, including associate travel, associate work locations, and cancellation of physical participation in meetings, events and conferences. Further, technology in associates’ homes may not be as robust as in our offices and could cause the networks, information systems, applications and other tools available to such employees to be more limited or less reliable. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk from phishing, malware and other cybersecurity attacks, all of which could expose us to risks of data or financial loss and could seriously disrupt our operations and the operations of any impacted customers.

COVID-19, the rise of new strains thereof, or a new pandemic could subject us to any of the following risks, any of which could, individually or in the aggregate, have a material adverse effect on our business, financial condition, liquidity and results of operations:

•demand for our products and services may decline, making it difficult to grow assets and income;
•if the economy continues to be unable to fully re-open, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
•collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
•our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
•the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
•a prolonged weakness in economic conditions resulting in a reduction of future projected earnings could result in our recording a valuation allowance against our current outstanding deferred tax assets;
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•we rely on third-party vendors for certain services and the unavailability of a critical service due to COVID-19 could have an adverse effect on us; and
•continued adverse economic conditions could result in protracted volatility in the price of our Common Shares.

Moreover, our future success and profitability substantially depend on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key associates due to COVID-19, including new variants thereof, or any similar pandemic could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Even after the COVID-19 pandemic subsides, the U.S. economy will likely require time to recover, the length of which is unknown and during which the United States may experience a recession or market correction. Our business could be materially and adversely affected by any such recession or market correction.

We continue to closely monitor COVID-19 and related risks as they evolve. To the extent the effects of COVID-19 adversely impact our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in this Item.

Changes in economic and political conditions could adversely affect our earnings and capital through declines in deposits, quality of investment securities, loan demand, our borrowers’ ability to repay loans, and the value of the collateral securing our loans.
 
Our success depends, to a certain extent, upon local and national economic and political conditions, as well as governmental fiscal and monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy, tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars, and other factors beyond our control may adversely affect our deposit levels and composition, the quality of our assets including investment securities available for purchase and the demand for loans, which, in turn, may adversely affect our earnings and capital. Recent political developments have resulted in substantial changes in economic and political conditions for the United States and the remainder of the world. Disruptions in United States and global financial markets and changes in oil production in the Middle East affect the economy and stock prices in the United States, which can affect our earnings and our capital, as well as the ability of our customers to repay loans. Because we have a significant number of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral and our ability to sell the collateral upon foreclosure. Adverse changes in the economy, including those resulting from COVID-19, including new variants thereof, may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings and cash flows.
 
Changes in interest rates could have a material adverse effect on our financial condition, results of operations and cash flows.
Our earnings and cash flows depend substantially on our interest rate spread, which is the difference between: (i) the rates we earn on loans, investment securities and other interest earning assets; and (ii) the interest rates we pay on deposits and our borrowings. These rates are highly sensitive to many factors beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities and, in particular, the Federal Reserve Board. Changes in monetary policy influence the origination of loans, the prepayment speed of loans, the purchase of investments, the generation of deposits and rates of interest received and paid. If market interest rates rise, Park will have competitive pressure to increase the rates that Park pays on deposits, which could result in a decrease of Park's net interest income. If market rates decline, Park could experience fixed-rate loan prepayments and higher investment portfolio cash flows, resulting in a lower yield on earning assets. Park's earnings can also be impacted by the spread between short-term and long-term market interest rates.

While we have taken measures intended to manage the risks of operating in a changing interest rate environment, there can be no assurance that such measures will be effective in avoiding undue interest rate risk, especially in light of the continued economic effects of COVID-19. Information pertaining to the impact changes in interest rates could have on our net income is included in "Table 38 - Interest Rate Sensitivity" in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K, and is incorporated herein by reference.

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Changes in the general economic conditions and real estate valuations in our primary market areas could adversely impact results of operations, financial condition and cash flows.

Our lending and deposit gathering activities are concentrated primarily in Ohio, Kentucky, North Carolina and South Carolina. Our success depends on the general economic conditions of our primary market areas, particularly given that a significant portion of our lending relates to real estate located in these regions. Adverse changes in the regional and general economic conditions could reduce our growth rate, impair our ability to collect payments on loans, increase loan delinquencies, increase problem assets and foreclosures, increase claims and lawsuits, increase devaluations recognized within our OREO portfolio, decrease the demand for our products and services and decrease the value of collateral for loans, especially real estate values, which could have a material adverse effect on our financial condition, results of operations and cash flows.

The transition away from the London Interbank Offered Rate ("LIBOR") as a reference rate for financial instruments could negatively affect our income and expenses and the value of various financial instruments.

LIBOR is used extensively in the United States and globally as a benchmark for various commercial and financial contracts, including adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives. LIBOR is set based on interest rate information reported by certain banks, which may stop reporting such information after 2021. On July 27, 2017, the United Kingdom’s Financial Conduct Authority ("FCA") announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. On November 30, 2020, to facilitate an orderly LIBOR transition, the OCC, the FDIC, and the Federal Reserve Board jointly announced that entering into new contracts using LIBOR as a reference rate after December 31, 2021, would create a safety and soundness risk. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of one-week and two-month LIBOR, and immediately after June 30, 2023, in the case of the remaining LIBOR settings. In the United States, efforts to identify a set of alternative U.S. dollar reference interest rates are ongoing, and the Alternative Reference Rate Committee ("ARRC") has recommended the use of a Secured Overnight Funding Rate ("SOFR"). SOFR is different from LIBOR in that it is a backward-looking secured rate rather than a forward-looking unsecured rate.

These differences could lead to a greater disconnect between our costs to raise funds for SOFR as compared to LIBOR. For cash products and loans, ARRC has also recommended Term SOFR, which is a forward-looking SOFR based on SOFR futures and may in part reduce differences between SOFR and LIBOR. There are operational issues which may create a delay in the transition to SOFR or other substitute indices, leading to uncertainty across the industry. These consequences cannot be entirely predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, and other financial obligations or extensions of credit.
    
Park has limited exposure to LIBOR, with total exposure as of December 31, 2021 of approximately $686.4 million. We do not believe the change to a benchmark like SOFR will have a material impact on our financial condition, results of operations or cash flows.

Business Operations Risks

We are exposed to operational risk.
 
Similar to any large organization, we are exposed to many types of operational risk, including those discussed in more detail elsewhere in this Item, such as reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems. These risks are heightened in light of COVID-19.

We may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control, which may include, for example, computer viruses, cyber-attacks, spikes in transaction volume and/or customer activity, electrical or telecommunications outages, or natural disasters. We could be adversely affected by operating systems disruptions if new or upgraded business management systems are defective, not installed properly or not properly integrated into existing operating systems. Although we have programs in place related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity and availability of our operating systems, business applications and customer information, such disruptions may give rise to interruptions in service to customers, loss of data privacy, and loss or liability to us.

Any failure or interruption in our operating or information systems, or any security or data breach, could cause reputational damage, jeopardize the confidentiality of customer information, result in a loss of customer business, subject us to
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regulatory intervention or expose us to civil litigation and financial loss or liability, any of which could have a material adverse effect on us.

Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, social media and other marketing activities, the implementation of environmental, social, and governance practices, and from actions taken by governmental regulators and community organizations in response to any of the foregoing. Negative public opinion could adversely affect our ability to attract and keep customers, could expose us to potential litigation or regulatory action, and could have a material adverse effect on the price of our Common Shares or result in heightened volatility.

Given the volume of transactions we process, certain errors may be repeated or compounded before they are discovered and successfully rectified. Our necessary dependence upon automated systems to record and process our transaction volume may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect, which may give rise to disruption of service to customers and to financial loss or liability. We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as we are) or that our (or our vendors’) consumer compliance, business continuity, and data security systems will prove to be inadequate.

Our business could be adversely affected by third-party service providers, data breaches and cyber-attacks.

We face the risk of operational disruption, failure or capacity constraints due to our dependency on third-party vendors for components of our business infrastructure. While we have selected these third-party vendors through our vendor management process, we do not control their operations. Further, the operations of our third-party vendors could fail or otherwise become delayed as a result of COVID-19 and any new variants thereof. As such, our business and operations could be adversely affected in the event these vendors are unable to perform their various responsibilities and we are unable to timely and cost-effectively identify acceptable substitute providers.

Regulatory guidance adopted by federal bank regulatory agencies addressing how banks select, engage and manage their third-party relationships could affect the circumstances and conditions under which we work with third-party service providers and the costs of managing such relationships.

Our assets at risk for cyber-attacks include financial assets and non-public information belonging to customers. We use several third-party vendors who have access to our assets via electronic media. Certain cybersecurity risks arise due to this access, including cyber espionage, blackmail, ransom, malware, and theft. We employ many preventive and detective controls to protect our assets, and we provide mandatory recurring information security training to all employees. To date, we have not experienced any material losses relating to cyber-attacks or other information security breaches, but there can be no assurance that we will not suffer such attacks or attempted breaches, or incur resulting losses in the future. Our risk and exposure to these matters remains heightened due to, among other factors, the evolving nature of these threats, our plans to continue to implement or expand Internet and mobile banking to meet customer demand, the continuing impact of COVID-19 and the governmental and other responses thereto and the current economic and political environment. As cybersecurity and other data security threats continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate and remediate any security vulnerabilities.

Failures or material breaches in security of our systems, or those of third-party service providers, may have a material adverse effect on our results of operations and financial condition and the price of our Common Shares.

We collect, process and store sensitive consumer data by utilizing computer systems and telecommunications networks operated by both us and third-party service providers. Our dependence upon automated systems to record and process our transactions poses the risk that technical system flaws, employee errors, tampering or manipulation of those systems, or attacks by third parties will result in losses and may be difficult to detect. We have security and backup and recovery systems in place, as well as a business continuity plan, to ensure the computer systems will not become inoperable, to the extent possible. We also routinely review documentation of such controls and backups related to third-party service providers. Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. In recent years, several banks have experienced denial of service attacks in which individuals or organizations flood the bank's website with extraordinarily high volumes of traffic, with the goal and effect of disrupting the ability of the bank to process transactions. Other businesses have been victims of ransomware attacks in which the business becomes unable to access its own information and is presented with a demand to pay a ransom in order to once again have access to its information. We could be adversely affected if one of our employees or a third-party service provider causes a significant operational break-down or failure, either as a result of human error or where the individual purposefully sabotages or
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fraudulently manipulates our operations or systems. We may not be able to prevent employee or third-party errors or misconduct, and the precautions we take to detect this type of activity might prove ineffective. We are further exposed to the risk that the third-party service providers may be unable to fulfill their contractual obligations (or will be subject to the same risks that we are). These disruptions may interfere with service to our customers, cause additional regulatory scrutiny and result in a financial loss or liability. We are also at risk of the impact of natural disasters, terrorism and international hostilities on our systems or for the effects of outages or other failures involving power or communications systems operated by others.

In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. Although we have policies and procedures in place to verify the authenticity of our customers, we cannot assure that such policies and procedures will prevent all fraudulent transfers.

We have implemented security controls to prevent unauthorized access to our computer systems, and we require that our third-party service providers maintain similar controls. However, Park's management cannot be certain that these measures will be successful. A security breach of the computer systems and loss of confidential information, such as customer account numbers and related information, could result in a loss of customers’ confidence and, thus, loss of business. We could also lose revenue if competitors gain access to confidential information about our business operations and use it to compete with us. While we maintain specific "cyber" insurance coverage, which would apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case. Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cyber insurance coverage.

Further, we may be affected by data breaches at retailers and other third parties who participate in data interchanges with us and our customers that involve the theft of customer credit and debit card data, which may include the theft of our debit card PIN numbers and commercial card information used to make purchases at such retailers and other third parties. Such data breaches could result in us incurring significant expenses to reissue debit cards and cover losses, which could result in a material adverse effect on our results of operations.

All of the types of cyber incidents discussed above could result in damage to our reputation, loss of customer business, increased costs of incentives to customers or business partners in order to maintain their relationships, litigation, increased regulatory scrutiny and potential enforcement actions, repairs of system damage, increased investments in cybersecurity (such as obtaining additional technology, making organizational changes, deploying additional personnel, training personnel and engaging consultants), increased insurance premiums, and loss of investor confidence and a reduction in the price of our Common Shares, all of which could result in financial loss and material adverse effects on our results of operations and financial condition.

We extend credit to a variety of customers based on certain internal standards and the judgment of our loan officers. Our credit standards and on-going process of credit assessment might not protect us from significant credit losses.

We take credit risk by virtue of making loans and leases, extending loan commitments and letters of credit and, to a lesser degree, purchasing municipal bonds and purchasing collateralized loan obligations. Our exposure to credit risk is managed through the use of consistent underwriting standards that emphasize “in-market” lending while avoiding highly leveraged transactions as well as excessive industry and other concentrations. Our loans to non-bank consumer finance companies are made nationally and present different risks than our "in-market" lending due to the variability of cash flows that support the asset-based loans. Our credit administration function employs risk management techniques to ensure that loans and leases adhere to corporate policy and problem loans and leases are promptly identified. While these procedures are designed to provide us with the information needed to implement policy adjustments where necessary, and to take proactive corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk.

Our business and financial results are subject to risks associated with the creditworthiness of our customers and counterparties.
Credit risk is inherent in the financial services business and results from, among other factors, extending credit to customers, purchasing non-governmental securities, and entering into certain guarantee contracts. Credit risk is one of the most significant risks to our business, particularly given the high percentage of our assets represented directly and indirectly by loans and the importance of lending to our overall business. As discussed in the immediately preceding risk factor, many factors
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impact credit risk, and we manage this by periodically assessing and monitoring the creditworthiness of our customers and by diversifying our loan portfolio.

A borrower's ability to repay a loan can be adversely affected by individual factors, such as business performance, job losses or health issues. A weak or deteriorating economy and changes in the United States or global markets and changes in interest rates also could adversely impact the ability of our borrowers to repay outstanding loans. Any decrease in our borrowers' ability to repay loans would result in higher levels of nonperforming loans, net charge-offs and provision for credit losses.

Financial services institutions are interrelated as a result of trading, clearing and other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry. Many of these transactions expose us to credit risk in the event of default of our counterparty or client.

Despite maintaining a diversified portfolio, our operations may result in concentrated credit exposure to a particular person, entity, industry or counterparty. Events adversely affecting specific customers, industries, or markets, a decrease in the credit quality of a customer base, or an adverse change in the risk profile of a market, industry, or group of customers could adversely affect our results of operations.

Our credit risk may be exacerbated when collateral held by us to secure obligations to us cannot be realized upon or is liquidated at prices that are not sufficient to recover the full amount of the loan.

Up until 2020, Park's provision for credit losses had declined since the end of the most recent recession, which ended in June 2009, primarily due to improvement in general economic conditions, as well as actions taken by us to better manage our loan portfolio. During 2020, Park experienced elevated provision for credit losses primarily due to the impact of COVID-19. If we were to experience higher levels of provision for credit losses, it could result in lower levels of net income.
Our expansion into Kentucky, South Carolina and North Carolina may also exposes Park to additional geographic risk.
Our allowance for credit losses may prove to be insufficient to absorb the expected, lifetime losses in our loan portfolio.

We maintain an allowance for credit losses that we believe is a reasonable estimate of the expected losses within the CECL model, based on management’s quarterly analysis of our loan portfolio. The determination of the allowance for credit losses requires management to make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of real estate and other assets serving as collateral for the repayment of loans. Additional information regarding our allowance for credit losses methodology and the sensitivity of the estimates can be found in the discussion of “CRITICAL ACCOUNTING POLICIES” included in “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” of this Annual Report on Form 10-K.

Our estimation of future credit losses is susceptible to changes in economic, operating and other conditions, including changes in regulations and interest rates, which may be beyond our control, and the losses may exceed current estimates. We cannot be assured of the amount of timing of losses, nor whether the allowance for credit losses will be adequate in the future.

If our assumptions prove to be incorrect, our allowance for credit losses may not be sufficient to cover the expected losses from our loan portfolio, resulting in the need for additions to the allowance for credit losses which could have a material adverse impact on our financial condition and results of operations. In addition, bank regulators periodically review our allowance for credit losses as part of their examination process and may require management to increase the allowance or recognize further loan charge-offs based on judgments different than those of management.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13 “Financial Instruments – Credit Losses,” which replaced the incurred loss model with the CECL model, an expected loss model. The new accounting guidance was to have been adopted by Park as of January 1, 2020. However, Section 4014 of the CARES Act provided financial institutions with optional temporary relief from having to comply with the CECL methodology which would have expired on December 31, 2020, and Section 540 of the Consolidated Appropriations Act, 2021, further extended the relief period to the earlier of the first day of the fiscal year that begins after the date on which the national emergency concerning COVID-19 terminates or January 1, 2022. Park elected to delay the implementation of CECL following the approval of the CARES Act and Consolidated Appropriations Act, 2021, and adopted CECL as of January 1, 2021.

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The accounting guidance under the CECL model requires banks to record, at the time of origination, credit losses expected throughout the life of financial assets measured at amortized cost, including loan receivables, HTM debt securities and reinsurance receivables, and off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees and other similar instruments) and net investments in leases recognized by a lessor. Under the CECL model, we are required to use historical information, current conditions and reasonable and supportable forecasts to estimate the expected credit losses. If the methodologies and assumptions we use in the CECL model prove to be incorrect, or inadequate, the allowance for credit losses may not be sufficient, resulting in the need for additional provisions for credit losses to be recorded, which could have a material adverse impact on our financial condition and results of operations.

The adoption of the CECL model by Park resulted in a net decrease to retained earnings of $8.0 million as of January 1, 2021 for the cumulative effect of adopting ASC 326 and a net recovery of credit losses of $11.9 million for the year ended December 31, 2021. As a result of the implementation of the CECL model, the time horizon over which we are required to estimate future credit losses expanded, which could result in increased volatility in future provisions for credit losses. We may also experience a higher or more volatile provision for credit losses due to higher levels of nonperforming loans and net charge-offs if commercial and consumer customers are unable to make scheduled loan payments.
We depend upon the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information provided to us by customers and counterparties, including financial statements and other financial information. We may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a business, we may assume that the customer’s audited financial statements conform with U.S. GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We may also rely on the audit report covering those financial statements. Our financial condition, results of operations and cash flows could be negatively impacted to the extent that we rely on financial statements that do not comply with U.S. GAAP or on financial statements and other financial information that are materially misleading.

We may be required to repurchase loans we have sold or to indemnify loan purchasers under the terms of the sale agreements, which could adversely affect our liquidity, results of operations and financial condition.

When we sell a mortgage loan, we may agree to repurchase or substitute a mortgage loan if we are later found to have breached any representation or warranty we made about the loan or if the borrower is later found to have committed fraud in connection with the origination of the loan. While we have underwriting policies and procedures designed to avoid breaches of representations and warranties we have made and borrower fraud, there can be no assurance that no breach or fraud will ever occur. Required repurchases, substitutions or indemnifications could have an adverse effect on our liquidity, results of operations and financial condition.

We are subject to environmental liability risk associated with lending activities.

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws and evolving regulation may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws and regulations or more stringent interpretations or enforcement policies with respect to existing laws or regulations may increase our exposure to environmental liability. Environmental reviews of real property before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, financial condition and results of operations.

Noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations could cause us to experience a material financial loss.

The Bank Secrecy Act of 1970 (the “BSA”) and the Patriot Act contain anti-money laundering and financial transparency provisions intended to detect and prevent the use of the U.S. financial system for money laundering and terrorist financing activities. The BSA, as amended by the Patriot Act and the Anti-Money Laundering Act of 2020 (the “AMLA”), requires depository institutions and their holding companies to undertake activities including maintaining an anti-money laundering program, verifying the identity of clients, monitoring for and reporting suspicious transactions, reporting on cash
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transactions exceeding specified thresholds, and responding to requests for information by regulatory authorities and law enforcement agencies. Financial Crimes Enforcement Network (also known as FinCEN), a unit of the Treasury Department that administers the BSA, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the federal bank regulatory agencies, as well as the U.S. Department of Justice, the Drug Enforcement Administration, and the Internal Revenue Service. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; and expands enforcement-related and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections.

There is also increased scrutiny of compliance with the rules enforced by OFAC. If our policies, procedures and systems are deemed deficient, or if the policies, procedures and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we may be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain planned business activities, including acquisition plans, which could negatively impact our business, financial condition and results of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.

We operate in a highly competitive environment, in terms of the products and services we offer and the geographic markets in which we conduct business, as well as in our labor markets where we compete for talented employees. Competition could adversely impact our customer acquisition, growth and retention, as well as our credit spreads and product pricing, causing us to lose market share and deposits and revenues.

We are subject to intense competition from various financial institutions as well as from non-bank entities that engage in many similar activities without being subject to bank regulatory supervision and restrictions. This competition is described in "ITEM 1. BUSINESS" of this Annual Report on Form 10-K under the caption "Competition." Competition in our industry could intensify as a result of the increasing consolidation of financial services companies, in connection with current market conditions, or otherwise. Consumers may also move money out of bank deposits in favor of other investments, including digital or cryptocurrency. Customers have increasingly used bill payment services that do not utilize banks, and these trends may result in losses of deposits and fee income.

The principal bases for competition are pricing (including the interest rates charged on loans or paid on interest bearing deposits), product structure, the range of products and services offered, and the quality of customer service (including convenience and responsiveness to customer needs and concerns). Digital or cryptocurrencies, blockchain, and other “fintech” technologies are designed to enhance transactional security and have the potential to disrupt the financial industry, change the way banks do business, and reduce the need for banks as financial deposit-keepers and intermediaries. The ability to access and use technology is an increasingly important competitive factor in the financial services industry, and it is a critically important component to customer satisfaction as it affects our ability to deliver the right products and services.

Another increasingly competitive factor in the financial services industry is the competition to attract and retain talented associates across many of our business and support areas. This competition leads to increased expenses in many business areas and can also cause us to not pursue certain business opportunities.

A failure to adequately address the competitive pressures we face could make it harder for us to attract and retain customers across our businesses. On the other hand, meeting these competitive pressures could require us to incur significant additional expense, to reevaluate the number of branches through which we serve our customers, or to accept risk beyond what we would otherwise view as desirable under the circumstances. In addition, in our interest rate sensitive businesses, pressures to increase rates on deposits or decrease rates on loans could reduce our net interest margin with a resulting negative impact on our net interest income.

We may not be able to adapt to technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers while reducing costs. Our future success depends, in part, upon our ability to address customer needs by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. This could include the development, implementation, and adaptation of digital or cryptocurrency, blockchain, and other “fintech” technology. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully
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keep pace with technological changes affecting the financial services industry could negatively affect our growth, revenue and net income.
 
We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. Federal bank regulatory agencies have adopted extensive changes to their capital requirements, including raising required amounts and eliminating the inclusion of certain instruments from the calculation of capital. If we experience significant loan losses, additional capital may need to be infused. In addition, we may elect to raise additional capital to support our business or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital. Our ability to raise additional capital, if needed, will depend on our financial performance, conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control. Accordingly, there can be no assurance that we will be able to raise additional capital if needed or that the terms of available capital will be acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.

In addition, prior debt offerings could potentially have important consequences to us and our debt and equity investors, including:

•requiring a substantial portion of our cash flow from operations to make interest payments;
•making it more difficult to satisfy debt service and other obligations;
•increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing;
•increasing our vulnerability to general adverse economic and industry conditions;
•reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business;
•limiting our flexibility in planning for, or reacting to, changes in our business and the industry;
•placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged with debt; and
•limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase securities.

We continue to evaluate these risks on an ongoing basis.

Our ability to pay dividends on our Common Shares is limited.
 
Although we have paid a dividend on our Common Shares every quarter since becoming a public company, our Board of Directors reviews the dividend on a quarterly basis and establishes the dividend rate based on our financial condition, results of operations, capital and other regulatory requirements, and other factors that our Board of Directors deems relevant. As a financial holding company, we are a legal entity separate and distinct from our subsidiaries and affiliates. Our principal source of funds to pay dividends on our Common Shares and service our debt is dividends from our subsidiaries. In the event our subsidiaries become unable to pay dividends to us, we may not be able to service our debt, pay our other obligations or pay dividends on our Common Shares. Accordingly, our inability to receive dividends from our subsidiaries could also have a material adverse effect on our business, financial condition and results of operations.

Various federal and state statutory provisions and regulations limit the amount of dividends that Park National Bank and our other subsidiaries may pay to us without regulatory approval. In addition, the Federal Reserve Board and the OCC have issued policy statements that provide that insured banks as well as financial holding companies and other bank holding companies should generally only pay dividends out of current operating earnings. Thus, the ability of Park National Bank to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines and may restrict our ability to declare and pay dividends to our shareholders.

Payment of dividends could also be subject to regulatory limitations if Park National Bank were to become “undercapitalized” for purposes of the applicable “prompt corrective action” regulations. Throughout 2021 and 2022 to date, Park National Bank has been in compliance with all regulatory capital requirements and had sufficient capital under the “prompt corrective action” regulations to be deemed “well-capitalized.” There are also restrictions on the ability of Park National Bank to pay dividends if it does not hold the applicable capital conservation buffer.

If any of our subsidiaries becomes insolvent, the direct creditors of that subsidiary will have a prior claim on that subsidiary’s assets. Our rights and the rights of our creditors will be subject to that prior claim, unless we are also a direct creditor of that subsidiary.
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 Derivative transactions may expose us to unexpected risk and potential losses.
 
We are party to a number of derivative transactions. Many of these derivative instruments are individually negotiated and non-standardized, which can make exiting, transferring or settling the position difficult. We carry borrowings which contain embedded derivatives. These borrowing arrangements require that we deliver underlying securities to the counterparty as collateral. We are dependent on the creditworthiness of the counterparties and are therefore susceptible to credit and operational risk in these situations.

Derivative instruments and other transactions entered into with third parties are not always confirmed by the counterparties on a timely basis. While the transaction remains unconfirmed, we are subject to heightened credit and operational risk and, in the event of a default, we may find it more difficult to enforce the underlying derivative instrument. In addition, as new and more complex derivative products are created, covering a wider array of underlying credit and other instruments, disputes about the terms of the underlying derivative instruments could arise, which could impair our ability to effectively manage our risk exposures from these products and subject us to increased costs. Any regulatory effort to create an exchange or trading platform for credit derivatives and other over-the-counter derivative instruments, or a market shift toward standardized derivative instruments, could reduce the risk associated with such transactions, but under certain circumstances could also limit our ability to develop derivative instruments that best suit our needs and those of our clients and adversely affect our profitability.

Legislative, Regulatory and Accounting Change Risks

Legislative or regulatory changes or actions could adversely impact us or the businesses in which we are engaged.

The financial services industry is extensively regulated. We are subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of our operations. Laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors, borrowers, the DIF and the banking system as a whole, and not to benefit our shareholders. Regulations affecting banks and financial services businesses are undergoing continuous change, especially in light of COVID-19 and the stimulus programs implemented in connection therewith, and management cannot predict the effect of these changes. While such changes are generally intended to lessen the regulatory burden on financial institutions, the impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact us or our ability to increase the value of our business. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a financial institution, the classification of assets held by a financial institution, the adequacy of a financial institution’s allowance for credit losses and the ability to complete acquisitions. Additionally, actions by regulatory agencies against us could cause us to devote significant time and resources to defending our business and may lead to penalties that materially affect us and our shareholders. Even the reduction of regulatory restrictions could have an adverse effect on us and our shareholders if such lessening of restrictions increases competition within our industry or our market area.

In light of conditions in the global financial markets and the global economy that occurred in the last decade, regulators have increased their focus on the regulation of the financial services industry. Most recently, the U.S. Congress and the federal agencies regulating the financial services industry have acted on an unprecedented scale in responding to the stresses experienced in the global financial markets. Some of the laws enacted by the U.S. Congress and regulations promulgated by federal bank regulatory agencies subject us, and other financial institutions to which such laws and regulations apply, to additional restrictions, oversight and costs that may have an impact on our business, results of operations or the trading price of our Common Shares. In addition to laws, regulations and supervisory and enforcement actions directed at the operations of financial institutions, proposals to reform the housing finance market consider significant changes to Fannie Mae and Freddie Mac, which could negatively affect our sales of loans.

Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance ("ESG") practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights. Increased ESG-related compliance costs for us as well as among our third-party suppliers, vendors and various other parties within our supply chain could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could
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negatively impact our reputation, ability to do business with certain partners, access to capital, and the price of our Common Shares.

Deposit insurance premiums assessed on Park National Bank may increase and have a negative effect on Park’s results of operations.

We have limited ability to control the amount of premiums we are required to pay for FDIC insurance. The DIF is funded by fees assessed on insured depository institutions. If the costs of future bank failures increase, deposit insurance premiums may also increase. The FDIC has adopted rules revising its assessments in a manner benefiting banks with assets totaling less than $10 billion. There can be no assurance, however, that assessments will not be changed in the future. Federal deposit insurance is described in more detail in the section captioned "Supervision and Regulation of Park and its Subsidiaries – Federal Deposit Insurance" in "ITEM 1. BUSINESS" of this Annual Report on Form 10-K.

Changes in accounting standards, policies, estimates or procedures could impact our reported financial condition or results of operations.

The entities responsible for setting accounting standards, including the FASB, the SEC and other regulatory bodies, periodically change the financial accounting and reporting guidance that governs the preparation of our consolidated financial statements. The pace of change continues to accelerate and changes in accounting standards can be hard to predict and could materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply new or revised guidance retroactively, resulting in the restatement of prior period financial statements. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make significant estimates that affect the financial statements. Due to the inherent nature of these estimates, actual results may vary materially from management’s estimates.

Additional information regarding Park’s critical accounting policies and the sensitivity of estimates can be found in our discussion of “CRITICAL ACCOUNTING POLICIES” in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K.

Our accounting estimates and risk management processes rely on analytical and forecasting models.

The processes we use to estimate our credit losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical and, in some cases, forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the model we use for determining our expected credit losses is inadequate, the allowance for credit losses may not be sufficient to support charge-offs. If the models we use to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments. Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.

Strategic Risks

Future expansion may adversely affect our financial condition and results of operations as well as dilute the interests of our shareholders and negatively affect the price of our Common Shares.

We may acquire other financial institutions, or branches or assets of other financial institutions, in the future. We may also open new branches and enter into new lines of business or offer new products or services. Any such expansion of our business will involve a number of expenses and risks, which may include:

•the time and expense associated with identifying and evaluating potential expansions;
•the potential inaccuracy of estimates and judgments used to evaluate credit, operations, management and market risk with respect to target financial institutions;
•potential exposure to unknown or contingent liabilities of the target financial institution;
•exposure to potential asset quality issues of the target financial institution;
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•the time and costs of evaluating new markets, hiring local management and opening new offices, and the delay between commencing these activities and the generation of profits from the expansion;
•our financing of the expansion;
•the diversion of management’s attention to the negotiation of a transaction and the integration of the operations and personnel of the combining businesses;
•risks associated with entry into unfamiliar markets;
•the introduction of new products and services into our existing business;
•the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations;
•the risk of loss of key employees and customers;
•the risk associated with differing company cultures; and
•difficulty in receiving appropriate regulatory approval for any proposed transaction.

We may incur substantial costs to expand, and such expansion may not result in the levels of profits we expect. Integration efforts for any future acquisitions may not be successful. We may issue equity securities in connection with acquisitions, which could dilute the economic and voting interests of our existing shareholders.

Any merger or acquisition opportunity that we decide to pursue will ultimately be subject to regulatory approval or other closing conditions. We may expend substantial time and resources pursing potential acquisitions which may not be consummated because regulatory approval or other closing conditions are not satisfied.

Changes in retail distribution strategies and consumer behavior may adversely impact our investments in our financial service office premises and equipment and other assets and may lead to increased expenditures to change our retail distribution channel.

We have significant investments in financial service office premises and equipment for our financial service office network, including 96 financial service offices as well as our retail work force and other financial service office banking assets. Advances in technology such as e-commerce, telephone, internet and mobile banking, and in-branch self-service technologies including automatic teller machines and other equipment, as well as changing customer preferences for these other methods of accessing our products and services, could affect the value of our financial service office network or other retail distribution assets and may cause us to change our retail distribution strategy, close and/or sell certain financial service offices and restructure or reduce our remaining financial service offices and work force. Further advances in technology and/or changes in customer preferences including those related to social media, digital or cryptocurrency, blockchain, and other “fintech” technologies could result in additional changes in our retail distribution strategy and/or financial service office network. These actions could lead to losses on these assets or could adversely impact the carrying value of other long-lived assets and may lead to increased expenditures to renovate and reconfigure remaining financial service offices or to otherwise reform our retail distribution channel.

General Risk Factors

We may be a defendant from time to time in a variety of litigation and other actions, which could have a material adverse effect on our financial condition, results of operations and cash flows.
 
We may be involved from time to time in a variety of litigation arising out of our business. The risk of litigation increases in times of increased troubled loan collection activity. Our insurance may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our financial condition, results of operations and cash flows. In addition, we may not be able to obtain appropriate types or levels of insurance in the future or obtain adequate replacement policies with acceptable terms.

A default by another larger financial institution could adversely affect financial markets generally.
Many financial institutions and their related operations are closely intertwined, and the soundness of such financial institutions may, to some degree, be interdependent. As a result, concerns about, or a default or threatened default by, one financial institution could lead to significant market-wide liquidity and credit problems and/or losses or defaults by other financial institutions. This “systemic risk” may adversely affect our business.
We are at risk of increased losses from fraud.

Criminals are committing fraud at an increasing rate and are using more sophisticated techniques. In some cases, these individuals are part of larger criminal rings, which allow them to be more effective. Such fraudulent activity has taken many
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forms, ranging from wire fraud, debit card fraud, check fraud, mechanical devices attached to ATM machines, social engineering and phishing attacks to obtain personal information, or impersonation of clients through the use of falsified or stolen credentials. Additionally, an individual or business entity may properly identify itself, yet seek to establish a business relationship for the purpose of perpetrating fraud. An emerging type of fraud even involves the creation of synthetic identification in which fraudsters "create" individuals for the purpose of perpetrating fraud. In addition to fraud committed directly against us, we may suffer losses as a result of fraudulent activity committed against third parties. Increased deployment of technologies, such as chip card technology, defray and reduce certain aspects of fraud; however, criminals are turning to other sources to steal personally identifiable information, such as unaffiliated healthcare providers and government entities, in order to impersonate consumers and thereby commit fraud.

Changes in tax laws could adversely affect our performance.

We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and ad valorem taxes. Changes to our taxes could have a material adverse effect on our results of operations, fair values of net deferred tax assets and obligations of states and political subdivisions held in our investment securities portfolio. In addition, our customers are subject to a wide variety of federal, state and local taxes. Changes in taxes paid by our customers may adversely affect their ability to purchase homes or consumer products, which could adversely affect their demand for our loans and deposit products. In addition, such negative effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities in which we have invested.

Adverse changes in the financial markets may adversely impact our results of operations.

While we generally invest in securities issued by U.S. government agencies and sponsored entities and domestic state and local governments with limited credit risk, certain investment securities we hold possess higher credit risk since they represent beneficial interests in structured investments collateralized by residential mortgages, debt obligations and other similar asset-backed assets. Even securities issued by U.S. governmental agencies and sponsored entities may entail risk depending on political and economic changes. Regardless of the level of credit risk, all investment securities are subject to changes in market value due to changing interest rates, implied credit spreads and credit ratings.

ITEM 1B.UNRESOLVED STAFF COMMENTS.
 
No response required.

ITEM 2.PROPERTIES.

Park’s principal executive offices are located at 50 North Third Street, Newark, Ohio 43055.
Park National Bank
As of the date of this Annual Report on Form 10-K, Park National Bank and its subsidiary Scope Leasing, Inc. had a total of 96 financial service offices in Ohio, Kentucky, North Carolina and South Carolina. Park National Bank has three financial service offices (including its main office) and three operations centers in Newark in Licking County. We operate a total of 87 financial service offices in Ohio, one financial service office in Kentucky, three financial service offices in North Carolina and five financial service offices in South Carolina. Of the financial service offices described above, 16 are leased and the remainder are owned. Park National Bank also operates 25 off-site automated teller machines.

Scope Leasing, Inc. has an office located in Columbus in Franklin County, Ohio, which it leases.
Guardian Finance
As of the date of this Annual Report on Form 10-K, Guardian Finance had one administrative office in Newark in Licking County, which it leases from PNB.
SE Property Holdings, LLC
SEPH has one administrative office located in Newark in Licking County, Ohio, which it leases from PNB.

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ITEM 3.LEGAL PROCEEDINGS.

There are no pending legal proceedings which Park or any of its subsidiaries is a party to or which any of their property is subject to, except for routine legal proceedings to which Park's subsidiaries are parties incidental to their respective businesses. Park considers none of those proceedings to be material.

ITEM 4.MINE SAFETY DISCLOSURES.

Not applicable.


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PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Park's Common Shares (symbol: PRK) are traded on NYSE American. At December 31, 2021, Park had 3,420 shareholders of record. Park currently intends to continue to pay quarterly cash dividends comparable to the regular quarterly cash dividends paid during the year ended December 31, 2021, subject to the regulatory restrictions described in "Note 23 - Dividend Restrictions" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA," as well as in the section captioned "Supervision and Regulation of Park and its Subsidiaries – Limits on Dividends and Other Payments" in "ITEM 1. BUSINESS" of this Annual Report on Form 10-K.

Performance Graph

The following graph compares the cumulative total shareholder return performance for Park's Common Shares with the NYSE Composite Index, the KBW NASDAQ Bank Index, and the S&P U.S. SmallCap Banks Index for the five-year period from December 31, 2016 to December 31, 2021. The NYSE Composite Index is a market capitalization-weighted index of the stocks listed on NYSE. The KBW NASDAQ Bank Index is comprised of 24 banking stocks representing the large U.S. national money centers, regional banks and thrift institutions. The S&P U.S. SmallCap Banks Index is a market capitalization-weighted index comprised of common stocks of U.S. financial services companies that are principally engaged in the business of providing services and products, including banking, investment services, insurance and real estate finance services.

Prior to 2021, Park utilized the NYSE Composite Index, SNL Bank and Thrift Index and SNL U.S. Bank NYSE Index in comparing market performance. The SNL Bank and Thrift Index and the SNL U.S. Bank NYSE Index were retired as of August 7, 2021 and Park selected the KBW NASDAQ Bank Index and the S&P U.S. SmallCap Banks Index as replacement indices. The performance of the SNL Bank and Thrift Index and SNL U.S. Bank NYSE Index are included in the following graph for the 4-year period from December 31, 2016 to December 31, 2020 for comparative purposes.
 
The NYSE Financial Stocks Index includes the stocks of bank holding companies, thrift holding companies, finance companies and securities broker-dealers.  Park believes that the KBW NASDAQ Bank Index and the S&P U.S. SmallCap Banks Index are more appropriate industry indices for Park to use for the five-year total shareholder return performance comparison given the nature of the services provided by the financial services companies included in each.

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prk-20211231_g1.jpg
 
Total Return Performance
Period Ended
Index12/31/1612/31/1712/31/1812/31/1912/31/2012/31/21
Park National Corporation100.00 90.13 76.55 96.39 103.72 140.60 
NYSE Composite Index100.00 118.73 108.10 135.68 145.16 175.17 
KBW NASDAQ Bank Index100.00 118.59 97.58 132.84 119.14 164.80 
S&P U.S. SmallCap Banks Index100.00 104.33 87.06 109.22 99.19 138.09 
SNL Bank and Thrift Index100.00 117.59 97.68 132.02 114.55 N.A.
SNL U.S. Bank NYSE Index100.00 121.05 100.33 138.19 118.05 N.A.
 
The annual compound total return on Park’s Common Shares for the past five years was a positive 7.1%.  By comparison, the annual compound total returns for the past five years on the NYSE Composite Index, the KBW NASDAQ Bank Index, and the S&P U.S. SmallCap Banks Index were a positive 11.9%, a positive 10.5% and a positive 6.7%, respectively.

Issuer Purchases of Equity Securities

The following table provides information regarding purchases of Park's Common Shares made by or on behalf of Park or any "affiliated purchaser" as defined in Rule 10b-18(a)(3) under the Exchange Act during the fiscal quarter ended December 31, 2021, as well as the maximum number of Common Shares that may be purchased under Park’s previously announced stock repurchase authorizations to fund the 2017 Long-Term Incentive Plan for Employees (the "2017 Employees LTIP") and the
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2017 Long-Term Incentive Plan for Non-Employee Directors (the "2017 Non-Employee Directors LTIP") and Park's previously announced 2017 and 2019 stock repurchase authorizations:

PeriodTotal Number of
Common Shares Purchased		Average Price Paid per
Common Share		Total Number of
Common Shares Purchased as Part of Publicly Announced Plans or Programs 		Maximum Number of Common Shares that May Yet Be Purchased under the Plans or Programs (1)
October 1 through October 31, 2021— — — 1,195,088 
November 1 through November 30, 2021— — — 1,195,088 
December 1 through December 31, 2021— — — 1,195,088 
Total— — — 1,195,088 

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

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

On January 23, 2017, Park announced that on that same day, the Park Board of Directors authorized Park to purchase, from time to time, up to an aggregate of 500,000 Park Common Shares. On January 28, 2019, Park announced that on that same day, the Park Board of Directors authorized Park to repurchase, from time to time following receipt of any required approval from the Federal Reserve, up to 500,000 Park Common Shares in addition to the 500,000 Park Common Shares which had been authorized for repurchase by the Park Board of Directors on January 23, 2017 and remained available for repurchase as of January 28, 2019. The required approval was received by Park in the form of correspondence from the Federal Reserve Bank of Cleveland dated April 19, 2019.
    
Purchases may be made through NYSE American, in the over-the-counter market or in privately negotiated transactions, in each case in compliance with the Ohio General Corporation Law, applicable federal and state securities laws, the rules applicable to issuers having securities listed on NYSE American, regulations promulgated by the Federal Reserve Board and all applicable laws and regulations, each as in effect at the time of each such purchase. Purchases will be made upon such terms and conditions and at such times and in such amounts as any one or more of the authorized officers of Park deem to be appropriate, subject to market conditions, regulatory requirements, any contractual obligations of Park and Park's subsidiaries and other factors, and in the best interest of Park and Park's shareholders. The January 23, 2017 stock repurchase authorization and the January 28, 2019 stock repurchase authorization are distinct from the stock repurchase authorizations to fund the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP.

ITEM 6.[RESERVED]

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS

Management's discussion and analysis addresses the financial condition and results of operations for Park National Corporation and our subsidiaries (unless the context otherwise requires, collectively, "Park" or the "Corporation"). This discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Management’s discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements.

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

•the ever-changing effects of the novel coronavirus (COVID-19) pandemic - - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants thereof - - on economies (local, national and international), supply chains and markets, on the labor market, including the potential for a sustained reduction in labor force participation, and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social or other activities), the availability, effectiveness and acceptance of vaccines, and the implementation of fiscal stimulus packages;
•the impact of future governmental and regulatory actions upon our participation in and execution of government programs related to the COVID-19 pandemic;
•Park's ability to execute our business plan successfully and within the expected timeframe as well as our ability to manage strategic initiatives in light of the impact of the COVID-19 pandemic and the various responses to the COVID-19 pandemic;
•general economic and financial market conditions, specifically in the real estate markets and the credit markets, either nationally or in the states in which Park and our subsidiaries do business, may experience a weaker recovery than anticipated, in addition to the continuing impact of the COVID-19 pandemic on our customers’ operations and financial condition, either of which may result in adverse impacts on the demand for loan, deposit and other financial services, delinquencies, defaults and counterparties' inability to meet credit and other obligations and the possible impairment of collectability of loans;
•factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance, including any loans acquired in acquisition transactions;
•the effect of monetary and other fiscal policies (including the impact of money supply, interest rate policies and policies impacting inflation of the Federal Reserve Board, the U.S. Treasury and other governmental agencies) as well as disruption in the liquidity and functioning of U.S. financial markets, as a result of the COVID-19 pandemic and government policies implemented in response thereto, may adversely impact prepayment penalty income, mortgage banking income, income from fiduciary activities, the value of securities, deposits and other financial instruments, in addition to the loan demand and the performance of our loan portfolio, and the interest rate sensitivity of our consolidated balance sheet as well as reduce interest margins;
•changes in the federal, state, or local tax laws may adversely affect the fair values of net deferred tax assets and obligations of state and political subdivisions held in Park's investment securities portfolio and otherwise negatively impact our financial performance;
•the impact of the changes in federal, state and local governmental policy, including the regulatory landscape, capital markets, elevated government debt, potential changes in tax legislation that may increase tax rates, infrastructure spending and social programs;
•changes in laws or requirements imposed by Park's regulators impacting Park's capital actions, including dividend payments and stock repurchases;
•changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic and reactions thereto), legislative and regulatory initiatives (including those undertaken in response to the COVID-19 pandemic), or other factors may be different than anticipated;
•changes in unemployment levels in the states in which Park and our subsidiaries do business may be different than anticipated due to the continuing impact of the COVID-19 pandemic;
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•changes in customers', suppliers', and other counterparties' performance and creditworthiness, and Park's expectations regarding future loan losses and our allowance for credit losses, may be different than anticipated due to the continuing impact of and the various responses to the COVID-19 pandemic;
•Park may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;
•the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;
•the adequacy of our internal controls and risk management program in the event of changes in the market, economic, operational (including those which may result from more of our associates working remotely), asset/liability repricing, legal, compliance, strategic, cybersecurity, liquidity, credit and interest rate risks associated with Park's business;
•competitive pressures among financial services organizations could increase significantly, including product and pricing pressures (which could in turn impact our credit spreads), changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Park's ability to attract, develop and retain qualified banking professionals;
•uncertainty regarding the nature, timing, cost and effect of changes in banking regulations or other regulatory or legislative requirements affecting the respective businesses of Park and our subsidiaries, including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry, specifically the reforms provided for in the Coronavirus Aid, Relief and Economic Security (CARES) Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the Basel III regulatory capital reforms, as well as regulations already adopted and which may be adopted in the future by the relevant regulatory agencies, including the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve Board, to implement the provisions of the CARES Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the provisions of the American Rescue Plan Act of 2021, the provisions of the Dodd-Frank Act, and the Basel III regulatory capital reforms;
•the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (the "FASB"), the SEC, the Public Company Accounting Oversight Board and other regulatory agencies, may adversely affect Park's reported financial condition or results of operations;
•Park's assumptions and estimates used in applying critical accounting policies and modeling, including under the CECL model, which may prove unreliable, inaccurate or not predictive of actual results;
•the impact of Park's ability to anticipate and respond to technological changes on Park's ability to respond to customer needs and meet competitive demands;
•operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Park and our subsidiaries are highly dependent;
•the ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Park's third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Park and/or result in Park incurring a financial loss;
•a failure in or breach of Park's operational or security systems or infrastructure, or those of our third-party vendors and other service providers, resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems, including as a result of cyber attacks;
•the impact on Park's business and operating results of any costs associated with obtaining rights in intellectual property claimed by others and of adequacy of Park's intellectual property protection in general;
•the existence or exacerbation of general geopolitical instability and uncertainty as well as the effect of trade policies (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, closing of border crossings and changes in the relationship of the U.S. and its global trading partners);
•the impact on financial markets and the economy of any changes in the credit ratings of the U.S. Treasury obligations and other U.S. government-backed debt, as well as issues surrounding the levels of U.S., European and Asian government debt and concerns regarding the growth rates and financial stability of certain sovereign governments, supranationals and financial institutions in Europe and Asia and the risk they may face difficulties servicing their sovereign debt;
•the effect of a fall in stock market prices on Park's asset and wealth management businesses;
•our litigation and regulatory compliance exposure, including the costs and effects of any adverse developments in legal proceedings or other claims and the costs and effects of unfavorable resolution of regulatory and other governmental examinations or other inquiries;
•continued availability of earnings and excess capital sufficient for the lawful and prudent declaration of dividends;
•the impact on Park's business, personnel, facilities or systems of losses related to acts of fraud, scams and schemes of third parties;
•the impact of widespread natural and other disasters, pandemics (including the COVID-19 pandemic), dislocations, regional or national protests and civil unrest (including any resulting branch closures or damages), military or terrorist
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activities or international hostilities on the economy and financial markets generally and on us or our counterparties specifically;
•any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially affect our business, including our customers' willingness to conduct banking transactions and their ability to pay on existing obligations;
•the effect of healthcare laws in the U.S. and potential changes for such laws, especially in light of the COVID-19 pandemic, which may increase our healthcare and other costs and negatively impact our operations and financial results;
•risk and uncertainties associated with Park's entry into new geographic markets with our recent acquisitions, including expected revenue synergies and cost savings from recent acquisitions not being fully realized or realized within the expected time frame;
•the discontinuation of the London Inter-Bank Offered Rate (LIBOR) and other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;
•and other risk factors relating to the banking industry as detailed from time to time in Park's reports filed with the SEC including those described in "Item 1A. Risk Factors" of this Annual Report on Form 10-K.

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

NON-U.S. GAAP FINANCIAL MEASURES

Management's discussion and analysis contains non-U.S. GAAP financial measures where management believes it to be helpful in understanding Park’s results of operations or financial position. Where non-U.S. GAAP financial measures are used, the comparable U.S. GAAP financial measure, as well as the reconciliation to the comparable U.S. GAAP financial measure, can be found herein.

Items Impacting Comparability of Period Results

From time to time, revenue, expenses, and/or taxes are impacted by items judged by management of Park to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by management of Park at that time to be infrequent or short-term in nature. Most often, these items impacting comparability of period results are due to merger and acquisition activities, management restructuring, branch closures, a rebranding initiative, COVID-19 related expenses and revenue and expenses related to former Vision Bank loan relationships. In other cases, they may result from management's decisions associated with significant corporate actions outside of the ordinary course of business.

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

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

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

Non-U.S. GAAP Ratios

Park's management uses certain non-U.S. GAAP financial measures to evaluate Park's performance. Specifically, management reviews the ratio of tangible equity to tangible assets.

Management has included in this Management's Discussion and Analysis of Financial Condition and Results of Operation, information relating to the ratio of tangible equity to tangible assets. For the purpose of calculating the ratio of tangible equity to tangible assets, a non-U.S. GAAP financial measure, tangible equity is divided by tangible assets. Tangible equity equals total shareholders' equity less goodwill and other intangible assets, in each case at period end. Tangible assets equals total assets less goodwill and other intangible assets, in each case at period end.
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Management believes that the disclosure of the ratio of tangible equity to tangible assets presents additional information to the reader of the consolidated financial statements, which, when read in conjunction with the consolidated financial statements prepared in accordance with U.S. GAAP, assists in analyzing Park's operating performance, ensures comparability of operating performance from period to period, and facilitates comparisons with the performance of Park's peer financial holding companies and bank holding companies, while eliminating certain non-operational effects of acquisitions. Within the "CONTRACTUAL OBLIGATIONS - Capital" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations, Park has provided detail of the reconciliation of tangible equity to total shareholders' equity and of tangible assets to total assets solely for the purpose of complying with SEC Regulation G and not as an indication that the ratio of tangible equity to tangible assets is a substitute for the ratio of total shareholders' equity to total assets as determined in accordance with U.S. GAAP.

FTE (fully taxable equivalent) Ratios

Interest income, yields, and ratios on a FTE basis are considered non-U.S. GAAP financial measures. Management believes net interest income on a FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a federal statutory tax rate of 21%. In the tables included within the "ANALYSIS OF EARNINGS - Net Interest Income" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations, Park has provided detail of FTE interest income solely for the purpose of complying with SEC Regulation G and not as an indication that FTE interest income, yields and ratios are substitutes for interest income, yields and ratios, as determined in accordance with U.S. GAAP.

Paycheck Protection Program ("PPP") Loans

Through December 31, 2021, Park had originated $768.5 million in loans as part of the PPP. These loans are not typical of Park's loan portfolio in that they are part of a specific government program to support businesses during the COVID-19 pandemic and are 100% guaranteed by the Small Business Administration ("SBA"). As such, management considers growth in the loan portfolio excluding PPP loans, the total allowance for credit losses to total loans ratio (excluding PPP loans), and general reserve on collectively evaluated loans as a percentage of total collectively evaluated loans (excluding PPP loans) in addition to the related U.S. GAAP metrics which are not adjusted for PPP loans.

OVERVIEW

COVID-19 Considerations

Banking has been identified by federal and state governmental authorities to be an essential service and Park is fully committed to continue serving our customers and communities through the COVID-19 public health crisis. For those in our communities experiencing a financial hardship, Park has offered various methods of support including loan modifications, payment deferral programs, participation in the CARES Act PPP, participation in additional PPP loans authorized under the Consolidated Appropriations Act, 2021, and various other case by case accommodations. Throughout the pandemic, Park has implemented various physical distancing guidelines to help protect associates, such as allowing associates to work from home, where practical, while maintaining customer service via our online banking services, mobile app, and ATMs, by keeping drive-thru lanes open to serve customers, maintaining selective branch office openings, and offering other banking services by appointment when necessary. As of December 31, 2021, all branches had returned to normal operations.

During 2021 and 2020, Park provided calamity pay and special one-time bonuses to certain associates related to the COVID-19 pandemic. The cost of the calamity pay and special bonuses amounted to $2.1 million and $3.6 million for the years ended December 31, 2021 and 2020, respectively, and is included within salaries expense.

Paycheck Protection Program

During 2020, Park approved and funded 4,439 loans totaling $543.1 million under the PPP's first round of loans. These first round PPP loans had an average principal balance of $122,000. Of the $543.1 million in first round PPP loans, 21 loans totaling $68.2 million had a principal balance that was greater than $2 million. For its assistance in making and retaining the 4,439 loans, Park has received an aggregate of $20.2 million in fees from the SBA, of which $6.4 million and $13.7 million were recognized within loan interest income during the year ended December 31, 2021 and the year ended December 31, 2020, respectively. Park funded the PPP loans with excess on-balance sheet liquidity. At December 31, 2021, the remaining balance of the first round PPP loans funded in 2020 was $4.8 million.

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During 2021, Park offered additional PPP loans as authorized under the Consolidated Appropriations Act, 2021. Through December 31, 2021, Park approved and funded 3,262 loans totaling $221.6 million under the second round of PPP loans. These additional second round PPP loans had an average principal balance of $68,000. None of the $221.6 million in additional second round PPP loans had a principal balance that was greater than $2 million. For its assistance in making and retaining the 3,262 second round of PPP loans, Park has received an aggregate of $12.9 million in fees from the SBA, of which $9.9 million was recognized within loan interest income during the year ended December 31, 2021. Park funded the second round PPP loans with excess on-balance sheet liquidity. At December 31, 2021, the remaining balance of second round PPP loans funded in 2021 was $72.3 million.

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

Loan Modifications

During the two years ended December 31, 2021, Park modified a total of 5,138 consumer loans, with an aggregate balance of $72.2 million, and modified a total of 1,406 commercial loans, with an aggregate balance of $488.1 million, in each case related to a hardship caused by the COVID-19 pandemic and responses thereto. Park has worked with borrowers and provided modifications in the form of either interest only deferral or principal and interest deferral, in each case, for initial periods of up to 90 days. As necessary, Park made available a second 90-day interest only deferral or principal and interest deferral bringing the total potential deferral period to six months. Modifications were structured in a manner to best address each individual customer's then current situation. A majority of these modifications were excluded from the troubled debt restructuring ("TDR") classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. The modified loans are considered current and continue to accrue interest during the deferral period.

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

Financial Results by segment

The following table reflects the net income (loss) by segment for the years ended December 31, 2021, 2020 and 2019. Park's segments include PNB and "All Other" which primarily consists of Park as the "Parent Company", GFSC and SEPH. SEPH is a non-bank subsidiary of Park, holding former Vision Bank OREO property and non-performing loans.

Table 1 - Net Income (Loss) by Segment
(In thousands)202120202019
PNB$159,461 $123,730 $113,600 
All Other(5,516)4,193 (10,900)
Total Park$153,945 $127,923 $102,700 

Net income for the year ended December 31, 2021 of $153.9 million represented a $26.0 million, or 20.3%, increase compared to $127.9 million for the year ended December 31, 2020. Net income for both the year ended December 31, 2021 and the year ended December 31, 2020 included several items of income and expense that impact the comparability of period results. These items are detailed in the "ANALYSIS OF EARNINGS - Items Impacting Comparability" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

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

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The Park National Bank (PNB)

The table below reflects PNB's net income for the years ended December 31, 2021, 2020 and 2019.

Table 2 - PNB Summary Income Statement
(In thousands)202120202019
Net interest income$328,398 $326,375 $293,130 
(Recovery of) provision for credit losses (1)
(8,554)30,813 8,356 
Other income126,802 124,231 92,392 
Other expense266,678 268,938 237,433 
Income before income taxes$197,076 $150,855 $139,733 
    Income tax expense37,615 27,125 26,133 
Net income$159,461 $123,730 $113,600 
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of December 31, 2021 and the related (recovery of) provision for credit losses for the year ended December 31, 2021 were calculated utilizing this new guidance.

Net interest income of $328.4 million for the year ended December 31, 2021 represented a $2.0 million, or 0.6%, increase compared to $326.4 million for the year ended December 31, 2020. The increase was a result of an $18.7 million decrease in interest expense, partially offset by a $16.7 million decrease in interest income.
The $16.7 million decrease in interest income was primarily due to a $312,000 decrease in investment income and a $16.3 million decrease in interest income on loans. The decrease in investment income was primarily the result of a decrease in the yield on investments, which decreased 43 basis points to 2.23% for the year ended December 31, 2021, compared to 2.66% for the year ended December 31, 2020, partially offset by a $200.5 million increase in average investments. The decrease in interest income on loans was primarily the result of a decrease in the yield on loans, which decreased 25 basis points to 4.41% for the year ended December 31, 2021, compared to 4.66% for the year ended December 31, 2020. The decrease in yield on loans was partially offset by a $35.5 million increase in average loans from $6.97 billion for the year ended December 31, 2020 to $7.01 billion for the year ended December 31, 2021. The increase in average loans was impacted by the addition of average PPP loans of approximately $257.4 million and $352.6 million for the years ended December 31, 2021 and 2020, respectively, and also resulted in interest and fee income of $18.0 million and $16.7 million for the year ended December 31, 2021 and 2020, respectively. Excluding the impact of PPP loans, the yield on loans was 4.31% for the year ended December 31, 2021, a decrease of 35 basis points compared to 4.66% for the year ended December 31, 2020.
The $18.7 million decrease in interest expense was primarily due to a $15.0 million decrease in interest expense on deposits as well as a $3.7 million decrease in interest expense on borrowings. The decrease in interest expense on deposits was partially the result of a decrease in the cost of deposits of 29 basis points, from 0.41% for the year ended December 31, 2020 to 0.12% for the year ended December 31, 2021. The decrease in the interest expense on deposits was partially offset by a $13.0 million increase in average on-balance sheet interest bearing deposits from $5.24 billion for the year ended December 31, 2020, to $5.25 billion for the year ended December 31, 2021. The increase in on-balance sheet interest bearing deposits was due to an increase in savings deposits, which was partially offset by declines in both higher-cost time deposits and transaction accounts. During the years ended December 31, 2021 and 2020, Park made the decision to participate in two programs to transfer deposits off balance sheet in order to manage growth of the balance sheet. This decision also minimized the increase in interest bearing deposits.
The decrease in interest expense on borrowings was partially the result of a $91.2 million decrease in average borrowings from $403.9 million for the year ended December 31, 2020, to $312.7 million for the year ended December 31, 2021. The cost of borrowings also decreased by 76 basis points, from 1.41% for the year ended December 31, 2020 to 0.65% for the year ended December 31, 2021.
The recovery of credit losses of $8.6 million for the year ended December 31, 2021 represented a difference of $39.4 million, compared to a provision for credit losses of $30.8 million for the year ended December 31, 2020. Refer to the “CREDIT METRICS AND (RECOVERY OF) PROVISION FOR CREDIT LOSSES" section for additional details regarding the level of the (recovery of) provision for credit losses recognized in each period presented above.
Other income of $126.8 million for the year ended December 31, 2021 represented an increase of $2.6 million, or 2.1%, compared to $124.2 million for the year ended December 31, 2020. The $2.6 million increase was primarily related to (i) a $5.6 million increase in income from fiduciary activities; (ii) a $3.7 million increase in debit card fee income; (iii) a $2.9 million increase in miscellaneous income, primarily related to refunds of a consumer insurance product, an increase in income
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from printed check sales and an increase in gain on sale of assets; and (iv) a $1.4 million increase in gain (loss) on equity securities, net. These increases were partially offset by a $3.3 million decrease in gain on sale of debt securities and a $7.7 million decrease in other service income. The decline in other service income was primarily due to declines in investor rate locks, mortgage loans held for sale and fee income from mortgage loan originations, partially offset by an increase in the valuation of mortgage servicing rights.
A summary of mortgage loan originations for the years ended December 31, 2021 and 2020 follows.
Table 3 - PNB Mortgage Loan Originations
(In thousands)Q1 2021Q2 2021Q3 2021Q4 2021YTD 2021
Mortgage Loan Origination Volume
Sold$191,116 $142,398 $123,757 $98,007 $555,278 
Portfolio82,613 74,670 66,718 60,685 284,686 
Construction28,987 37,266 28,486 24,816 119,555 
Service released1,266 2,204 4,537 5,795 13,802 
Total mortgage loan originations$303,982 $256,538 $223,498 $189,303 $973,321 
Refinances as a % of Total Mortgage Loan Originations71.1 %50.0 %44.8 %44.2 %54.2 %
Q1 2020Q2 2020Q3 2020Q4 2020YTD 2020
Mortgage Loan Origination Volume
Sold$85,030 $248,339 $355,755 $325,841 $1,014,965 
Portfolio56,018 64,351 61,227 99,077 280,673 
Construction33,109 33,754 40,560 29,825 137,248 
Service released3,794 2,362 2,275 2,950 11,381 
Total mortgage loan originations$177,951 $348,806 $459,817 $457,693 $1,444,267 
Refinances as a % of Total Mortgage Loan Originations48.1 %67.8 %68.5 %71.4 %66.7 %

Total mortgage loan originations decreased $470.9 million, or 32.6%, to $973.3 million for the year ended December 31, 2021 compared to $1,444.3 million for the year ended December 31, 2020.
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The table below reflects PNB's other expense for the years ended December 31, 2021 and 2020.

Table 4 - PNB Other Expense Information
(In thousands)December 31, 2021December 31, 2020$ change% change
Other expense:
Salaries$120,949 $122,586 $(1,637)(1.3)%
Employee benefits40,895 36,282 4,613 12.7 %
Occupancy expense12,555 13,571 (1,016)(7.5)%
Furniture and equipment expense10,880 18,781 (7,901)(42.1)%
Data processing fees30,202 11,653 18,549 159.2 %
Professional fees and services19,980 24,444 (4,464)(18.3)%
Marketing6,072 5,825 247 4.2 %
Insurance5,621 5,804 (183)(3.2)%
Communication3,498 3,985 (487)(12.2)%
State tax expense3,821 3,293 528 16.0 %
Amortization of intangible assets1,798 2,263 (465)(20.5)%
FHLB prepayment penalty— 10,529 (10,529)N.M.
Foundation contributions4,000 3,000 1,000 33.3 %
Miscellaneous6,407 6,922 (515)(7.4)%
Total other expense$266,678 $268,938 $(2,260)(0.8)%

Other expense of $266.7 million for the year ended December 31, 2021 represented a decrease of $2.3 million, or 0.8%, compared to $268.9 million for the year ended December 31, 2020. The decrease in salaries expense was primarily related to decreases in base salary expense, additional compensation expense and vacation accrual, partially offset by increases in officer incentive expense and share-based compensation expense. The increase in employee benefits expense was primarily related to increased pension plan expense, payroll tax expense and group insurance costs. The decrease in occupancy expense was primarily related to decreased lease expense. The decrease in furniture and equipment expense was primarily related to a change in the classification under which software and related maintenance costs were expensed, which are now classified under data processing fees. The impact of this decrease in furniture and equipment expense was partially offset by an increase in depreciation expense on equipment. The increase in data processing fees was related to increased debit card processing costs and other data processing and software costs, partially due to the previously mentioned change in classification from furniture and equipment expense and a change in expensing software costs from other fees within professional fees and services to data processing fees. The decrease in professional fees and services was primarily related to decreased legal expenses, title, appraisal and credit costs and decreases in other fees (due to the change to expensing software costs under data processing fees), partially offset by increases in management and consulting expenses. The decrease in the FHLB prepayment penalty was due to a $10.5 million prepayment penalty on FHLB borrowings of $150 million repaid during the year ended December 31, 2020; there was no similar prepayment during the year ended December 31, 2021. The increase in foundation contributions was due to a $4.0 million contribution to Park's charitable foundation during the year ended December 31, 2021, compared to a $3.0 million contribution made during the year ended December 31, 2020.
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The table below provides certain balance sheet information and financial ratios for PNB as of or for the years ended December 31, 2021 and 2020.

Table 5 - PNB Balance Sheet Information
(In thousands)December 31, 2021December 31, 2020% change from 12/31/20
Loans$6,868,935 $7,165,840 (4.14)%
Loans less PPP loans (1)
6,794,515 6,834,269 (0.58)%
Allowance for credit losses (2)
83,111 84,321 (1.43)%
Net loans6,785,824 7,081,519 (4.18)%
Investment securities1,807,392 1,114,742 62.14 %
Total assets9,538,217 9,236,915 3.26 %
Total deposits8,157,720 7,820,983 4.31 %
Average assets (3)
9,814,766 9,198,141 6.70 %
Efficiency ratio (4)
58.21 %59.31 %(1.85)%
Return on average assets1.62 %1.35 %20.00 %
(1) Excludes $74.4 million of PPP loans at December 31, 2021 and $331.6 million of PPP loans at December 31, 2020.
(2) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of December 31, 2021 and the related (recovery of) provision for credit losses for the year ended December 31, 2021 were calculated utilizing this new guidance.
(3) Average assets for the year ended December 31, 2021 and 2020.
(4) Calculated utilizing fully taxable equivalent net interest income which includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustments were $2.9 million for both the year ended December 31, 2021 and the year ended December 31, 2020.

Loans outstanding at December 31, 2021 were $6.87 billion, compared to $7.17 billion at December 31, 2020, a decrease of $296.9 million, or 4.1%. Excluding $74.4 million and $331.6 million of PPP loans at December 31, 2021 and December 31, 2020, respectively, loans outstanding were $6.79 billion at December 31, 2021, compared to $6.83 billion at December 31, 2020, a decrease of $39.8 million, or 0.6%. The table below breaks out the change in loans outstanding, by loan type.

Table 6 - PNB
(In thousands)December 31, 2021December 31, 2020change from 12/31/20% change from 12/31/20
Home equity$165,691 $182,131 $(16,440)(9.0)%
Installment1,685,687 1,650,620 35,067 2.1 %
Real estate1,142,991 1,213,820 (70,829)(5.8)%
Commercial (excluding PPP loans) (1)(2)
3,797,673 3,784,153 13,520 0.4 %
PPP loans74,420 331,571 (257,151)N.M.
Other2,473 3,545 (1,072)(30.2)%
Total loans$6,868,935 $7,165,840 $(296,905)(4.1)%
Total loans (excluding PPP loans)$6,794,515 $6,834,269 $(39,754)(0.6)%
(1) Excludes $74.4 million of PPP loans at December 31, 2021 and $331.6 million of PPP loans at December 31, 2020.
(2) Commercial (excluding PPP loans) decreased by $58.8 million, or 1.6% (2.1% annualized), from December 31, 2020 to September 30, 2021 and grew by $72.3 million, or 1.9% (7.7% annualized), from September 30, 2021 to December 31, 2021.

PNB's allowance for credit losses decreased by $1.2 million, or 1.4%, to $83.1 million at December 31, 2021, compared to $84.3 million at December 31, 2020. This decrease included the impact of a $6.7 million increase to the allowance for credit losses as the result of the adoption of ASU 2016-13. Net recoveries were $640,000, or 0.01% of total average loans, for the year ended December 31, 2021 and net charge-offs were $1.2 million, or 0.02% of total average loans, for the year ended December 31, 2020. Refer to the “CREDIT METRICS AND (RECOVERY OF) PROVISION FOR CREDIT LOSSES" section for additional information regarding PNB's loan portfolio and the level of provision for credit losses recognized in each period presented.

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Total deposits at December 31, 2021 were $8.16 billion, compared to $7.82 billion at December 31, 2020, an increase of $336.7 million, or 4.3%. During the years ended December 31, 2021 and 2020, Park made the decision to participate in two programs to transfer deposits off balance sheet in order to manage growth of the balance sheet, as deposits increased significantly throughout the COVID-19 pandemic. At December 31, 2021 and December 31, 2020, Park had $983.1 million and $710.1 million, respectively, in deposits which were off-balance sheet. Total deposits would have increased $609.7 million, or 7.1%, compared to December 31, 2020 had the $983.1 million and $710.1 million in deposits remained on the balance sheet at the respective dates. The table below breaks out the change in deposit balances, by deposit type.

Table 7 - PNB
(In thousands)December 31, 2021December 31, 2020change from 12/31/20% change from 12/31/20
Non-interest bearing deposits$3,320,413 $2,978,005 $342,408 11.5 %
Transaction accounts1,502,876 1,381,479 121,397 8.8 %
Savings2,622,771 2,596,926 25,845 1.0 %
Certificates of deposit711,660 864,573 (152,913)(17.7)%
Total deposits$8,157,720 $7,820,983 $336,737 4.3 %
Off balance sheet deposits983,053 710,101 272,952 38.4 %
Total deposits including off balance sheet deposits$9,140,773 $8,531,084 $609,689 7.1 %

All Other

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

Table 8 - All Other Income Statement
(In thousands)202120202019
Net interest income$1,495 $1,255 $4,607 
Recovery of credit losses (1)
(3,362)(18,759)(2,185)
Other income 3,142 1,433 4,801 
Other expense16,840 17,657 26,555 
Net (loss) income before income tax benefit$(8,841)$3,790 $(14,962)
    Income tax benefit(3,325)(403)(4,062)
Net (loss) income$(5,516)$4,193 $(10,900)
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of December 31, 2021 and the related recovery of credit losses for the year ended December 31, 2021 were calculated utilizing this new guidance.

The net interest income for All Other included, for all periods presented, interest income on subordinated debt investments in PNB, which were eliminated in the consolidated Park National Corporation totals, as well as interest income on GFSC loans and SEPH nonaccrual loan relationships. The net interest income for All Other included for the years ended December 31, 2021 and 2020, interest expense on $175.0 million aggregate principal amount of 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030 issued by Park in August 2020 (the "Park Subordinated Notes").

Net interest income reflected net interest income of $1.5 million for the year ended December 31, 2021, compared to net interest income of $1.3 million for the year ended December 31, 2020. The change was largely the result of an increase of $7.4 million in loan interest income related to payment collections at SEPH, offset by a decrease of $2.6 million in net interest income from GFSC, and by an increase in interest expense on borrowings of $4.4 million, mainly related to the Park Subordinated Notes.

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

All Other had other income of $3.1 million for the year ended December 31, 2021, compared to $1.4 million for the year ended December 31, 2020. The change was largely due to an $878,000 increase in income related to partnership
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investments, which went from a $21,000 loss for the year ended December 31, 2020 to an $857,000 gain for the year ended December 31, 2021, and a $410,000 difference in gain (loss) on equity securities, net, which went from a $226,000 loss for the year ended December 31, 2020 to a $184,000 gain for the year ended December 31, 2021.

All Other had other expense of $16.8 million for the year ended December 31, 2021, compared to $17.7 million for the year ended December 31, 2020. The decrease was largely due to a $625,000 decrease in expense at GFSC, as well as a $605,000 decrease in merger-related expenses associated with the Carolina Alliance acquisition.

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

Table 9 - All Other
(Dollars in thousands)December 31, 2021December 31, 2020% change from 12/31/20
Loans$2,187 $11,945 (81.69)%
Allowance for credit losses (1)
86 1,354 (93.65)%
Net loans2,101 10,591 (80.16)%
Total assets22,037 42,106 (47.66)%
Average assets (2)
32,692 43,492 (24.83)%

(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of December 31, 2021 and the related recovery of credit losses for the year ended December 31, 2021 were calculated utilizing this new guidance.
(2) Average assets for the years ended December 31, 2021 and 2020, respectively.

Park National Corporation

The table below summarizes Park's net income for the years ended December 31, 2021, 2020, and 2019.

Table 10 - Park Summary Income Statement
(In thousands)202120202019
Net interest income$329,893 $327,630 $297,737 
(Recovery of) provision for credit losses(11,916)12,054 6,171 
Other income129,944 125,664 97,193 
Other expense283,518 286,595 263,988 
Income before income taxes$188,235 $154,645 $124,771 
    Income tax expense34,290 26,722 22,071 
Net income$153,945 $127,923 $102,700 

DIVIDENDS ON COMMON SHARES

Cash dividends declared on Park's common shares were $4.52 in 2021, $4.28 in 2020 and $4.24 in 2019. The quarterly cash dividend on Park's common shares was $1.23 per share for the first quarter of 2021, $1.03 per share for the second and third quarter of 2021, and $1.23 per share for the fourth quarter of 2021. The first and fourth quarters of 2021 included a one-time special cash dividend of $0.20 per share. This was the fourth year in a row that Park has declared a special cash dividend ($0.20 twice in 2021, $0.20 in both 2020 and 2019, and $0.25 in 2018), which began in 2018 when the corporate federal income tax rate was reduced from 35% to 21% and has continued each year that the tax rates have remained at the lower level. The quarterly cash dividend on Park's common shares was $1.22 per share for the first quarter of 2020, and $1.02 per share for the second, third, and fourth quarter of 2020. The first quarter of 2020 included a one-time special cash dividend of $0.20 per share. The quarterly cash dividend on Park's common shares was $1.21 per share for the first quarter of 2019, and $1.01 per share for the second, third, and fourth quarter of 2019. The first quarter of 2019 included a one-time special cash dividend of $0.20 per share. Please see the discussion of limitations on Park's ability to pay dividends in the section captioned "Supervision and Regulation of Park and its Subsidiaries – Limits on Dividends and Other Payments" in "ITEM 1. BUSINESS" of this Annual Report on Form 10-K.
 
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CRITICAL ACCOUNTING POLICIES

The significant accounting policies used in the development and presentation of Park’s consolidated financial statements are listed in "Note 1 - Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."  The accounting and reporting policies of Park conform with U.S. GAAP and general practices within the financial services industry.  The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes.  Actual results could differ from those estimates.

The COVID-19 pandemic has caused significant unprecedented disruption around the world that has affected daily living and negatively impacted the global economy. The effects of the COVID-19 pandemic may meaningfully impact significant estimates such as the allowance for credit losses, goodwill, and pension plan obligations and related expenses.
 
Allowance for Credit Losses: Park believes the determination of the allowance for credit losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for credit losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses over the life of an asset or an off-balance sheet credit exposure. Management’s determination of the adequacy of the allowance for credit losses is based on periodic evaluations of past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. However, this evaluation has subjective components requiring material estimates, including expected default probabilities, the expected loss given default, the amounts and timing of expected future cash flows on individually evaluated loans, and estimated losses based on historical loss experience and forecasted economic conditions. All of these factors may be susceptible to significant change. To the extent that actual results differ from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods.

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

In calculating the ACL, management weighs several different scenarios, including a baseline (most likely) scenario and an adverse scenario. To create a hypothetical sensitivity analysis, management calculated a quantitative allowance using a 100% weighting applied to an adverse scenario. This scenario considers among other things that, (1) new cases, hospitalizations and deaths from COVID rise again, causing some state and local governments to impose restrictions, those that are not vaccinated continue to refuse the vaccines, and worries about the Omicron variant rises; (2) as a result of the unknown Omicron variant, consumers’ uncertainty about the safety of hotels, stores, restaurants and flights rise again and, therefore, spending on travel, retail and hotels decline; and (3) disagreements in the U.S. Congress prevent any additional fiscal support. The adverse scenario forecasts unemployment for the next twelve months to range from 6.6% to 9.4%. Excluding consideration of general reserve adjustments, this sensitivity analysis would result in a hypothetical increase in Park's ACL of $20.7 million as of December 31, 2021.

Refer to the “CREDIT METRICS AND (RECOVERY OF) PROVISION FOR CREDIT LOSSES” section within this "ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for additional discussion.

Goodwill: Management believes that the accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies. U.S. GAAP establishes standards for the impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in each business acquired. Park’s goodwill, as of December 31, 2021, relates to the value inherent in the banking industry and that value is dependent upon the ability of Park’s national bank subsidiary, PNB, to provide quality, cost-effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base, the inability to deliver cost-effective services over sustained periods or significant credit problems could lead to impairment of goodwill that could, in turn, adversely impact earnings in future periods.

U.S. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Park evaluates goodwill for impairment during the second quarter of each year, with financial data as of March 31. Based on the qualitative analysis performed as of April 1, 2021, the Company
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determined that goodwill for Park's reporting unit, PNB, was not impaired. Management continues to monitor economic factors, including economic conditions as a result of the COVID-19 pandemic and responses thereto, to evaluate goodwill impairment. The fair value of the goodwill, which resides on the books of PNB, is evaluated for potential impairment by reviewing the past and projected operating results for PNB, deposit and loan totals for PNB and banking industry comparable information.

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

Assumptions used to measure our annual pension expense include:

•the interest rate used to determine the present value of liabilities (discount rate);
•certain employee-related factors, such as turnover, retirement age and mortality;
•the expected return on assets in our funded pension plan; and
•the rate of salary increases where benefits are based on earnings.

The most significant of these assumption are the discount rate and the expected return on assets. The discount rate utilized for the December 31, 2021 calculation was 3.23% and the expected return on plan assets was 6.92%. Presented below is the estimated impact on Park's projected benefit obligation ("PBO") and 2022 pension expense assuming changes in the significant assumptions.

Table 11-Pension Sensitivity
Discount RateExpected Return on Plan Assets
(In thousands)- 25 BPS+25 BPS- 50 BPS+50 BPS
Change in PBO$5,560 $(5,260)N.A.N.A.
Change in Pension Expense110 (110)$1,290 $(1,290)

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

ABOUT OUR BUSINESS

Through our national bank subsidiary, 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. Management believes there are a significant number of consumers and businesses that seek long-term relationships with community-based financial institutions of quality and strength.  While not engaging in activities such as foreign lending, nationally syndicated loans or investment banking, Park attempts to meet the needs of our customers for commercial, real estate and consumer loans, and investment, fiduciary and deposit services.
 
Park’s subsidiaries compete for deposits and loans with other banks, savings associations, credit unions and other types of financial institutions.  At December 31, 2021, Park operated 96 financial service offices (including those of PNB and Scope Leasing, Inc. ("Scope Aircraft Finance")) and a network of 116 automated teller machines in 26 Ohio counties, three North Carolina counties, four South Carolina counties and one Kentucky county. SEPH and Guardian each operated one administrative office, located in Newark, Ohio.

SOURCE OF FUNDS

Deposits: Park’s major source of funds is deposits from individuals, businesses and local government entities.  These deposits consist of non-interest bearing and interest bearing deposits.
 
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Average total deposits were $8,187 million in 2021, compared to $7,633 million in 2020, and $6,905 million in 2019. The table below provides a summary of deposit balances as of December 31, 2021 and 2020, along with the change over the past year.
 
Table 12 - Year-End Deposits
December 31 (In thousands)20212020Change
Non-interest bearing checking$3,066,419 $2,727,100 $339,319 
Interest bearing transaction accounts1,502,876 1,381,479 121,397 
Savings2,622,108 2,597,827 24,281 
All other time deposits711,660 864,573 (152,913)
Other1,465 1,379 86 
Total$7,904,528 $7,572,358 $332,170 
Off balance sheet deposits983,053 710,101 272,952 
Total deposits including off balance sheet deposits$8,887,581 $8,282,459 $605,122 
  
During the years ended December 31, 2021 and 2020, Park made the decision to participate in two programs in order to manage growth of the balance sheet, as deposits increased significantly throughout the COVID-19 pandemic. At December 31, 2021 and December 31, 2020, Park had $983.1 million and $710.1 million, respectively, in off balance sheet deposits. Total deposits would have increased $605.1 million, or 7.3%, compared to December 31, 2020 had the $983.1 million and $710.1 million in deposits remained on the balance sheet.

The average interest rate paid on interest bearing deposits was 0.12% in 2021, compared to 0.41% in 2020 and 1.01% in 2019. The average cost of interest bearing deposits for each quarter of 2021 was 0.09% for the fourth quarter, 0.11% for the third quarter, 0.13% for the second quarter and 0.16% for the first quarter. 

As of December 31, 2021 and 2020, approximately $1.7 billion and $1.8 billion, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies used for the Corporation's regulatory reporting requirements.

The following table provides a summary of the portion of the Corporation's time deposits, by account, that are in excess of the FDIC insurance limit of $250,000, by remaining time until maturity, as of December 31, 2021:
 
Table 13 - Maturities of Time Deposits in Excess of FDIC Insurance Limit
December 31 (In thousands)2021
3 months or less$12,030 
Over 3 months through 6 months12,835 
Over 6 months through 12 months21,595 
Over 12 months17,818 
Total$64,278 

Short-Term Borrowings: Short-term borrowings consist of securities sold under agreements to repurchase, Federal Home Loan Bank advances, Federal Funds purchased and other borrowings.  These funds are used to manage the Corporation’s liquidity needs and interest rate sensitivity risk.  The average rate paid on short-term borrowings generally moves closely with changes in market interest rates for short-term investments.  The average rate paid on short-term borrowings was 0.27% in 2021, compared to 0.40% in 2020 and 1.15% in 2019. The year-end balance for short-term borrowings was $239 million at December 31, 2021, compared to $342 million at December 31, 2020 and $231 million at December 31, 2019. 
 
Long-Term Debt: Long-term debt primarily consists of borrowings from the Federal Home Loan Bank. In addition, Park had a term note with another financial institution which was paid off on August 2, 2021. The average balance of long-term debt and the average cost of long-term debt include the subordinated notes discussed in the following section. In 2021, the average balance of long-term debit was $206 million, compared to $216 million in 2020 and $341 million in 2019. The average interest rate paid on long-term debt was 4.32% in 2021, compared to 3.55% in 2020 and 2.77% in 2019. Average total debt (long-term and short-term) was $493 million in 2021, compared to $495 million in 2020 and $557 million in 2019. Average total debt decreased by $2 million, or 0.3%, in 2021 compared to 2020, and decreased by $62 million, or 11.1%, in 2020
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compared to 2019. Average long-term debt was 42% of average total debt in 2021, compared to 44% of average total debt in 2020 and 61% of average total debt in 2019.
  
Subordinated Notes: Park assumed, with the 2007 acquisition of Vision's parent holding company, $15.5 million of floating rate junior subordinated notes.  The $15.5 million of junior subordinated notes were purchased by Vision Bancshares Trust I ("Trust I") following the issuance of Trust I's $15.0 million of floating rate preferred securities. The interest rate on these junior subordinated notes adjusts every quarter at 148 basis points above the three-month LIBOR interest rate.  The maturity date for the junior subordinated notes is December 30, 2035 and the junior subordinated notes may be prepaid, without penalty, after December 30, 2010.  These junior subordinated notes qualify as Tier 1 capital under current Federal Reserve Board guidelines.

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 Federal Reserve Board to the extent the approval of the Federal Reserve Board is then required under the capital adequacy rules of the Federal Reserve Board, at a redemption price equal to 100% of the principal amount of the Subordinated Notes being redeemed, plus accrued and unpaid interest thereon to but excluding the date of redemption. The Subordinated Notes qualify as Tier 2 capital for Park under the Federal Reserve Board's capital adequacy rules.

See "Note 16 - Subordinated Notes" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K for additional information about the Subordinated Notes.
 
Shareholders' Equity: The ratio of total shareholders' equity to total assets was 11.62% at December 31, 2021, compared to 11.21% at December 31, 2020 and 11.32% at December 31, 2019. The ratio of tangible shareholders’ equity [shareholders' equity ($1,110.8 million) less goodwill ($159.6 million) and other intangible assets ($7.5 million)] to tangible assets [total assets ($9,560.3 million) less goodwill ($159.6 million) and other intangible assets ($7.5 million)] was 10.05% at December 31, 2021, compared to 9.57% at December 31, 2020 and 9.51% at December 31, 2019.
 
In accordance with U.S. GAAP, Park reflects any unrealized holding gain or loss on AFS debt securities, any unrealized net holding gain or loss on cash flow hedging derivatives and any change in the funded status of Park's pension plan, net of income taxes, as accumulated other comprehensive income (loss) which is part of Park’s shareholders’ equity.  

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

The unrealized net holding loss, net of income taxes, on cash flow hedging derivatives was $206,000 at year-end 2021, compared to $698,000 at year-end 2020 and $454,000 at year-end 2019.
 
In accordance with U.S. GAAP, Park adjusts accumulated other comprehensive income to recognize the net actuarial gain or loss reflected in the funding status of Park’s pension plan.  See "Note 19 - Benefit Plans" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K for information on the accounting for Park’s pension plan. Pertaining to the funding status of the pension plan, Park recognized a net comprehensive gain of $28.6 million in 2021, compared to a net comprehensive loss of $7.7 million in 2020 and a net comprehensive gain of $3.0 million in 2019. The net comprehensive gain in 2021 was due to greater than expected investment returns on pension plan assets as well as a net decrease in the benefit obligation due to assumption changes. The net comprehensive loss in 2020 was due to changes in actuarial assumptions which were partially offset by increased investment returns on pension plan assets. The net comprehensive gain in 2019 was due to changes in actuarial assumptions being more than offset by increased investment returns on pension plan assets.

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

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INVESTMENT OF FUNDS

Loans:  Average loans were $7,015 million in 2021, compared to $6,990 million in 2020 and $6,208 million in 2019. The average yield on average loan balances was 4.53% in 2021, compared to 4.71% in 2020 and 5.19% in 2019. Approximately 49% of Park’s loan balances mature or reprice within one year (see Table 38).  The average yield on average loan balances for each quarter of 2021 was 4.58% for the fourth quarter, 4.47% for the third quarter, 4.60% for the second quarter and 4.48% for the first quarter.  

Loan interest income for 2021, 2020, and 2019 included $8.0 million, $453,000 and $256,000, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB. In addition, loan interest income included $3.3 million, $4.4 million and $5.2 million, respectively, of the accretion of loan purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Loan interest income for 2021 and 2020 included interest and fee income related to PPP loans of $18.0 million and $16.7 million, respectively. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 4.27%, 4.63% and 5.09%, for the years ended December 31, 2021, 2020, and 2019. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 4.20% for the fourth quarter of 2021, 4.25% for the third quarter of 2021, 4.29% for the second quarter of 2021, and 4.34% for the first quarter of 2021.

At December 31, 2021, loan balances were $6,871 million, compared to $7,178 million at year-end 2020, a decrease of $307 million, or 4.3%. Excluding $74.4 million and $331.6 million of PPP loans at December 31, 2021 and 2020, respectively, loans outstanding at December 31, 2021 were $6,797 million, a decrease of $49 million, or 0.7%, compared to $6,846 million at December 31, 2020. At December 31, 2020, loan balances were $7,178 million, compared to $6,501 million at year-end 2019, an increase of $676 million, or 10.4%. Excluding $331.6 million of PPP loans at December 31, 2020, loans outstanding at December 31, 2020 were $6,846 million, compared to $6,501 million at December 31, 2019, an increase of $345 million, or 5.3%.

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

Table 14  -  Loans by Type
December 31,
(In thousands)202120202019
Commercial, financial and agricultural$1,298,626 $1,588,989 $1,185,110 
Construction real estate321,786 343,421 331,699 
Residential real estate1,738,707 1,813,044 1,892,726 
Commercial real estate1,801,792 1,748,189 1,609,413 
Consumer1,689,679 1,659,704 1,452,375 
Leases20,532 24,438 30,081 
Total loans$6,871,122 $7,177,785 $6,501,404 
PPP loans (1)
74,420 331,571 — 
Total loans less PPP loans$6,796,702 $6,846,214 $6,501,404 
(1) PPP loans are included in Commercial, financial and agricultural above.

On a combined basis, year-end commercial, financial and agricultural loans, construction real estate loans and commercial real estate loans decreased by $258 million, or 7.0%, in 2021. The decrease in 2021 was due to a decrease in commercial, financial and agricultural loans of $290.4 million, a decrease in construction real estate loans of $21.6 million, and an increase in commercial real estate loans of $53.6 million. Included within commercial, financial and agricultural loans were $74.4 million of PPP loans. On a combined basis, year-end commercial, financial and agricultural loans, construction real estate loans and commercial real estate loans increased by $554 million, or 17.7%, in 2020. The increase in 2020 was due to an increase in commercial real estate loans of $138.8 million, an increase in construction real estate loans of $11.7 million and an increase in commercial, financial and agricultural loans of $403.9 million. Included within commercial, financial and agricultural loans were $331.6 million of PPP loans. Excluding $74.4 million and $331.6 million of PPP loans at December 31, 2021 and 2020, respectively, commercial, financial and agricultural loans decreased $33 million, or 2.6% in 2021 and increased $72 million, or 6.1% in 2020.

Consumer loans increased by $30.0 million, or 1.8%, in 2021 and increased $207.3 million, or 14.3%, in 2020. The increase in consumer loans in each of 2021 and 2020 was primarily due to an increase in automobile lending in Ohio.
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Residential real estate loans decreased by $74.3 million, or 4.1%, in 2021 and decreased by $79.7 million, or 4.2%, in 2020. The decrease in 2021 was due to a decrease in mortgage loans secured by residential real estate of $62.7 million, a decrease in home equity loans secured by residential real estate of $16.4 million and a decrease in installment loans secured by residential real estate of $2.8 million, partially offset by an increase in commercial loans secured by residential real estate of $7.6 million.   

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

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

Table 15 - Loan Maturity Distribution
One Year or Less (1)
Over One Through Five YearsOver Five Through Fifteen YearsOver
 Fifteen
 Years		Total
December 31, 2021
     (In thousands)
Commercial, financial and agricultural$331,606 $685,012 $184,208 $97,800 $1,298,626 
Construction real estate80,560 86,056 58,565 96,605 321,786 
Residential real estate66,352 155,785 846,938 669,632 1,738,707 
Commercial real estate106,511 322,930 755,864 616,487 1,801,792 
Consumer24,832 752,373 911,568 906 1,689,679 
Leases4,406 14,873 1,253 — 20,532 
   Total loans and leases$614,267 $2,017,029 $2,758,396 $1,481,430 $6,871,122 
(1) Nonaccrual loans of $72.7 million are included within the one year or less classification above.

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

Table 16 - Amounts Due After One Year
(In thousands)FixedAdjustableTotal
Commercial, financial and agricultural$470,929 $496,091 $967,020 
Construction real estate55,356 185,870 241,226 
Residential real estate663,284 1,009,071 1,672,355 
Commercial real estate493,857 1,201,424 1,695,281 
Consumer1,641,927 22,920 1,664,847 
Leases16,126 — 16,126 
Total loans and leases$3,341,479 $2,915,376 $6,256,855 

Investment Securities: Park’s investment securities portfolio is structured to minimize credit risk, provide liquidity and contribute to earnings. As conditions change over time, Park’s overall interest rate risk, liquidity needs and potential return on the investment portfolio will change.  Management regularly evaluates the securities in the investment portfolio as circumstances evolve.  Circumstances that could result in the sale of a security include: to better manage interest rate risk; to meet liquidity needs; or to improve the overall yield in the investment portfolio.

AFS debt securities are carried on the books at their estimated fair value with the unrealized holding gain or loss, net of income taxes, accounted for as accumulated other comprehensive income (loss). The debt securities that are classified as AFS are free to be sold in future periods in carrying out Park’s investment strategies.

Beginning in 2021, Park began investing in the AAA and AA rated tranches of Collateralized Loan Obligations ("CLOs"). CLOs had a fair value as of December 31, 2021 of $498.7 million. Management closely monitors the credit status of these securities. At December 31, 2021 the market value over collateralization was greater than 120% for each CLO.

Prior to September 1, 2019, Park classified certain types of U.S. Government sponsored entity collateralized mortgage obligations (“CMOs”) and tax-exempt municipal securities that it purchased as Held-To-Maturity ("HTM").  These debt securities had been classified as HTM because they were generally not as liquid as the investment securities that Park classified as AFS. A classification of HTM meant that Park had the positive intent and the ability to hold these securities until maturity. 
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On September 1, 2019, Park adopted the portion of ASU 2019-04 which allowed for a one-time reclassification of securities from HTM to AFS. On that date, Park transferred HTM securities with a fair value of $373.9 million to the AFS classification. The transfer occurred at fair value and had a related unrealized gain, net of taxes, of $19.1 million recorded in other comprehensive income.
 
Average taxable debt investment securities were $1,060 million in 2021, compared to $858 million in 2020 and $1,052 million in 2019. The average yield on taxable debt investment securities was 1.84% in 2021, compared to 2.31% in 2020 and 2.49% in 2019. Average tax-exempt debt investment securities were $288 million in 2021, compared to $289 million in 2020 and $309 million in 2019. The average tax-equivalent yield on tax-exempt debt investment securities was 3.65% in 2021, compared to 3.69% in 2020 and 3.67% in 2019.
 
Total debt securities (at amortized cost) were $1,727 million at December 31, 2021, compared to $1,008 million at December 31, 2020 and $1,187 million at December 31, 2019. Management purchased debt securities totaling $954 million in 2021 and $354 million in 2020. There were no purchases of debt securities in 2019. Proceeds from repayments, redemptions and maturities of debt securities were $232 million in 2021, compared to $224 million in 2020 and $196 million in 2019.  

There were no sales of AFS debt securities in 2021. During 2020, Park sold certain AFS debt securities with a book value of $112.5 million at a gross loss of $64,000, and sold certain AFS debt securities with a book value of $196.4 million at a gross gain of $3.4 million. During 2019, Park sold certain AFS debt investment securities with a book value of $62.4 million at a gross loss of $692,000, and sold certain AFS debt investment securities with a book value of $29.1 million at a gross gain of $271,000.
 
For the years ended December 31, 2021, 2020, and 2019, the average tax-equivalent yield on the total investment portfolio was 2.22%, 2.66% and 2.76%, respectively.  The weighted average remaining maturity of the total investment portfolio was 4.8 years at December 31, 2021, 3.5 years at December 31, 2020 and 4.2 years at December 31, 2019. Obligations of the U.S. Treasury and other U.S. Government sponsored entities and U.S. Government sponsored entities' asset-backed securities were approximately 47.1% of the total investment portfolio at year-end 2021, 66.9% of the total investment portfolio at year-end 2020 and 69.5% of the total investment portfolio at year-end 2019. 

Other investment securities (as shown on Park's Consolidated Balance Sheets) consist of stock investments in the FHLB, the FRB and equity securities which includes equity investments in limited partnerships which provide mezzanine funding.  Total other investment securities were $61 million at December 31, 2021, compared to $65 million at December 31, 2020 and $70 million at December 31, 2019. Management purchased equity securities totaling $3.6 million in 2020, compared to $100,000 in 2019. There were no equity security purchases in 2021. Management purchased $6.4 million of FRB stock in 2019. There were no FRB stock purchases in 2021 or 2020. Proceeds from the redemption/repurchase of FHLB stock were $8.7 million in 2021, compared to $8.0 million in 2020 and $14.7 million in 2019.

"Gain on equity securities, net" on Park's Consolidated Statements of Income were $5.0 million, $2.2 million and $5.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. These gains on equity securities were made up of gains (losses) on equity investments carried at fair value as well as gains (losses) on equity investments carried at NAV.

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

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

The average maturity of the investment portfolio would lengthen if long-term interest rates were to increase as principal repayments from mortgage-backed securities and CMOs would decrease and callable securities would price to their maturity dates.  At year-end 2021, management estimated that the average maturity of the investment portfolio would lengthen to 4.9 years with a 100 basis point increase in long-term interest rates and would lengthen to 5.1 years with a 200 basis point increase in long-term interest rates. Likewise, the average maturity of the investment portfolio would shorten if long-term interest rates were to decrease as the principal repayments from mortgage-backed securities and CMOs would increase and callable securities would price to their call dates. At year-end 2021, management estimated that the average maturity of the investment portfolio would decrease to 4.1 years with a 100 basis point decrease in long-term interest rates and to 3.8 years with a 200 basis point decrease in long-term interest rates.
 
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The table below sets forth the carrying value of investment securities, as well as the percentage held within each category at year-end 2021, 2020 and 2019:

Table 17  -  Investment Securities
December 31,
(In thousands)202120202019
Corporate debt securities$11,412 $2,014 $— 
Obligations of states and political subdivisions389,591 305,218 320,491 
U.S. Government asset-backed securities854,463 752,109 889,210 
Collateralized loan obligations498,674 — — 
FHLB stock13,413 22,090 30,060 
FRB stock14,653 14,653 14,653 
Equities33,202 28,722 25,093 
     Total$1,815,408 $1,124,806 $1,279,507 
Investments by category as a percentage of total investment securities
Corporate debt securities0.6 %0.2 %— %
Obligations of states and political subdivisions21.5 %27.1 %25.0 %
U.S. Government asset-backed securities47.1 %66.9 %69.5 %
Collateralized loan obligations27.5 %— %— %
FHLB stock0.7 %2.0 %2.3 %
FRB stock0.8 %1.2 %1.2 %
Equities1.8 %2.6 %2.0 %
     Total100.0 %100.0 %100.0 %

The carrying value of investments in debt securities at December 31, 2021, is shown in the following table by contractual maturity, except for asset-backed securities and collateralized loan obligations, which are shown as a single total, due to the unpredictability of the timing in principal repayments. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Table 18 - Investment Maturity Distribution
Over Five Through Ten YearsOver
 Ten
 Years		Total
December 31, 2021
     (In thousands)
Corporate debt securities$11,412 $— $11,412 
Obligations of states and political subdivisions213,154 176,437 389,591 
Total$224,566 $176,437 $401,003 
U.S. Government sponsored entities' asset-backed securities$854,463 
Collateralized loan obligations498,674 

ANALYSIS OF EARNINGS

Net Interest Income: Park’s principal source of earnings is net interest income, the difference between total interest income and total interest expense.  Net interest income results from average balances outstanding for interest earning assets and interest bearing liabilities in conjunction with the average rates earned and paid on them.  (See the table below for three years of history on the average balances of the balance sheet categories as well as the average rates earned on interest earning assets and the average rates paid on interest bearing liabilities.)

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Table 19 - Distribution of Assets, Liabilities and Shareholders' Equity
December 31,202120202019
(In thousands)Daily
Average		InterestAverage
Rate		Daily
Average		InterestAverage
Rate		Daily
Average		InterestAverage
Rate
ASSETS
Loans (1)(2)
$7,014,517 $317,912 4.53 %$6,990,458 $329,350 4.71 %$6,208,496 $321,961 5.19 %
Taxable investment securities1,059,809 19,458 1.84 %857,752 19,818 2.31 %1,051,540 26,213 2.49 %
Tax-exempt investment securities (3)
288,300 10,514 3.65 %289,366 10,679 3.69 %309,197 11,335 3.67 %
Money market instruments665,714 880 0.13 %280,952 739 0.26 %169,703 3,947 2.33 %
Total interest earning assets9,028,340 348,764 3.86 %8,418,528 360,586 4.28 %7,738,936 363,456 4.70 %
Non-interest earning assets:
Allowance for credit losses(87,233)(71,221)(54,516)
Cash and due from banks139,678 127,214 130,372 
Premises and equipment, net89,758 81,357 69,710 
Other assets676,915 685,755 589,527 
      TOTAL$9,847,458 $9,241,633 $8,474,029 
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
   Transaction accounts$1,550,138 $357 0.02 %$1,687,417 $3,582 0.21 %$1,648,896 $13,249 0.80 %
   Savings deposits2,924,504 1,238 0.04 %2,556,475 5,560 0.22 %2,261,600 20,099 0.89 %
   Time deposits774,825 4,711 0.61 %994,255 12,186 1.23 %1,119,358 17,494 1.56 %
Total interest bearing deposits5,249,467 6,306 0.12 %5,238,147 21,328 0.41 %5,029,854 50,842 1.01 %
Federal funds purchased68 — 0.10 %1,872 2 0.12 %79 2 2.78 %
Repurchase agreements261,967 95 0.04 %250,265 472 0.19 %168,450 1,105 0.66 %
Short-term borrowings25,025 672 2.69 %26,750 636 2.38 %47,371 1,369 2.89 %
   Long-term debt (4)
205,883 8,887 4.32 %215,645 7,652 3.55 %340,664 9,445 2.77 %
Total interest bearing liabilities5,742,410 15,960 0.28 %5,732,679 30,090 0.52 %5,586,418 62,763 1.12 %
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Table 19 - Distribution of Assets, Liabilities and Shareholders' Equity-continued
December 31,202120202019
(In thousands)Daily
Average		InterestAverage
Rate		Daily
Average		InterestAverage
Rate		Daily
Average		InterestAverage
Rate
Non-interest bearing liabilities:
   Demand deposits2,937,035 2,394,717 1,875,628 
   Other102,553 105,135 89,809 
Total non-interest bearing liabilities3,039,588 2,499,852 1,965,437 
   Shareholders' equity1,065,460 1,009,102 922,174 
      TOTAL$9,847,458 $9,241,633 $8,474,029 
Tax equivalent net interest income$332,804 $330,496 $300,693 
Net interest spread3.58 %3.76 %3.58 %
Net yield on interest earning assets (net interest margin)3.69 %3.93 %3.89 %
(1)Loan income includes net loan-related fee income, purchase accounting accretion and origination expense in the aggregate amount of $11.1 million in 2021, $12.9 million in 2020 and $0.6 million in 2019. Loan income also includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate in 2021, 2020 and 2019. The taxable equivalent adjustments were $704,000 in 2021, $623,000 in 2020 and $576,000 in 2019.
(2)For the purpose of the computation for loans, nonaccrual loans are included in the daily average loans outstanding.
(3)Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate in 2021, 2020 and 2019. The taxable equivalent adjustments were $2.2 million in 2021, $2.2 million in 2020 and $2.4 million in 2019.
(4)Includes subordinated notes.

Average interest earning assets for 2021 increased by $610 million, or 7.2% to $9,028 million, compared to $8,419 million for 2020. Average interest earning assets for 2020 increased by $680 million, or 8.8%, to $8,419 million, compared to $7,739 million for 2019. The average yield on interest earning assets decreased by 42 basis points to 3.86% for 2021, compared to 4.28% for 2020 and 4.70% for 2019. For 2019, the acquisition of Carolina Alliance added average interest earning assets of $432.7 million.

Interest income for 2021, 2020, and 2019 included $8.0 million, $453,000 and $256,000, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB as well as $3.3 million, $4.4 million and $5.2 million of purchase accounting accretion for 2021, 2020 and 2019, respectively. Interest income for 2021 and 2020 included $18.0 million and $16.7 million, respectively, of income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 4.27%, 4.63% and 5.09%, for the years ended December 31, 2021, 2020 and 2019, respectively, the average yield on earning assets was 3.64%, 4.20% and 4.62%, for the years ended December 31, 2021, 2020 and 2019, respectively, and the net interest margin was 3.46%, 3.82% and 3.80%, for the years ended December 31, 2021, 2020 and 2019, respectively.

Average interest bearing liabilities for 2021 increased by $10 million, or 0.2%, to $5,742 million, compared to $5,733 million for 2020. Average interest bearing liabilities for 2020 increased by $146 million, or 2.6%, to $5,733 million for 2020, compared to $5,586 million for 2019. The average cost of interest bearing liabilities decreased by 24 basis points to 0.28% for 2021, compared to 0.52% for 2020 and 1.12% for 2019. For 2019, the acquisition of Carolina Alliance added average interest bearing liabilities of $368.8 million.

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

Table 20 - Average Loans and Tax Equivalent Yield
Year Ended December 31,202120202019
(Dollars in thousands)Average
balance		Tax
equivalent 
yield		Average
balance		Tax
equivalent 
yield		Average
balance		Tax
equivalent 
yield
Home equity $168,708 3.71 %$205,492 4.04 %$229,916 5.59 %
Installment loans 1,688,966 4.80 %1,548,059 5.17 %1,379,111 5.34 %
Real estate loans 1,176,885 3.73 %1,268,181 4.11 %1,246,209 4.36 %
Commercial loans (1)
3,977,165 4.69 %3,964,853 4.75 %3,348,599 5.39 %
Other2,793 12.07 %3,873 10.71 %4,661 11.70 %
Total loans and leases before allowance for credit losses$7,014,517 4.53 %$6,990,458 4.71 %$6,208,496 5.19 %
(1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate in 2021, 2020 and 2019. The taxable equivalent adjustments were $704,000 in 2021, $623,000 in 2020 and $576,000 in 2019.

Loan interest income for 2021, 2020, and 2019 included $8.0 million, $453,000 and $256,000, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB as well as $3.3 million, $4.4 million and $5.2 million of purchase accounting accretion for 2021, 2020 and 2019, respectively. Below is a summary of the impact of these items on the tax equivalent yield of loans.

•The amount of interest related to SEPH nonaccrual loan relationships and purchase accounting accretion included in home equity loan interest income for 2021, 2020 and 2019 was $479,000, $395,000 and $443,000, respectively. Excluding the impact of these items, the average tax equivalent yield on home equity loans was 3.41%, 3.83% and 5.37%, respectively.
•The amount of interest related to SEPH nonaccrual loan relationships and purchase accounting accretion included in real estate loan interest income for 2021, 2020 and 2019 was $243,000, $391,000 and $617,000. Excluding the impact of these items, the average tax equivalent yield on real estate loans was 3.71%, 4.08% and 4.30%, respectively.
•The amount of interest related to PPP income, SEPH nonaccrual loan relationships and purchase accounting accretion included in commercial loan interest income for 2021, 2020, and 2019 was $28.5 million, $19.9 million and $4.3 million, respectively. Excluding the impact of these items, the average tax equivalent yield on commercial loans was 4.24%, 4.66% and 5.26%, for 2021, 2020, and 2019, respectively.
•Excluding the impact of interest related to PPP income, SEPH nonaccrual loan relationships and purchase accounting accretion, the average tax equivalent yield on total loans and leases was 4.27%, 4.63% and 5.09%, for 2021, 2020, and 2019, respectively.

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

Table 21 - Average Deposits and Cost of Funds
Year Ended December 31,202120202019
(Dollars in thousands)Average
balance		Cost of fundsAverage
balance		Cost of fundsAverage
balance		Cost of funds
Transaction accounts$1,550,138 0.02 %$1,687,417 0.21 %$1,648,896 0.80 %
Savings deposits and clubs2,924,504 0.04 %2,556,475 0.22 %2,261,600 0.89 %
Time deposits (1)
774,825 0.61 %994,255 1.23 %1,119,358 1.56 %
Total interest bearing deposits (1)
$5,249,467 0.12 %$5,238,147 0.41 %$5,029,854 1.01 %
(1) Time deposit interest expense for 2021, 2020 and 2019 benefited from $46,000, $226,000 and $593,000, respectively, of purchase accounting accretion related to the acquisition of NewDominion for all of 2021, 2020 and 2019 and Carolina Alliance for all of 2021 and 2020 and the second, third and fourth quarters of 2019. Excluding the impact of this accretion, the average cost of funds on time deposits for 2021, 2020 and 2019 was 0.61%, 1.25% and 1.62%, respectively, and the average cost of funds on total interest bearing deposits for 2021, 2020 and 2019 was 0.12%, 0.41% and 1.02%, respectively.

The following table displays (for each quarter of 2021) the average balance of interest earning assets, the net interest income and the tax equivalent net interest income and net interest margin.
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Table 22  - Quarterly Net Interest Margin
(In thousands)Average Interest Earning Assets
Net Interest Income (1)
Tax Equivalent Net Interest Income (1)
Tax Equivalent Net Interest Margin (1)
First Quarter$8,786,301 $80,734 $81,448 3.76 %
Second Quarter9,062,368 83,851 84,569 3.74 %
Third Quarter9,250,939 81,602 82,319 3.53 %
Fourth Quarter9,008,863 83,706 84,468 3.72 %
2021$9,028,340 $329,893 $332,804 3.69 %
 (1) Net interest income for the first, second, third and fourth quarters of 2021 included $105,000, $2.8 million, $414,000 and $4.6 million, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB. Net interest income for the first, second, third, and fourth quarters of 2021 included $1.1 million, $806,000, $807,000 and $559,000 of purchase accounting accretion related to the acquisition of NewDominion and Carolina Alliance. Net interest income for the first, second, third, and fourth quarters of 2021 included $5.2 million, $5.7 million, $4.6 million and $2.5 million, respectively, related to PPP loans. Excluding the impact of these loan payments and accretion, the tax equivalent net interest margin was 3.61%, 3.47%, 3.35%, and 3.42%, for the first, second, third, and fourth quarters of 2021, respectively, and 3.46% for the year ended December 31, 2021.
In the following table, the change in tax equivalent interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
 
Table 23 - Volume/Rate Variance Analysis
Change from 2020 to 2021Change from 2019 to 2020
   (In thousands)VolumeRateTotalVolumeRateTotal
Increase (decrease) in:
Interest income:
         Total loans$1,134 $(12,572)$(11,438)$40,552 $(33,163)$7,389 
      Taxable investments4,668 (5,028)(360)(4,830)(1,565)(6,395)
      Tax-exempt investments(39)(126)(165)(727)71 (656)
      Money market instruments1,014 (873)141 2,587 (5,795)(3,208)
          Total interest income6,777 (18,599)(11,822)37,582 (40,452)(2,870)
Interest expense:
      Transaction accounts$(291)$(2,934)$(3,225)$310 $(9,977)$(9,667)
      Savings accounts800(5,122)(4,322)2,621(17,160)(14,539)
      Time deposits(2,690)(4,785)(7,475)(1,955)(3,353)(5,308)
      Short-term borrowings33 (376)(343)701 (2,067)(1,366)
      Long-term debt(346)1,581 1,235 (3,467)1,674 (1,793)
         Total interest expense(2,494)(11,636)(14,130)(1,790)(30,883)(32,673)
         Net variance$9,271 $(6,963)$2,308 $39,372 $(9,569)$29,803 
 

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Other Income:  Other income was $129.9 million in 2021, compared to $125.7 million in 2020 and $97.2 million in 2019.

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

Table 24 - Other Income
Year Ended December 31,
(In thousands)202120202019
Income from fiduciary activities$34,449 $28,873 $27,768 
Service charges on deposit accounts8,832 8,445 10,835 
Other service income29,812 37,611 15,500 
Debit card fee income25,865 22,160 20,250 
Bank owned life insurance income4,897 4,789 4,557 
ATM fees2,379 1,773 1,828 
(Loss) gain on the sale of OREO, net(4)1,207 (222)
Net gain (loss) on the sale of debt securities— 3,286 (421)
Gain on equity securities, net5,011 2,182 5,118 
Other components of net periodic benefit income8,152 7,952 4,732 
Miscellaneous10,551 7,386 7,248 
    Total other income$129,944 $125,664 $97,193 

Income from fiduciary activities increased by $5.6 million, or 19.3%, to $34.4 million in 2021, compared to $28.9 million in 2020. The $28.9 million was an increase of $1.1 million, or 4.0%, compared to $27.8 million in 2019. The increases in fiduciary fee income in 2021 and 2020 were primarily due to improvements in equity market values and also due to an increase in the total account balances serviced by PNB’s Trust Department.  PNB charges fiduciary fees largely based on the market value of the trust assets. The average market value of the trust assets managed by PNB was $7.45 billion in 2021, compared to $6.17 billion in 2020 and $5.85 billion in 2019.

Service charges on deposit accounts increased $387,000, or 4.6%, to $8.8 million in 2021, compared to $8.4 million in 2020 and decreased by $2.4 million, or 22.1%, in 2020 compared to $10.8 million in 2019. The increase in 2021 was related to an increase in other non-sufficient funds (NSF) fee income and service charges on demand deposit accounts. The decline in 2020 was related to declines in service charges on deposits, largely as a result of a decline in other NSF fee income and service charges on demand deposit accounts. 

Other service income decreased $7.8 million, or 20.7%, to $29.8 million in 2021, compared to $37.6 million in 2020, and increased $22.1 million, or 142.7%, in 2020 compared to $15.5 million in 2019. The decrease in 2021 compared to 2020 was primarily related to a decrease in other service income related to mortgage loan originations, including a $6.4 million decrease in fee income related to a $457.3 million decrease in mortgage loan originations to be sold in the secondary market and a $3.7 million decrease in income related to investor rate locks and loans held for sale, partially offset by a $1.2 million increase in mortgage investor fees and a $927,000 increase in mortgage servicing rights income. The increase in 2020 compared to 2019 was primarily related to an increase in other service income related to mortgage loan originations, including a $17.2 million increase in fee income related to a $686.5 million increase in mortgage loan originations to be sold in the secondary market, a $1.7 million increase in income related to investor rate locks and loans held for sale, and a $2.3 million increase in mortgage servicing rights income.
 
Debit card fee income, which is generated from debit card transactions, increased $3.7 million, or 16.7%, to $25.9 million in 2021, compared to $22.2 million in 2020, and increased $1.9 million, or 9.4%, in 2020 compared to $20.3 million in 2019. The increases in 2021 and 2020 were attributable to continued increases in the volume of debit card transactions, which increased 10.0% in 2021 from 2020, and increased 4.4% in 2020 from 2019, and increases in total sale dollars of debit card transactions, which increased 17.1% in 2021 from 2020, and increased 12.5% in 2020 from 2019. In addition, the increase in 2020 was attributable to changes in our point of sale network. Park continues to focus on deposit offerings that provide incentives for our customers to use their debit card.

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(Loss) gain on the sale of OREO, net, reflected a loss of $4,000 in 2021, a decrease of $1.2 million, compared to income of $1.2 million in 2020, and the income of $1.2 million in 2020 reflected an increase of $1.4 million, compared to a loss of $222,000 in 2019. The decrease in 2021 and the increase in 2020 were primarily due to a $1.2 million gain on the sale of two OREO properties during 2020, one of which was participated to PNB from SEPH.

During 2020, Park sold certain AFS debt securities with a book value of $112.5 million at a gross loss of $64,000, and sold certain AFS debt securities with a book value of $196.4 million at a gross gain of $3.4 million. During 2019, Park sold certain AFS debt securities with a book value of $62.4 million at a gross loss of $692,000, and sold certain AFS debt securities with a book value of $29.1 million at a gross gain of $271,000. No debt securities were sold in 2021.
During the years ended December 31, 2021, 2020 and 2019, $552,000, $(239,000) and $345,000, respectively, of gains (losses) on equity investments carried at fair value were recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income. For the years ended December 31, 2021, 2020 and 2019, $4.5 million, $2.4 million and $4.8 million, respectively, of gains on equity investments carried at NAV were recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income.

Other components of net periodic pension benefit income increased by $200,000, or 2.5% to $8.2 million in 2021, compared to $8.0 million in 2020, and increased $3.2 million, or 68.0%, to $8.0 million in 2020, compared to $4.7 million in 2019. The increases in 2021 and 2020 were largely due to an increase in the expected return on plan assets as a result of the increased value of plan assets.

Miscellaneous income increased by $3.2 million, or 42.9%, to $10.6 million in 2021, compared to $7.4 million in 2020, and increased $138,000, or 1.9%, to $7.4 million in 2020, compared to $7.2 million in 2019. The increase in 2021 was primarily related to refunds of a consumer insurance product, an increase in income from printed check sales and an increase in gain on sale of assets.

Other Expense: Other expense was $283.5 million in 2021, compared to $286.6 million in 2020 and $264.0 million in 2019. Other expense decreased by $3.1 million, or 1.1%, in 2021 and increased by $22.6 million, or 8.6% in 2020. The following table displays total other expense for Park for 2021, 2020 and 2019.

Table 25 - Other Expense
Year Ended December 31,
(In thousands)202120202019
Salaries$125,585 $128,040 $119,514 
Employee benefits41,603 37,115 36,806 
Occupancy expense13,039 13,802 12,815 
Furniture and equipment expense10,887 18,805 17,032 
Data processing fees30,539 11,659 10,750 
Professional fees and services27,450 31,303 33,317 
Marketing6,073 5,828 5,753 
Insurance5,917 6,423 3,130 
Communication3,539 4,084 5,351 
State tax expense4,255 3,991 3,829 
Amortization of intangible assets1,798 2,263 2,355 
FHLB prepayment penalty— 10,529 612 
Foundation contributions4,000 3,000 1,500 
Miscellaneous8,833 9,753 11,224 
    Total other expense$283,518 $286,595 $263,988 
Full-time equivalent employees1,685 1,755 1,907 

Salaries expense decreased by $2.5 million, to $125.6 million in 2021, compared to $128.0 million in 2020, and increased by $8.5 million, or 7.1%, in 2020 compared to $119.5 in 2019. The decrease in 2021 was due to a $4.2 million decrease in salary expense, primarily related to a $3.2 million decrease in severance and restructuring related expense, a $1.1
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million decrease in expense related to the vacation accrual, a $1.0 million decrease in base salary expense and a $1.0 million decrease in additional compensation expense, partially offset by a $3.3 million increase in incentive compensation expense and a $347,000 increase in share-based compensation expenses related to PBRSU awards granted under the Park 2013 Long-Term Incentive Plan (the "2013 Incentive Plan") (prior to 2017) and both PBRSU and TBRSU awards granted under the Park 2017 Long-Term Incentive Plan for Employees (the "2017 Employee LTIP"). The increase in 2020 was due to a $4.6 million increase in salary expense, which was primarily related to increases in base salary and $3.6 million in severance and restructuring related expense, a $1.9 million increase in additional compensation expense, an $850,000 increase in expense related to the vacation accrual and a $1.0 million increase in share-based compensation expenses.

Park had 1,685 full-time equivalent employees at year-end 2021, compared to 1,755 full-time equivalent employees at year-end 2020 and 1,907 full-time equivalent employees at year-end 2019. During 2020, Park closed 23 offices, which resulted in the significant reduction in full-time equivalent employees during 2020.

Employee benefits expense increased $4.5 million, or 12.1%, to $41.6 million in 2021, compared to $37.1 million in 2020, and increased $309,000, or 0.8%, in 2020 compared to $36.8 million in 2019. The increase in 2021 was due to a $2.7 million increase in group insurance costs, a $1.6 million increase in pension plan expense and a $693,000 increase in payroll tax expense, partially offset by a $496,000 decrease in miscellaneous employee benefits. The increase in 2020 was due to a $2.4 million increase in pension plan expense, a $505,000 increase in miscellaneous employee benefits and a $300,000 increase in the KSOP match, partially offset by a $3.0 million decrease in group insurance costs.

Occupancy expense decreased $763,000, or 5.5%, to $13.0 million in 2021, compared to $13.8 million in 2020, and increased by $987,000, or 7.7%, in 2020 compared to $12.8 million in 2019. The $763,000 decrease in 2021 was primarily the result of decreased lease expense, which was mainly the result of the closure of some leased branches in 2020. The $987,000 increase in 2020 was primarily the result of increased depreciation on premises and a write-down in the right-of-use lease asset related to branches that closed September 30, 2020.

Furniture and equipment expense decreased $7.9 million, or 42.1%, to $10.9 million in 2021, compared to $18.8 million in 2020. and increased $1.8 million, or 10.4%, in 2020 compared to $17.0 million in 2019. The decrease in 2021 was primarily related to a change in the classification under which software and related maintenance costs are expensed, which are now classified under data processing fees, partially offset by increases in depreciation of furniture and equipment. The increase in 2020 was primarily related to increased expenses related to repairs and maintenance on equipment, which also included software maintenance and costs, as well as increased depreciation on furniture and equipment.

Data processing fees increased by $18.9 million, or 161.9%, to $30.5 million in 2021, compared to $11.7 million in 2020, and increased $909,000, or 8.5%, in 2020 compared to $10.8 million in 2019. The increase in 2021 was related to increased other data processing and software costs, partially due to the previously mentioned change in classification from furniture and equipment expense and a change in expensing software costs from other fees within professional fees and services to data processing fees. The increase was also impacted by changes in debit card processing costs, which increased $832,000. Overall data processing and software costs across all line items, excluding debit card processing costs, increased $2.3 million. The increase in 2020 was related to increased mortgage processing costs, debit card processing costs and other data processing and software costs.
 
Professional fees and services decreased $3.9 million, or 12.3%, to $27.5 million, compared to $31.3 million for 2020, and decreased by $2.0 million, or 6.0%, in 2020 compared to $33.3 million in 2019. This subcategory of total other expense includes legal fees, management consulting fees, directors' fees, audit fees, regulatory examination fees and memberships in industry associations. The decrease in professional fees and services expense in 2021 was primarily due to decreases in other fees (due to the change in expensing software costs under data processing fees), credit costs and title and appraisal costs, partially offset by increases in legal expense. The decrease in professional fees and services expense in 2020 was largely related to a $4.4 million decrease in fees related to the acquisition of Carolina Alliance and a $1.0 million decrease in legal expense, partially offset by a $2.1 million increase in management and consulting expense and a $1.2 million increase in title, appraisal and credit costs.

Insurance expense decreased by $506,000, or 7.9%, to $5.9 million, compared to $6.4 million in 2020, and increased by $3.3 million, or 105.2%, in 2020 compared to $3.1 million in 2019. The decrease in 2021 was impacted by a decrease in the average FDIC assessment rate compared to 2020. The increase in 2020 was primarily due to the utilization of a $2.2 million assessment credit to reduce the FDIC insurance expense during the third and fourth quarters of 2019. 2020 was also impacted by an increase in the assessment base compared to 2019.
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Communication expense decreased by $545,000, or 13.3%, to $3.5 million in 2021, compared to $4.1 million in 2020, and decreased $1.3 million, or 23.7%, in 2020 compared to $5.4 million in 2019. The decrease in 2021 was primarily related to lower telephone, cable and data related communication costs. The decrease in 2020 was primarily related to a change in statement mailing and production costs, which resulted in lower direct postage expense, but was more than offset by an increase in supply expense which is included in miscellaneous expense.
The subcategory "Miscellaneous" other expense includes expenses for supplies, travel, and other miscellaneous expense. The subcategory Miscellaneous other expense decreased by $920,000, or 9.4%, to $8.8 million in 2021, compared to $9.8 million in 2020. The $9.8 million in 2020 was a decrease of $1.5 million, or 13.1%, compared to $11.2 million in 2019. The decrease in 2021 was primarily related to a decrease in supply expense, operating lease depreciation, OREO expense and training and travel related related expenses, partially offset by an increase in non-loan related losses. The decrease in 2020 was primarily due to a decrease in training and travel related expenses as well as a decrease in non-loan related losses.

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

Table 26- Efficiency ratio(1)
Year Ended December 31,
(in thousands)202120202019
Net interest income$329,893 $327,630 $297,737 
Add: Tax equivalent adjustment (2)
2,911 2,866 2,956 
Net interest income - Fully tax equivalent$332,804 $330,496 $300,693 
Total other income$129,944 $125,664 $97,193 
Total other expense$283,518 $286,595 $263,988 
Efficiency ratio61.27 %62.83 %66.35 %
(1) Calculated by dividing "Total other expense" by the sum of fully-tax equivalent net interest income and "Total other income."
(2) The tax equivalent adjustment to net interest income was calculated assuming a 21% corporate federal income tax rate for 2021, 2020 and 2019.

Items Impacting Comparability: From time to time, revenue, expenses, and/or taxes are impacted by items judged by management of Park to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by management of Park at that time to be infrequent or short term in nature. Most often, these items impacting comparability of period results are due to merger and acquisition activities, management restructuring, branch closures, a rebranding initiative, COVID-19 related expenses and revenue and expenses related to former Vision Bank loan relationships. In other cases, they may result from management's decisions associated with significant corporate actions outside of the ordinary course of business.

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

Table 27 - Items impacting comparability Year Ended December 31,
(in thousands, except share and per share data)202120202019Affected Line Item
Net interest income$329,893 $327,630 $297,737 
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions3,257 4,443 5,193 Interest and fees on loans
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions46 226 593 Interest on deposits
less interest income on former Vision Bank relationships7,985 453 256 Interest and fees on loans
Net interest income - adjusted$318,605 $322,508 $291,695 
(Recovery of) provision for credit losses$(11,916)$12,054 $6,171 
less recoveries on former Vision Bank relationships(3,169)(21,982)(3,042)(Recovery of) provision for credit losses
(Recovery of) provision for credit losses - adjusted$(8,747)$34,036 $9,213 
Other income$129,944 $125,664 $97,193 
less net gain (loss) on sale of former Vision Bank OREO properties— 1,208 (111)(Loss) gain on the sale of OREO, net
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Table 27 - Items impacting comparability (continued)Year Ended December 31,
(in thousands, except share and per share data)202120202019Affected Line Item
less other service income related to former Vision Bank relationships525 590 52 Other service income
less rebranding initiative related expenses— (572)— Miscellaneous
less net gain (loss) on the sale of debt securities in the ordinary course of business3,286 (421)Net gain (loss) on the sale of debt securities
Other income - adjusted$129,419 $121,152 $97,673 
Other expense$283,518 $286,595 $263,988 
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions8 117 3,567 Salaries
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions— — 1 Occupancy expense
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions— — 16 Data processing fees
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions— 496 4,856 Professional fees and services
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions16 16 16 Insurance
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions— — 421 Miscellaneous
less core deposit intangible amortization related to NewDominion and Carolina Alliance acquisitions1,798 2,263 2,355 Amortization of intangible assets
less Foundation contributions4,000 3,000 1,500 Foundation contributions
less severance and restructuring charges367 3,596 107 Salaries
less severance and restructuring charges— 847 — Employee benefits
less FDIC assessment credit— — (2,193)Insurance
less rebranding initiative related expenses— 72 — Employee benefits
less rebranding initiative related expenses308 47 — Occupancy expense
less rebranding initiative related expenses1,050 75 — Furniture and equipment expense
less rebranding initiative related expenses591 — — Data processing fees
less rebranding initiative related expenses— 23 — Marketing
less rebranding initiative related expenses 136 734 1,073 Professional fees and services
less rebranding initiative related expenses— 2 90 Communication
less rebranding initiative related expenses (including trade name intangible expense)— 87 1,313 Miscellaneous
less COVID-19 related expenses (bonuses and calamity pay)2,122 3,622 — Salaries
less extra direct compensation related to collection of payments on former Vision Bank loan relationships— 1,900 — Salaries
less management and consulting expenses related to collection of payments on former Vision Bank loan relationships1,361 2,383 622 Professional fees and services
less FHLB prepayment penalty— 10,529 612 FHLB prepayment penalty
Other expense - adjusted$271,761 $256,786 $249,632 
Tax effect of adjustments to net income identified above (1)
$(677)$(379)$1,208 
Net income - reported$153,945 $127,923 $102,700 
Net income - adjusted$151,397 $126,495 $107,244 
(1) The tax effect of adjustments to net income was calculated assuming a 21% corporate federal income tax rate for 2021, 2020 and 2019.

Income Taxes: Income tax expense was $34.3 million in 2021, compared to $26.7 million in 2020 and $22.1 million in 2019. Income tax expense as a percentage of income before taxes was 18.2% in 2021, 17.3% in 2020 and 17.7% in 2019. The difference between the statutory federal corporate income tax rate of 21% for 2021 and Park’s effective tax rate reflected permanent tax differences, primarily consisting of tax-exempt interest income from municipal investments and loans, qualified affordable housing and historical tax credits, bank owned life insurance income, and dividends paid on common shares held within Park’s salary deferral plan, offset by the impact of state income taxes. Park's permanent federal tax differences for 2021 were approximately $6.3 million in 2021, compared to $6.7 million for 2020. Park expects permanent federal tax differences for 2022 will be approximately $5.8 million.

CREDIT METRICS AND (RECOVERY OF) PROVISION FOR CREDIT LOSSES

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

Section 4014 of the CARES Act provided financial institutions with optional temporary relief from having to comply with ASU 2016-13 including the CECL methodology for estimating the allowance for credit losses. This temporary relief was set to expire on the earlier of the date on which the national emergency concerning COVID-19 terminated or December 31, 2020, with adoption being effective retrospectively as of January 1, 2020.

Section 540 of the Consolidated Appropriations Act, 2021, amended Section 4014 of the CARES Act by extending the relief period provided in the CARES Act. The Consolidated Appropriations Act, 2021, modified the CARES Act so that temporary relief was to expire on the earlier of the first day of the fiscal year that begins after the date on which the national emergency concerning COVID-19 terminates or January 1, 2022.

Park elected to delay the implementation of ASU 2016-13 following the approval of the CARES Act and continued to use the incurred loss methodology for estimating the allowance for credit losses in 2020. ASU 2016-13 requires financial institutions to calculate an allowance utilizing a reasonable and supportable forecast period which Park has established as a one-year period. In the unprecedented circumstances surrounding the COVID-19 pandemic and the response thereto, Park believed that adopting ASU 2016-13 in the first quarter of 2020 would have added an unnecessary level of subjectivity and volatility to the calculation of the allowance for credit losses. With the approval of the Consolidated Appropriations Act, 2021, management elected to further delay adoption of ASU 2016-13 to January 1, 2021. This allowed Park to utilize the CECL standard for the entire year of adoption.

The adoption of ASU 2016-13 on January 1, 2021 resulted in a $6.1 million increase to the allowance for credit losses and a $3.9 million increase to the allowance for unfunded credit losses. A cumulative effect adjustment resulting in an $8.0 million decrease to retained earnings and a $2.1 million increase to deferred tax assets was also recorded.
 
The table below provides additional information on the (recovery of) provision for credits losses and the ACL for 2021, 2020 and 2019.

Table 28 - ACL Activity
(In thousands)202120202019
ACL, beginning balance$85,675 $56,679 $51,512 
Cumulative change in accounting principle; adoption of ASU 2016-136,090 — — 
Charge-offs5,093 10,304 11,177 
Recoveries(8,441)(27,246)(10,173)
Net (recoveries) charge-offs(3,348)(16,942)1,004 
(Recovery of) provision for credit losses:(11,916)12,054 6,171 
     ACL, ending balance$83,197 $85,675 $56,679 
Average loans$7,014,517 $6,990,458 $6,208,496 
Net (recoveries) charge-offs as a percentage of average loans(0.05)%(0.24)%0.02 %

For the year ended December 31, 2021, gross income of $4.2 million would have been recognized on loans that were nonaccrual as of December 31, 2021 had these loans been current in accordance with their original terms. Interest income on nonaccrual loans may be recorded on a cash basis and be included in earnings only when Park expects to receive the entire recorded investment of the loan. Of the $4.2 million that would have been recognized, approximately $2.7 million was included in interest income for the year ended December 31, 2021.

Charge-offs for 2021 included the charge-off of $15,000 in specific reserves for which provision expense had been recognized in a prior year, compared to $283,000 for 2020 and $236,000 for 2019. Net (recoveries) charge-offs adjusted for changes in specific reserves as a percentage of average loans for the years ended December 31, 2021, 2020 and 2019 were (0.10)%, (0.24)%, and 0.06%, respectively.

SEPH, as a non-bank subsidiary of Park, does not carry an ACL balance, but recognizes a provision for credit losses when a charge-off is taken and recognizes a recovery of credit losses when a recovery is received.

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At year-end 2021, the allowance for credit losses was $83.2 million, or 1.21%, of total loans outstanding, compared to $85.7 million, or 1.19%, of total loans outstanding at year-end 2020, and $56.7 million, or 0.87% of total loans outstanding at year-end 2019.

The following table provides additional information related to the allowance for credit losses for Park including information related to specific reserves and general reserves, at December 31, 2021, December 31, 2020 and December 31, 2019. Also included is the January 1, 2021 allowance for credit losses calculated under the CECL methodology prescribed in ASU 2016-13.

Table 29- Allowance for Credit Losses Summary
(Dollars in thousands)12/31/2021 (CECL methodology)1/1/2021 (CECL methodology)12/31/2020 (Incurred Loss methodology)12/31/2019 (Incurred Loss methodology)
Total allowance for credit losses$83,197 $91,764 $85,675 $56,679 
Allowance on PCD loans (PCI loans for the periods ended in 2020 and 2019)— 52 167 268 
Allowance on purchased loans excluded from the general reserve— — 678 — 
Specific reserves on individually evaluated loans1,616 5,434 5,434 5,230 
General reserves on collectively evaluated loans$81,581 $86,278 $79,396 $51,181 
Total loans$6,871,122 $7,177,537 $7,177,785 $6,501,404 
PCD loans (PCI loans for periods ended in 2020 and 2019)7,149 10,903 11,153 14,331 
Purchased loans excluded from collectively evaluated loans— — 360,056 548,436 
Individually evaluated loans74,502 108,274 108,407 77,459 
Collectively evaluated loans$6,789,471 $7,058,360 $6,698,169 $5,861,178 
Allowance for credit losses as a % of period end loans1.21 %1.28 %1.19 %0.87 %
Allowance for credit losses as a % of period end loans (excluding PPP loans) (1)
1.22 %1.34 %1.25 %N.A
General reserve as a % of collectively evaluated loans 1.20 %1.22 %1.19 %0.87 %
General reserve as a % of collectively evaluated loans (excluding PPP loans) (1)
1.21 %1.28 %1.24 %N.A

(1) Excludes $74.4 million of PPP loans and $77,000 in related allowance at December 31, 2021; $331.6 million of PPP loans and $337,000 in related allowance at January 1, 2021; and $331.6 million of PPP loans and $337,000 in related allowance at December 31, 2020.


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The allowance for credit losses of $83.2 million at December 31, 2021 represented an $8.6 million, or 9.3%, decrease compared to $91.8 million at January 1, 2021 as calculated under the CECL methodology. The decline since January 1, 2021 was largely due to a $4.7 million decrease in general reserves, taking into consideration improved economic forecasts while balancing the risks associated with the COVID-19 pandemic and the delta and omicron variants, particularly in high risk portfolios such as hotels and accommodations, restaurants and food service and strip shopping centers. Additionally, there was a $3.8 million decrease in specific reserves on individually evaluated loans from $5.4 million at January 1, 2021 to $1.6 million at December 31, 2021.

The allowance for credit losses of $85.7 million at December 31, 2020 represented a $29.0 million, or 51.2%, increase compared to $56.7 million at December 31, 2019. This increase was largely the result of a $28.2 million increase in general reserves on total originated loans and a $204,000 increase in specific reserves. As of December 31, 2020, a $678,000 allowance had been established for performing purchased loans and a $167,000 allowance had been established for PCI loans. In addition to the established allowance related to purchased loans, as of December 31, 2020, these loans had a remaining purchase accounting discount of $7.2 million. The $28.2 million increase in general reserves was the result of the estimated increase in incurred losses as a result of the impact of the COVID-19 pandemic. This estimate was established based on consideration of Park's then existing environmental loss factors, modification programs Park had put in place, and balances of high risk portfolios such as hotel and accommodations, restaurants and food service and strip shopping centers.

Management believes that the allowance for credit losses at year-end 2021 is adequate to absorb estimated life of loan credit losses in the loan portfolio. See "Note 1 - Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K, and the discussion under the heading “CRITICAL ACCOUNTING POLICIES” earlier in this Management's Discussion and Analysis of Financial Condition and Results of Operations, for additional information on management’s evaluation of the adequacy of the allowance for credit losses.

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ACL Detail by Loan Type: The following tables breakdown the allowance for credit losses and components by loan type.

The table below provides a summary of Park's loan loss experience over the past three years:

Table 30  -  Summary of Loan Credit Loss Experience
   (In thousands)202120202019
Average loans $7,014,157 $6,990,458 $6,208,496 
Allowance for credit losses:
   Beginning balance85,675 56,679 51,512 
Adoption of ASU 2016-136,090 — — 
   Charge-offs:
Commercial, financial and agricultural957 1,468 2,231 
Construction real estate— 6 — 
Residential real estate49 356 224 
Commercial real estate35 1,824 415 
Consumer4,052 6,634 8,307 
Leases— 16 — 
       Total charge-offs$5,093 $10,304 $11,177 
   Recoveries:
       Commercial financial, and agricultural$639 $20,765 $1,241 
Construction real estate2,299 1,122 2,682 
Residential real estate941 991 787 
Commercial real estate802 738 720 
Consumer3,759 3,629 4,742 
Leases1 1 1 
       Total recoveries$8,441 $27,246 $10,173 
           Net (recoveries) charge-offs$(3,348)$(16,942)$1,004 
(Recovery) provision included in earnings(11,916)12,054 6,171 
   Ending balance$83,197 $85,675 $56,679 
Ratio of net (recoveries) charge-offs to average loans(0.05)%(0.24)%0.02 %
Ratio of allowance for credit losses
   to end of year loans1.21 %1.19 %0.87 %


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The follow table presents net-charge offs (recoveries), average loans outstanding, and net charge-offs as a percentage of average loans, by type of loan over the past three years:

Table 31- Net Charge-Offs (Recoveries) to Average Loans
Year Ended December 31,
(in thousands)202120202019
Net Charge-offs (Recoveries)Average LoansNet Charge-offs (Recoveries) as a % of Average LoansNet Charge-offs (Recoveries)Average LoansNet Charge-offs (Recoveries) as a % of Average LoansNet Charge-offs (Recoveries)Average LoansNet Charge-offs (Recoveries) as a % of Average Loans
Commercial, financial, and agricultural$318 $1,435,221 0.02 %$(19,297)$1,545,426 (1.25)%$990 $1,164,701 0.09 %
Construction real estate(2,299)331,882 (0.69)%(1,116)346,664 (0.32)%(2,682)295,538 (0.91)%
Residential real estate(892)1,771,880 (0.05)%(635)1,867,956 (0.03)%(548)1,859,002 (0.03)%
Commercial real estate(767)1,766,346 (0.04)%1,086 1,655,747 0.07 %(320)1,513,623 (0.02)%
Consumer293 1,686,849 0.02 %3,005 1,546,574 0.19 %3,565 1,367,045 0.26 %
Leases(1)22,339 — %15 28,091 0.05 %(1)8,587 (0.01)%
Total$(3,348)$7,014,517 (0.05)%$(16,942)$6,990,458 (0.24)%$1,004 $6,208,496 0.02 %

The following table summarizes Park's allocation of the allowance for credit losses for the past three years:
 
Table 32- Allocation of Allowance for Credit Losses
December 31,202120202019
(In thousands)AllowancePercent of Loans Per CategoryAllowancePercent of Loans Per CategoryAllowancePercent of Loans Per Category
Commercial, financial, and agricultural$14,025 18.90 %$25,608 22.14 %$20,203 18.23 %
Construction real estate5,758 4.68 %7,288 4.78 %5,311 5.10 %
Residential real estate11,424 25.31 %11,363 25.26 %8,610 29.11 %
Commercial real estate25,466 26.22 %23,480 24.36 %10,229 24.76 %
Consumer26,286 24.59 %17,418 23.12 %12,211 22.34 %
Leases238 0.30 %518 0.34 %115 0.46 %
Total$83,197 100.00 %$85,675 100.00 %$56,679 100.00 %
  
As of December 31, 2021, Park had no concentrations of loans exceeding 10% to borrowers engaged in the same or similar industries nor did Park have any loans to foreign governments.
 
Nonperforming Assets: Nonperforming assets include: 1) loans whose interest is accounted for on a nonaccrual basis; 2) troubled debt restructurings (TDRs) on accrual status; 3) loans which are contractually past due 90 days or more as to principal or interest payments, where interest continues to accrue; 4) OREO which results from taking possession of property that served as collateral for a defaulted loan; and 5) other nonperforming assets. As of December 31, 2021, 2020 and 2019, other nonperforming assets consisted of aircraft acquired as part of a loan workout.

Generally, management obtains updated appraisal information for nonperforming loans and OREO annually. As new appraisal information is received, management performs an evaluation of the appraisal and applies a discount for anticipated disposition costs to determine the net realizable value of the collateral, which is compared to the outstanding principal balance to determine if additional write-downs are necessary.

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The following is a summary of Park’s nonperforming assets at the end of each of the last three years:
 
Table 33 - Nonperforming Assets
December 31,
(In thousands)202120202019
Nonaccrual loans$72,722 $117,368 $90,080 
Accruing TDRs28,323 20,788 21,215 
Loans past due 90 days or more and accruing1,607 1,458 2,658 
   Total nonperforming loans$102,652 $139,614 $113,953 
OREO775 1,431 4,029 
Other nonperforming assets 2,750 3,164 3,599 
   Total nonperforming assets$106,177 $144,209 $121,581 
Percentage of nonperforming loans to total loans1.49 %1.95 %1.75 %
Percentage of nonperforming assets to total loans1.55 %2.01 %1.87 %
Percentage of nonperforming assets to total assets1.11 %1.55 %1.42 %
Percentage of nonaccrual loans to total loans1.06 %1.64 %1.39 %
Allowance for credit losses to nonaccrual loans114.40 %73.00 %62.92 %
 
Included in OREO totals above were $594,000 of SEPH OREO at both December 31, 2021 and December 31, 2020 and $929,000 of SEPH OREO at December 31, 2019.

Park classifies loans as nonaccrual when a loan 1) is maintained on a cash basis because of deterioration in the financial condition of the borrower, 2) payment in full of principal or interest is not expected, or 3) principal or interest has been in default for a period of 90 days for commercial loans and 120 days for all other loans. As a result, loans may be classified as nonaccrual despite being current with their contractual terms. The following table details the delinquency status of nonaccrual loans at December 31, 2021, 2020, and 2019.

Table 34 - Delinquency Status of Nonaccrual Loans
December 31, 2021December 31, 2020December 31, 2019
(In thousands)BalancePercent of Total LoansBalancePercent of Total LoansBalancePercent of Total Loans
Nonaccrual loans - current$53,259 0.78 %$92,600 1.29 %$66,282 1.02 %
Nonaccrual loans - past due19,463 0.28 %24,768 0.35 %23,798 0.37 %
Total nonaccrual loans$72,722 1.06 %$117,368 1.64 %$90,080 1.39 %

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

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The following table highlights the credit trends within the commercial loan portfolio.
Table 35- Commercial Credit Trends
Commercial loans * (In thousands)December 31, 2021December 31, 2020December 31, 2019
Pass rated$3,712,784 $3,893,205 $3,418,159 
Special Mention75,397 102,812 27,367 
Substandard— 109 973 
Individually evaluated for impairment74,502 108,407 77,459 
Accruing PCD (PCI loans for periods ended December 31, 2020 and 2019)6,630 10,296 13,364 
    Total$3,869,313 $4,114,829 $3,537,322 
*Commercial loans include: (1) commercial, financial and agricultural loans; (2) commercial real estate loans; (3) commercial related loans in the construction portfolio; (4) commercial related loans in the residential real estate portfolio; and (5) leases.

Park’s watch list includes all criticized and classified commercial loans, defined by Park as loans rated special mention or worse. Park had $75.4 million of collectively evaluated commercial loans included on the watch list at December 31, 2021, compared to $102.9 million at December 31, 2020, and $28.3 million at December 31, 2019. The existing conditions of these loans do not warrant classification as nonaccrual. However, these loans have shown some weakness and management performs additional analysis regarding each borrower's ability to comply with payment terms.

The $75.4 million of collectively evaluated commercial watch list loans as of December 31, 2021 is elevated compared to pre-pandemic levels, an increase of $48.6 million compared to $26.8 million at March 31, 2020. This $48.6 million increase was largely due to $54.1 million of hotels and accommodations loans that were downgraded to special mention or substandard as a result of the impact of COVID-19. In addition to the $54.1 million in hotels and accommodations loans that were downgraded to special mention, $15.3 million in hotels and accommodations loans were downgraded to impaired status. Park is closely monitoring the impact of COVID-19 on its borrowers' ability to repay their loans in accordance with contractual terms. As additional information becomes available, management will continue to evaluate loans to ensure appropriate risk classification.

Delinquencies have remained low over the past 36 months since January 1, 2019. Delinquent and accruing loans were $15.1 million, or 0.22% of total loans at December 31, 2021, compared to $20.1 million, or 0.28% of total loans at December 31, 2020, and $23.8 million, or 0.37% of total loans at December 31, 2019.

Individually Evaluated Loans: Loans that do not share risk characteristics are evaluated on an individual basis. Park has determined that any commercial loans which have been placed on nonaccrual status or classified as TDRs will be individually evaluated and are labeled as individually evaluated. Individual analysis will establish a specific reserve for loans in scope.  Specific reserves on individually evaluated commercial loans are typically based on management’s best estimate of the fair value of collateral securing these loans. The amount ultimately charged off for these loans may be different from the specific reserve as the ultimate liquidation of the collateral may be for an amount different from management’s estimate.

Individually evaluated were $74.5 million at December 31, 2021, a decrease of $33.9 million, compared to $108.4 million at December 31, 2020, and a decrease of $3.0 million at December 31, 2020, compared to $77.5 million at December 31, 2019. The $74.5 million of individually evaluated commercial loans at December 31, 2021 included $17.5 million of loans modified in a TDR which were then currently on accrual status and performing in accordance with the restructured terms, up from $8.8 million at December 31, 2020.

At December 31, 2021, Park had taken partial charge-offs of $624,000 related to the $74.5 million of the individually evaluated commercial loans, compared to partial charge-offs of $655,000 related to the $108.4 million of individually evaluated commercial loans at December 31, 2020 and compared to partial charge-offs of $719,000 related to the $77.5 million of individually evaluated commercial loans at December 31, 2019.





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 The table below provides additional information related to Park's individually evaluated commercial loans at December 31, 2021, 2020, and 2019.

Table 36 - Individually Evaluated Commercial Loans
Years ended December 31,
(In thousands)202120202019
Unpaid principal balance$75,126 $109,062 $78,178 
Prior charge-offs624 655 719 
Remaining principal balance74,502 108,407 77,459 
Specific reserves1,616 5,434 5,230 
Book value, after specific reserves$72,886 $102,973 $72,229 
Loans Acquired with Deteriorated Credit Quality: In conjunction with the NewDominion acquisition, Park acquired loans with a book value of $277.9 million as of the July 1, 2018 acquisition date. These loans were recorded at the initial fair value of $272.8 million. Loans acquired with deteriorated credit quality (ASC 310-30) with a book value of $5.1 million were recorded at the initial fair value of $4.9 million. In conjunction with the Carolina Alliance acquisition, Park acquired loans and leases with a book value of $589.7 million as of the April 1, 2019 acquisition date. These loans and leases were recorded at the initial fair value of $578.6 million. Loans and leases acquired with deteriorated credit quality (ASC 310-30) with a book value of $19.9 million were recorded at the initial fair value of $18.4 million

Upon adoption of CECL on January 1, 2021, $52,000 of the credit discount on PCD loans was reclassified to the allowance for credit losses. At December 31, 2021, there was no allowance for credit losses on PCD loans. The carrying amount of loans acquired with deteriorated credit quality at December 31, 2021 was $7.1 million. The carrying amount of loans acquired with deteriorated credit quality at December 31, 2020 was $11.2 million, of which none were considered impaired due to additional credit deterioration post acquisition. The carrying amount of loans acquired with deteriorated credit quality at December 31, 2019 was $14.3 million, of which $5,000 were considered impaired due to additional credit deterioration post acquisition.

Allowance for Credit Losses: The allowance for credit losses is calculated on a quarterly basis. The methodology for calculating the ACL and assumptions made as of December 31, 2021 are detailed below.

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

•Forecast model - For each portfolio segment, a loss driver analysis ("LDA") was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized Park's own FFIEC Call Report data for the commercial, financial and agricultural and residential real estate portfolio segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer portfolio segments. Park plans to update the LDA annually; however, due to the impact of COVID-19, the LDA analysis was last updated in the fourth quarter of 2019.
•Probability of default – PD is the probability that an asset will be in default within a given time frame. Park has defined default to be when a charge-off has occurred, a loan is placed on nonaccrual, or a loan is greater than 90 days past due. Whenever possible, Park utilizes its own loan-level PDs for the reasonable and supportable forecast period. When loan-level data is not available reflecting the forecasted economic conditions, a forecast model is utilized to estimate PDs.
•Loss given default – LGD is the percentage of the asset not expected to be collected due to default. Whenever possible, Park utilizes its own loan-level LGDs for the reasonable and supportable forecast period. When it is not possible to use Park's own LGDs, the LGD is derived using a method referred to as Frye Jacobs.
•Prepayments and curtailments – Prepayments and curtailments are calculated based on Park’s own data utilizing a three-year average. This analysis is updated annually in the fourth quarter and was last updated in the fourth quarter of 2021.
•Forecast and reversion – Park has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.
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•Economic forecast - Park utilizes a third party to provide economic forecasts under various scenarios, which are weighted in order to reflect model risk in the current economic environment. The scenario weighting is evaluated by management on a quarterly basis.
◦As of January 1, 2021, the date of CECL adoption, Park weighted a "most likely" scenario 80%, a "slower near-term growth" scenario 10%, and a "moderate recession" scenario 10%. As of January 1, 2021, the "most likely" scenario forecasted Ohio unemployment to range between 5.31% and 5.79% during the next four quarters.
◦As of March 31, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease significantly, to a range between 3.70% and 4.93% during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2021, management considered this improved economic forecast while balancing the risks associated with the COVID-19 pandemic, including the risk of pandemic-related losses lagging behind the projected improvement in unemployment. The calculation utilizing the 80% "most likely" scenario, 10% "slower near-term growth" scenario, and 10% "moderate recession scenario" resulted in a quantitative reserve of $58 million, which would have resulted in a decline of $17 million from the quantitative reserve of $75 million as of January 1, 2021. Management then considered the reason for this decline and whether or not it was appropriate given the economic environment at March 31, 2021. Upon review, management noted that the decline was the result of a significant decrease in forecasted unemployment. The March 31, 2021 "most likely" scenario forecasted unemployment rates lower than any post-1975 Ohio unemployment rates of record. Given the uncertainty at March 31, 2021 due to the COVID-19 pandemic, management did not believe that such a significant decrease in reserves was appropriate and sought to re-evaluate the weightings in order to calculate a more accurate life of loan loss estimate. Management determined it was appropriate to weight the "most likely" scenario 50% and the "moderate recession" scenario 50%.
◦As of December 31, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease, to a range between 3.32% and 3.97%, during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2021, management considered the range of forecasted unemployment as well as a number of economic indicators. While some economic indications continued to be optimistic, the Omicron variant, rising inflation, volatility in consumer confidence, employment, supply chain and workforce challenges continued to cause uncertainty to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the previous quarter weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2021.

Qualitative Considerations
Park reviews various internal and external factors to consider the need for any qualitative adjustments to the quantitative model. Factors considered include the following:
•The nature and volume of Park’s financial assets; the existence, growth, and effect of any concentrations of credit and the volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets. Specifically, management considers:
◦Trends (e.g., growth, reduction) in specific categories of the loan portfolio, as well as adjustments to the types of loans offered by Park.
◦Level of and trend in loan delinquencies, troubled loans, commercial watch list loans and nonperforming loans.
◦Level of and trend in new nonaccrual loans.
◦Level of and trend in loan charge-offs and recoveries.
•Park's lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, write-offs, and recoveries.
•The quality of Park’s credit review function.
•The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff.
•The effect of other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or pandemics.
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in the markets in which Park operates that affect the collectibility of financial assets.
•Where the U.S. economy is within a given credit cycle.
•The extent that there is government assistance (stimulus).

During 2020, Park added an additional reserve for three industries at particularly high risk due to the COVID-19 pandemic: hotels and accommodations; restaurants and food service; and strip shopping centers. These industries have experienced high levels of deferrals and have been particularly impacted by shut downs of non-essential businesses, increased health department regulations, and changes in consumer behavior. Management expects that a relatively higher percentage of the 4-rated credits in these portfolios will eventually migrate to special mention, substandard, or impaired status. In adopting CECL, management determined it was appropriate to retain and maintain this qualitative adjustment throughout 2021 as this
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adjustment takes into account the additional risk in these portfolios, which is not captured in the quantitative calculation. As of December 31, 2021, additional reserves totaling $5.2 million were added for these portfolios on top of the quantitative reserve already calculated. This represented an increase from $3.8 million as of December 31, 2020, which had been calculated under the previous incurred loss methodology.

A breakout of the 4-rated balances within these portfolios and the additional reserve related to these portfolios is detailed in the following table:

Table 37 - Additional COVID-19 Reserves
December 31, 2021December 31, 2020
(in thousands)4-Rated BalanceAdditional Reserve4-Rated BalanceAdditional Reserve
Hotels and accommodations$148,018 $2,226 $96,909 $1,391 
Restaurants and food service40,648 917 33,409 637 
Strip shopping centers184,171 2,033 177,706 1,731 
Total$372,837 $5,176 $308,024 $3,759 

Additionally, management applied a 1.00% reserve to all hotels and accommodations loans in the collectively evaluated population to account for increased valuation risk. This was consistent with 2020 year end and considered various economic conditions due to COVID-19 variants, continued volatility in the hotel industry, and travel trends, all of which impacted valuations. At December 31, 2021, Park's originated hotels and accommodation loans included in the population of collectively evaluated loans had a balance of $203.9 million with an additional reserve related to valuation risks of $2.0 million. At December 31, 2020, Park's originated hotels and accommodation loans included in the population of collectively evaluated loans had a balance of $181.4 million with an additional reserve related to valuation risks of $1.8 million.

There is still a significant amount of uncertainty related to the economic impact of COVID-19, including the duration of the pandemic, the risk related to new variants, future government programs that may be established in response to the pandemic, and the resiliency of the U.S. economy. Management will continue to evaluate its estimate of expected credit losses as new information becomes available.

As of December 31, 2021, Park had $74.4 million of PPP loans which were included in the commercial, financial and agricultural portfolio segment compared to $331.6 million as of December 31, 2020. These loans are guaranteed by the SBA and thus have not been reserved for using the same methodology as the rest of Park’s loan portfolio. A 10 basis point reserve was calculated for these loans to reflect minimal credit risk as of December 31, 2021 and 2020.

CAPITAL RESOURCES

Liquidity and Interest Rate Sensitivity Management: Park’s objective in managing its liquidity is to maintain the ability to continuously meet the cash flow needs of customers, such as borrowings or deposit withdrawals, while at the same time seeking higher yields from longer-term lending and investing activities.
 
Cash and cash equivalents decreased by $151.3 million during 2021 to $219.2 million at year end. Cash provided by operating activities was $157.3 million in 2021, $111.6 million in 2020 and $111.6 million in 2019. Net income was the primary source of cash provided by operating activities during each year.
 
Cash used in investing activities was $412.1 million in 2021 and $455.9 million in 2020, while cash provided by investing activities was $60.1 million in 2019. Investment securities transactions and loan originations/repayments are the major uses or sources of cash in investing activities.  Proceeds from the sale, repayment or maturity of investment securities provide cash and purchases of investment securities use cash.  Net investment securities transactions used cash of $709.5 million in 2021 and provided cash of $188.1 million in 2020 and $302.2 million in 2019. Cash provided by the net paydown in the loan portfolio was $312.2 million in 2021, and cash used by the net increase in the loan portfolio was $620.2 million in 2020 and $216.4 million in 2019.
 
Cash provided by financing activities was $103.5 million in 2021 and $554.8 million in 2020, while cash used in financing activities was $179.0 million in 2019. A major source of cash provided by or used in financing activities is the net change in deposits.  Deposits increased and provided $332.2 million of cash in 2021, $520.0 million of cash in 2020 and $159.7 million of cash in 2019. Other major sources of cash from financing activities are short-term borrowings and long-term debt. In 2021, net short-term borrowings decreased and used $103.4 million in cash and net long-term debt decreased and used $32.5
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million in cash. In 2020, net short-term borrowings increased and provided $111.6 million in cash and net long-term debt increased and provided $2.1 million in cash. In 2019, net short-term borrowings decreased and used $20.1 million in cash and net long-term debt decreased and used $208.1 million in cash. Cash used in the repurchase of common shares was $16.0 million in 2021, $7.5 million in 2020 and $40.5 million in 2019. Finally, cash declined by $74.3 million in 2021, $70.4 million in 2020 and $69.1 million in 2019, from the payment of cash dividends.
 
Funds are available from a number of sources, including the capital markets, the investment securities portfolio, the core deposit base, FHLB borrowings and the capability to securitize or package loans for sale. In the opinion of Park's management, the present funding sources provide more than adequate liquidity for Park to meet our cash flow needs.
 
The following table shows interest rate sensitivity data for five different time intervals as of December 31, 2021:
  
Table 38  -  Interest Rate Sensitivity
0-33-121-33-5Over 5
(In thousands)MonthsMonthsYearsYearsYearsTotal
Interest earning assets:
   Investment securities (1)
$557,903 $137,478 $271,734 $370,254 $451,262 $1,788,631 
   Money market instruments74,673 — — — — 74,673 
   Loans (1)
1,853,301 1,498,476 2,004,159 1,056,642 458,544 6,871,122 
    Total interest earning assets2,485,877 1,635,954 2,275,893 1,426,896 909,806 8,734,426 
Interest bearing liabilities:
   Interest bearing transaction accounts (2)
$502,812 $— $1,000,064 $— $— $1,502,876 
 Savings accounts (2)
1,011,301 — 1,610,807 — — 2,622,108 
   Time deposits190,442 266,694 185,508 64,297 4,719 711,660 
   Other1,465 — — — — 1,465 
      Total deposits1,706,020 266,694 2,796,379 64,297 4,719 4,838,109 
   Short-term borrowings238,786 — — — — 238,786 
   Subordinated notes15,000 — — 173,210 — 188,210 
Total interest bearing liabilities1,959,806 266,694 2,796,379 237,507 4,719 5,265,105 
Interest rate sensitivity gap526,071 1,369,260 (520,486)1,189,389 905,087 3,469,321 
Cumulative rate sensitivity gap526,071 1,895,331 1,374,845 2,564,234 3,469,321 
Cumulative gap as a
   percentage of total
   interest earning assets6.02 %21.70 %15.74 %29.36 %39.72 %
(1)Investment securities and loans that are subject to prepayment are shown in the table by the earlier of their re-pricing date or their expected repayment date and not by their contractual maturity date. Nonaccrual loans of $72.7 million are included within the three-month to twelve-month maturity category. 
(2)Management considers interest bearing transaction accounts and savings accounts to be core deposits and, therefore, not as rate sensitive as other deposit accounts and borrowed money. Accordingly, only 33% of interest bearing transaction accounts and 39% of savings accounts are considered to re-price within one year. If all of the interest bearing transaction accounts and savings accounts were considered to re-price within one year, the one-year cumulative gap would change from a positive 21.70% to a negative 8.19%.
 
The interest rate sensitivity gap analysis provides an overall picture of Park’s static interest rate risk position.  At December 31, 2021, the cumulative interest earning assets maturing or repricing within twelve months were $4,122 million compared to the cumulative interest bearing liabilities maturing or repricing within twelve months of $2,227 million.  For the twelve-month cumulative interest rate sensitivity gap position, rate sensitive assets exceeded rate sensitive liabilities by $1,895 million or 21.7% of interest earning assets.
 
A positive twelve-month cumulative rate sensitivity gap (assets exceed liabilities) would suggest that Park’s net interest margin would increase if interest rates were to increase.  Conversely, a negative twelve-month cumulative rate sensitivity gap would suggest that Park’s net interest margin would decrease if interest rates were to increase. However, the usefulness of the interest rate sensitivity gap analysis as a forecasting tool in projecting net interest income is limited.  The gap analysis does not consider the magnitude, timing or frequency by which assets or liabilities will reprice during a period and also
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contains assumptions as to the repricing of interest bearing transaction accounts and savings accounts that may not prove to be correct.
 
The cumulative twelve-month interest rate sensitivity gap position at year-end 2020 was a positive $1,295 million or 15.29% of total interest earning assets.  The percentage of interest earning assets maturing or repricing within one year was 47.2% at year-end 2021, compared to 45.7% at year-end 2020.  The percentage of interest bearing liabilities maturing or repricing within one year was 42.3% at year-end 2021, compared to 47.7% at year-end 2020.
 
Management supplements the interest rate sensitivity gap analysis with periodic simulations of balance sheet sensitivity under various interest rate and what-if scenarios to better forecast and manage the net interest margin.  Park’s management uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates.  This model is based on actual cash flows and repricing characteristics for balance sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities.  This model also includes management’s projections for activity levels of various balance sheet instruments and non-interest fee income and operating expense.  Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into this earnings simulation model.  These assumptions are inherently uncertain and, as a result, the model cannot precisely measure net interest income and net income.  Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies.
 
Management uses a 50 basis point change in market interest rates per quarter for a total of 200 basis points per year in evaluating the impact of changing interest rates on net interest income and net income over a twelve-month horizon. At December 31, 2021, the earnings simulation model projected that net income would increase by 7.5% using a rising interest rate scenario and decrease by 15.1% using a declining interest rate scenario over the next year. At December 31, 2020, the earnings simulation model projected that net income would decrease by 2.9% using a rising interest rate scenario and decrease by 8.8% using a declining interest rate scenario over the next year. At December 31, 2019, the earnings simulation model projected that net income would decrease by 1.9% using a rising interest rate scenario and increase by 0.5% using a declining interest rate scenario over the next year. Consistently, over the past several years, Park’s earnings simulation model has projected that changes in interest rates would have only a small impact on net income and the net interest margin.  Park’s net interest margin was 3.69% in 2021, 3.93% in 2020 and 3.89% in 2019.   

CONTRACTUAL OBLIGATIONS

In the ordinary course of operations, Park enters into certain contractual obligations. The following table summarizes Park’s significant and determinable obligations by payment date at December 31, 2021.
 
Further discussion of the nature of each specified obligation is included in the referenced Note to the Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.

Table 39 - Contractual Obligations (1)
December 31, 2021Payments Due In
0-11-33-5Over 5
(In thousands)NoteYearsYearsYearsYearsTotal
Deposits without stated maturity12$7,192,868 $— $— $— $7,192,868 
Certificates of deposit12450,374 199,396 61,757 133 711,660 
Short-term borrowings14238,786 — — — 238,786 
Subordinated notes16— — — 188,210 188,210 
Operating leases263,108 4,858 2,992 4,496 15,454 
Defined benefit pension plan (2)
1912,775 23,602 24,765 61,702 122,844 
Supplemental Executive Retirement Plan19652 1,788 1,989 31,430 35,859 
Total contractual obligations$7,898,563 $229,644 $91,503 $285,971 $8,505,681 
(1) Amounts do not include associated interest payments.
(2) Pension payments reflect 10 years of payments, through 2031.

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As of December 31, 2021, Park had $28.5 million in unfunded commitments related to investments in qualified affordable housing projects which are not included in "Table 39 - Contractual Obligations" above. Commitments are funded when capital calls are made by the general partner. Park expects that the current commitments will be funded between 2022 and 2032.

As of December 31, 2021, Park had $8.4 million in unfunded commitments related to certain equity investments which are not included in "Table 39 - Contractual Obligations" above. Commitments are funded when capital calls are made by the general partner.

The Corporation’s operating lease obligations represent short-term and long-term lease and rental payments for facilities and equipment.
 
Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements: In order to meet the financing needs of our customers, the Corporation issues loan commitments and standby letters of credit. At December 31, 2021, the Corporation had $1.4 billion of loan commitments for commercial, commercial real estate, and residential real estate loans and had $18.2 million of standby letters of credit. At December 31, 2020, the Corporation had $1.4 billion of loan commitments for commercial, commercial real estate, and residential real estate loans and had $17.0 million of standby letters of credit.
 
Commitments to extend credit under loan commitments and standby letters of credit do not necessarily represent future cash requirements.  These commitments often expire without being drawn upon.  However, all of the loan commitments and standby letters of credit were permitted to be drawn upon in 2021. See "Note 24 - Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" in this Annual Report on Form 10-K, for additional information on loan commitments and standby letters of credit.
 
The Corporation did not have any unrecorded significant contingent liabilities at December 31, 2021.

Capital: Park’s primary means of maintaining capital adequacy is through retained earnings.  At December 31, 2021, the Corporation’s total shareholders’ equity was $1,110.8 million, compared to $1,040.3 million at December 31, 2020.  Total shareholders’ equity at December 31, 2021 was 11.62% of total assets, compared to 11.21% of total assets at December 31, 2020. 
 
Tangible shareholders’ equity was $943.7 million [total shareholders' equity ($1,110.8 million) less goodwill ($159.6 million) and other intangible assets ($7.5 million)] at December 31, 2021, and was $871.4 million [total shareholders’ equity ($1,040.3 million) less goodwill ($159.6 million) and other intangible assets ($9.3 million)] at December 31, 2020. At December 31, 2021, tangible shareholders' equity was 10.05% of total tangible assets [total assets ($9,560 million) less goodwill ($159.6 million) and other intangible assets ($7.5 million)], compared to 9.57% of total tangible assets [total assets ($9,279 million) less goodwill ($159.6 million) and other intangible assets ($9.3 million)] at December 31, 2020.
 
Net income was $153.9 million in 2021, $127.9 million in 2020 and $102.7 million in 2019.
 
Cash dividends declared for Park's common shares were $74.6 million in 2021, $70.6 million in 2020 and $69.5 million in 2019. On a per share basis, the cash dividends declared were $4.52 per common share in 2021, $4.28 per common share in 2020 and $4.24 per common share in 2019.

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The table below shows the repurchases and issuances of common shares and treasury shares for 2019 through 2021.
 
Table 40
(In thousands, except share data)Treasury SharesNumber of Common Shares
Balance at January 1, 2019$(90,373)15,698,178 
Cash payment for fractional shares in dividend reinvestment plan— (171)
Common shares issued for the acquisition of CAB Financial Corporation— 1,037,205 
Treasury shares repurchased(40,535)(421,253)
Treasury shares reissued for share-based compensation awards1,926 18,983 
Treasury shares reissued for director grants1,349 13,500 
Balance at December 31, 2019$(127,633)16,346,442 
Cash payment for fractional shares in dividend reinvestment plan— (36)
Treasury shares repurchased(7,507)(76,000)
Treasury shares reissued for share-based compensation awards3,031 30,341 
Treasury shares reissued for director grants1,343 13,450 
Balance at December 31, 2020$(130,766)16,314,197 
Cash payment for fractional shares in dividend reinvestment plan— (45)
Treasury shares repurchased(16,048)(137,659)
Treasury shares reissued for share-based compensation awards2,964 29,670 
Treasury shares reissued for director grants1,360 13,400 
Balance at December 31, 2021$(142,490)16,219,563 

Park issued 1,037,205 new common shares, which had not already been held as treasury shares, during 2019 in the acquisitions of CABF, but did not issue any new common shares, which had not already been held as treasury shares, in 2020 or 2021. Common shares had a balance of $461.8 million, $460.7 million and $459.4 million at December 31, 2021, 2020, and 2019, respectively.
 
Accumulated other comprehensive income (loss) (net) reflected income of $15.2 million at December 31, 2021 and $5.6 million at December 31, 2020, compared to a loss of $9.6 million at December 31, 2019. During 2021, the change in net unrealized holding gain (loss) on AFS debt securities, net of income tax, was a loss of $19.5 million. During the 2020 year, the change in net unrealized holding gain (loss) on AFS debt securities, net of income tax, was a gain of $23.2 million. During the 2019 year, the change in net unrealized holding gain (loss) on AFS debt securities, net of income tax, was a gain of $37.7 million. Additionally, Park recognized an other comprehensive gain of $28.6 million, net of tax, related to the change in pension plan assets and benefit obligations in 2021, compared to an other comprehensive loss of $7.7 million, net of income tax, related to the change in pension plan assets and benefit obligations in 2020, and an other comprehensive gain of $3.0 million, net of income tax, related to the change in pension plan assets and benefit obligations in 2019. Finally, during the 2021 year, Park recognized an other comprehensive gain of $492,000, net of income tax, related to an unrealized net holding gain on cash flow hedging derivatives, compared to an other comprehensive loss of $244,000, net of income tax, related to an unrealized net holding loss on cash flow hedging derivatives in 2020, and an other comprehensive loss of $454,000, net of income tax, related to an unrealized net holding loss on cash flow hedging derivatives in 2019.

Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies. Park has elected not to include the net unrealized gain or loss on AFS debt securities in computing regulatory capital. During the first quarter of 2015, Park adopted the Basel III regulatory capital framework as approved by the federal banking agencies. The adoption of this framework modified the calculation of the various capital ratios, added an additional ratio, common equity tier 1, and revised the adequately and well-capitalized thresholds under the prompt corrective action regulations applicable to PNB. Additionally, under this framework, in order to avoid limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers, Park must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer was fully phased in at 2.50% on January 1, 2019. The amounts shown below as the adequately capitalized ratio plus capital conservation buffer includes the 2.50% buffer. The Federal Reserve Board also adopted capital requirements Park must maintain to be deemed "well capitalized" and remain a financial holding company.

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Park and PNB met each of the well-capitalized ratio guidelines applicable to them at December 31, 2021. The following table indicates the capital ratios for PNB and Park at December 31, 2021 and December 31, 2020.

Table 41 - PNB and Park Capital Ratios
As of December 31, 2021
 LeverageTier 1
Risk-Based		Common Equity Tier 1Total
Risk-Based
PNB8.58 %11.05 %11.05 %12.56 %
Park9.77 %12.57 %12.37 %16.05 %
Adequately capitalized ratio4.00 %6.00 %4.50 %8.00 %
Adequately capitalized ratio plus capital conservation buffer4.00 %8.50 %7.00 %10.50 %
Well-capitalized ratio - PNB5.00 %8.00 %6.50 %10.00 %
Well-capitalized ratio - ParkN/A6.00 %N/A10.00 %
 
As of December 31, 2020
 LeverageTier 1
Risk-Based		Common Equity Tier 1Total
Risk-Based
PNB8.59 %10.66 %10.66 %12.16 %
Park9.63 %11.92 %11.72 %15.43 %
Adequately capitalized ratio4.00 %6.00 %4.50 %8.00 %
Adequately capitalized ratio plus capital conservation buffer4.00 %8.50 %7.00 %10.50 %
Well-capitalized ratio - PNB5.00 %8.00 %6.50 %10.00 %
Well-capitalized ratio - ParkN/A6.00 %N/A10.00 %
     
Effects of Inflation: Balance sheets of financial institutions typically contain assets and liabilities that are monetary in nature and, therefore, differ greatly from most commercial and industrial companies which have significant investments in premises, equipment and inventory.  During periods of inflation, financial institutions that are in a net positive monetary position will experience a decline in purchasing power, which does have an impact on growth.  Another significant effect on internal equity growth is other expenses, which tend to rise during periods of inflation.
 
Management believes the most significant impact on financial results is the Corporation's ability to align our asset/liability management program to react to changes in interest rates.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As noted in "Table 19 - Distribution of Assets, Liabilities and Shareholders' Equity" included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K, Park’s tax equivalent net interest margin decreased by twenty-four basis points in 2021 and increased four basis points in 2020. Consistently, over the last several years, Park’s earnings simulation model has projected that changes in interest rates would have only a small impact on net income and the tax equivalent net interest margin. The tax equivalent net interest margin was 3.69%, 3.93% and 3.89% for each of the years ended December 31, 2021, 2020 and 2019, respectively. The discussion of interest rate sensitivity included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K is incorporated herein by reference. In addition, the discussion of Park’s commitments, contingent liabilities and off-balance sheet arrangements included in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of this Annual Report on Form 10-K and in "Note 24 - Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K is incorporated herein by reference.
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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Financial Statements

Audited Financial Statements                                         Page

Management’s Report on Internal Control Over Financial Reporting                             84
Report of Independent Registered Public Accounting Firm                                 85
Auditor Name: Crowe LLP
Auditor Location: Columbus, OH
Auditor Firm ID: 173
Consolidated Balance Sheets at December 31, 2021 and 2020                                89
Consolidated Statements of Income for the Years Ended December 31, 2021, 2020 and 2019                91
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019        93
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2021, 2020 and 2019    94
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019                96
Notes to Consolidated Financial Statements                                        97


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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 as of December 31, 2021, 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, 2021. We reviewed the results of management's assessment with the Audit Committee of the Board of Directors of the Corporation.
 
The Corporation’s independent registered public accounting firm, Crowe LLP, has audited the Consolidated Balance Sheets of the Corporation and its subsidiaries as of December 31, 2021 and 2020 and the related Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Shareholders' Equity and Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2021, included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K and the Corporation’s internal control over financial reporting as of December 31, 2021, and has issued their Report of Independent
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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. TrautmanBrady T. Burt
Chairman of the Board and Chief Executive OfficerChief Financial Officer, Secretary and Treasurer
February 24, 2022


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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, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021 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, 2021, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2021 due to the adoption of ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

Basis for Opinions

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.

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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 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 Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses

In accordance with Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the Company adopted Accounting Standards Codification (“ASC”) 326 as of January 1, 2021 as described in Notes 2 and 6 of the consolidated financial statements. See also the explanatory paragraph above. The allowance for credit losses (the “ACL”) is an accounting estimate of expected credit losses over the life of loans. The ASU requires the Company’s loan portfolio, measured at amortized cost, to be presented at the net amount expected to be collected. Estimates of expected credit losses for loans are based on historical experience, current conditions and reasonable and supportable forecasts over the life of the loans. In order to estimate the expected credit losses, the Company implemented a new loss estimation model. The Company disclosed the impact of adoption of this standard on January 1, 2021 with a $6.1 million increase to the allowance for credit losses and a $8.0 million decrease to retained earnings for the cumulative effect adjustment recorded upon adoption. Recovery of credit losses for the year ending December 31, 2021 was $11.9 million and the Allowance for credit losses at December 31, 2021 was $83.2 million.

The Company measures expected credit losses based on pooled loans when similar risk characteristics exist primarily utilizing a discounted cash flow (“DCF”) model. A loss driver analysis was performed to identify appropriate loss drivers to create a regression model for use in forecasting cash flows for each loan segment. Probability of default (“PD”) and loss given default (“LGD”) are assumptions in the model used to discount loan-level cash flows that are adjusted for prepayments and curtailments. A quantitative adjustment is made on top of the model using economic forecasts that are weighted to reflect model risk in the current economic environment. The Company adjusts its quantitative results for certain qualitative factors to reflect the extent to which management expects current conditions and reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated.

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

•Significant auditor judgment and audit effort to evaluate the loss estimation model and significant assumptions related to the loss driver analysis, PD and LGD input into the DCF model.
•Significant auditor judgment and audit effort used in evaluating the quantitative adjustment made on top of the model that weight the economic scenarios to reflect model risk in the current economic environment.


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

•Testing the effectiveness of management's controls addressing:

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

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

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

•Substantive testing included:

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

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

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

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


Crowe LLP

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

Columbus, Ohio
February 24, 2022


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Park National Corporation and Subsidiaries
Consolidated Balance Sheets
at December 31, 2021 and 2020
 
(In thousands, except share and per share data)20212020
Assets
Cash and due from banks$144,507 $155,596 
Money market instruments74,673 214,878 
Cash and cash equivalents219,180 370,474 
Investment securities:
Debt securities available-for-sale, at fair value (amortized cost of $1,727,363 and $1,007,834 at December 31, 2021 and 2020, respectively, and no allowance for credit losses at December 31, 2021)
1,754,140 1,059,341 
Other investment securities61,268 65,465 
Total investment securities1,815,408 1,124,806 
Total loans6,871,122 7,177,785 
Allowance for credit losses(83,197)(85,675)
Net loans6,787,925 7,092,110 
Other assets:
Bank owned life insurance215,792 216,225 
Prepaid assets144,124 103,523 
Goodwill159,595 159,595 
Other intangible assets7,462 9,260 
Premises and equipment, net89,008 88,660 
Affordable housing tax credit investments58,711 56,024 
Accrued interest receivable23,413 24,926 
Other real estate owned775 1,431 
Mortgage loan servicing rights15,264 12,210 
Operating lease right-of-use assets13,446 15,078 
Other10,151 4,699 
Total other assets737,741 691,631 
Total assets$9,560,254 $9,279,021 
 
The accompanying notes are an integral part of the consolidated financial statements.

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Park National Corporation and Subsidiaries
Consolidated Balance Sheets
at December 31, 2021 and 2020
 
(In thousands, except share and per share data)20212020
Liabilities and shareholders’ equity
Deposits:
Non-interest bearing$3,066,419 $2,727,100 
Interest bearing4,838,109 4,845,258 
Total deposits7,904,528 7,572,358 
Borrowings:
Short-term borrowings238,786 342,230 
Long-term debt— 32,500 
Subordinated notes188,210 187,774 
Total borrowings426,996 562,504 
Other liabilities:
Operating lease liability14,339 16,053 
Accrued interest payable3,116 3,860 
Unfunded commitments in affordable housing tax credit investments28,484 29,298 
 Allowance for credit losses on off-balance sheet commitments4,282 116 
Other67,750 54,576 
Total other liabilities117,971 103,903 
Total liabilities8,449,495 8,238,765 
Commitments and contingencies
Shareholders’ equity:
Preferred shares (200,000 preferred shares authorized; no preferred shares outstanding at December 31, 2021 and 2020)
$— $— 
Common shares, no par value (20,000,000 common shares authorized; 17,623,118 and 17,623,163 common shares issued at December 31, 2021 and 2020, respectively)
461,800 460,687 
Accumulated other comprehensive income, net of taxes15,155 5,571 
Retained earnings776,294 704,764 
Less: Treasury shares (1,403,555 and 1,308,966 common shares at December 31, 2021 and 2020, respectively)
(142,490)(130,766)
Total shareholders’ equity1,110,759 1,040,256 
Total liabilities and shareholders’ equity$9,560,254 $9,279,021 
 
The accompanying notes are an integral part of the consolidated financial statements.
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Park National Corporation and Subsidiaries
Consolidated Statements of Income
for years ended December 31, 2021, 2020 and 2019
 
(In thousands, except per share data)202120202019
Interest and dividend income:
Interest and fees on loans
$317,208 $328,727 $321,385 
Interest and dividends on:
Obligations of U.S. Government, its agencies and other securities - taxable
19,458 19,818 26,213 
Obligations of states and political subdivisions - tax-exempt
8,307 8,436 8,955 
Other interest income
880 739 3,947 
Total interest and dividend income
345,853 357,720 360,500 
Interest expense:
Interest on deposits:
Demand and savings deposits
1,595 9,142 33,348 
Time deposits
4,711 12,186 17,494 
Interest on short-term borrowings
767 1,110 2,476 
Interest on long-term debt
8,887 7,652 9,445 
Total interest expense
15,960 30,090 62,763 
Net interest income
329,893 327,630 297,737 
(Recovery of) provision for credit losses(11,916)12,054 6,171 
Net interest income after (recovery of) provision for credit losses341,809 315,576 291,566 
Other income:
Income from fiduciary activities
34,449 28,873 27,768 
Service charges on deposit accounts
8,832 8,445 10,835 
Other service income
29,812 37,611 15,500 
Debit card fee income
25,865 22,160 20,250 
Bank owned life insurance income
4,897 4,789 4,557 
ATM fees
2,379 1,773 1,828 
(Loss) gain on the sale of OREO, net(4)1,207 (222)
Net gain (loss) on the sale of debt securities— 3,286 (421)
Gain on equity securities, net
5,011 2,182 5,118 
Other components of net periodic benefit income
8,152 7,952 4,732 
Miscellaneous
10,551 7,386 7,248 
Total other income
$129,944 $125,664 $97,193 

The accompanying notes are an integral part of the consolidated financial statements.
 
 
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Park National Corporation and Subsidiaries
Consolidated Statements of Income
for years ended December 31, 2021, 2020 and 2019
 
(In thousands, except per share data)202120202019
Other expense:
Salaries
$125,585 $128,040 $119,514 
Employee benefits
41,603 37,115 36,806 
Occupancy expense
13,039 13,802 12,815 
Furniture and equipment expense
10,887 18,805 17,032 
Data processing fees
30,539 11,659 10,750 
Professional fees and services
27,450 31,303 33,317 
Marketing
6,073 5,828 5,753 
Insurance
5,917 6,423 3,130 
Communication
3,539 4,084 5,351 
State tax expense
4,255 3,991 3,829 
Amortization of intangible assets
1,798 2,263 2,355 
FHLB prepayment penalty— 10,529 612 
Foundation contributions4,000 3,000 1,500 
Miscellaneous
8,833 9,753 11,224 
Total other expense
283,518 286,595 263,988 
Income before income taxes
188,235 154,645 124,771 
Income taxes
34,290 26,722 22,071 
Net income
$153,945 $127,923 $102,700 
Earnings per common share:
Basic
$9.45 $7.85 $6.33 
Diluted
$9.37 $7.80 $6.29 
 
The accompanying notes are an integral part of the consolidated financial statements.
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PARK NATIONAL CORPORATION
Consolidated Statements of Comprehensive Income
for years ended December 31, 2021, 2020 and 2019

 (In thousands)202120202019
Net income$153,945 $127,923 $102,700 
Other comprehensive income (loss), net of income tax:
Defined benefit pension plan:
Amortization of net loss, net of income tax effect of $466, $247 and $395, for the years ended December 31, 2021, 2020, and 2019, respectively
1,754 928 1,487 
Unrealized net actuarial gain (loss) and prior service credit, net of income tax effect of $7,144, $(2,306) and $402, for the years ended December 31, 2021, 2020, and 2019, respectively
26,875 (8,675)1,511 
Change in funded status of defined benefit pension plan, net of income tax effect 28,629 (7,747)2,998 
Debt securities available-for-sale:
Net (gain) loss realized on sale of debt securities AFS, net of income tax effect of $(690) and $88 for the years ended December 31, 2020 and 2019, respectively
— (2,596)333 
Unrealized gains on debt securities transferred from HTM to AFS, net of income tax effect of $5,076 for the year ended December 31, 2019
— — 19,095 
Change in unrealized holding (loss) gain on debt securities AFS, net of income tax effect of $(5,193), $6,844 and $4,845, for the years ended December 31, 2021, 2020 and 2019, respectively
(19,537)25,747 18,227 
Unrealized net holding (loss) gain on debt securities available-for-sale, net of income tax effect(19,537)23,151 37,655 
Cash flow hedging derivatives:
Unrealized gain (loss) on cash flow hedging derivatives, net of income tax effect of $131, $(65) and $(121) for the years ended December 31, 2021, 2020 and 2019, respectively
492 (244)(454)
Unrealized net holding gain (loss) on cash flow hedging derivatives, net of income tax effect492 (244)(454)
Other comprehensive income$9,584 $15,160 $40,199 
Comprehensive income$163,529 $143,083 $142,899 

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



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Park National Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
for the years ended December 31, 2021, 2020 and 2019
 
Preferred SharesCommon SharesRetained EarningsTreasury SharesAccumulated Other Comprehensive (Loss) Income
(In thousands, except share and per share data)Shares OutstandingAmountShares OutstandingAmount
Balance, January 1, 2019, as previously presented— — 15,698,178 358,598 614,069 (90,373)(49,788)
Cumulative effect of change in accounting principle for leases, net of income tax(143)
Balance at January 1, 2019 as adjusted— $— 15,698,178 $358,598 $613,926 $(90,373)$(49,788)
Net income
102,700 
Other comprehensive income, net of income tax40,199 
Cash dividends, $4.24 per common share
(69,482)
Cash payment for fractional shares in dividend reinvestment plan
(171)(3)
Issuance of 1,037,205 common shares for the acquisition of CAB Financial Corporation1,037,205 98,275 
Share-based compensation expense
4,999 
Issuance of 27,719 common shares under share-based compensation awards, net of 8,736 common shares withheld to pay employee income taxes18,983 (2,480)(273)1,926 
Treasury shares repurchased
(421,253)(40,535)
Treasury shares reissued for director grants
13,500 (24)1,349 
Balance, December 31, 2019— $— 16,346,442 $459,389 $646,847 $(127,633)$(9,589)
Net income127,923 
Other comprehensive income, net of income tax15,160 
Cash dividends, $4.28 per common share
(70,601)
Cash payment for fractional shares in dividend reinvestment plan(36)(3)
Share-based compensation expense5,998 
Issuance of 30,341 common shares under share-based compensation awards, net of 14,038 common shares withheld to pay employee income taxes30,341 (4,697)664 3,031 
Treasury shares repurchased(76,000)(7,507)
Treasury shares reissued for director grants13,450 (69)1,343 
Balance, December 31, 2020— $— 16,314,197 $460,687 $704,764 $(130,766)$5,571 
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Preferred SharesCommon SharesRetained EarningsTreasury SharesAccumulated Other Comprehensive (Loss) Income
(In thousands, except share and per share data)Shares OutstandingAmountShares OutstandingAmount
Balance at December 31, 202016,314,197 460,687 704,764 (130,766)5,571 
Cumulative effect of change in accounting principle for credit losses, net of income tax(7,956)
Balance, January 1, 2021, as adjusted$— $— 16,314,197 $460,687 $696,808 $(130,766)$5,571 
Net income153,945 
Other comprehensive income, net of income tax9,584 
Cash dividends, $4.52 per common share
(74,634)
Cash payment for fractional shares in dividend reinvestment plan(45)(6)
Share-based compensation expense6,345 
Issuance of 29,670 common shares under share-based compensation awards, net of 18,436 common shares withheld to pay employee income taxes29,670 (5,226)(141)2,964 
Treasury shares repurchased(137,659)(16,048)
Treasury shares reissued for director grants13,400 316 1,360 
Balance, December 31, 2021— $— 16,219,563 $461,800 $776,294 $(142,490)$15,155 

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

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Park National Corporation and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 2021, 2020 and 2019
 
(In thousands)202120202019
Operating activities:
Net income
$153,945 $127,923 $102,700 
Adjustments to reconcile net income to net cash provided by operating activities:
(Recovery of) provision for credit losses(11,916)12,054 6,171 
Accretion of loan fees and costs, net(25,185)(21,598)(6,826)
Net accretion of purchase accounting adjustments(1,519)(2,403)(3,373)
Depreciation of premises and equipment13,267 10,814 9,119 
Amortization of investment securities, net2,174 1,362 1,455 
Borrowing prepayment penalty— 10,529 612 
Increase in deferred income tax(3,131)(4,525)(844)
Realized net debt securities (gains) losses— (3,286)421 
Gain on equity securities, net(5,011)(2,182)(5,118)
Share-based compensation expense8,021 7,272 6,324 
Loan originations to be sold in secondary market(569,080)(1,026,346)(338,437)
Proceeds from sale of loans in secondary market609,377 1,031,227 340,637 
Gain on sale of loans in secondary market(18,018)(24,269)(7,198)
Loss (gain) on sale of OREO, net4 (1,207)222 
Bank owned life insurance income(4,897)(4,789)(4,557)
Investment in qualified affordable housing tax credits amortization7,313 7,046 6,927 
Changes in assets and liabilities:
Increase in prepaid dealer premiums(2,415)(8,890)(5,358)
Decrease in other assets12,342 9,216 12,530 
Decrease in other liabilities(7,939)(6,302)(3,781)
Net cash provided by operating activities$157,332 $111,646 $111,626 
Investing activities:
Proceeds from redemption/repurchase of Federal Home Loan Bank stock
8,677 7,970 14,675 
Proceeds from sales of investment securities934 312,160 91,110 
Proceeds from calls and maturities of:
HTM debt securities— — 475 
AFS debt securities232,197 223,728 195,989 
Purchase of:
AFS debt securities(953,900)(354,299)— 
 Equity securities— (3,567)(100)
 Federal Reserve Bank stock— — (6,428)
Net decrease in other investments2,597 2,120 6,429 
Net loan paydowns (originations), portfolio loans312,187 (620,200)(216,353)
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Park National Corporation and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 2021, 2020 and 2019
(In thousands)202120202019
Proceeds from the sale of non-mortgage loans3,718 4,400 — 
Proceeds from the sale of OREO758 5,654 1,465 
Life insurance death benefits5,598 1,360 1,571 
Purchases of bank owned life insurance— — (3,000)
Investment in qualified affordable housing tax credits(10,814)(6,596)(6,038)
Purchases of premises and equipment(14,093)(28,632)(14,885)
Cash paid for acquisitions, net— — (4,831)
Net cash (used in) provided by investing activities
$(412,141)$(455,902)$60,079 
Financing activities
Net increase in deposits605,168 1,230,073 159,696 
Net increase in off-balance sheet deposits(272,952)(710,101)— 
Net (decrease) increase in short-term borrowings(103,444)111,573 (20,072)
Proceeds from issuance of long-term debt— — 50,000 
Proceeds from issuance of subordinated notes— 172,620 — 
Repayment of long-term debt(32,500)(170,529)(258,112)
Value of common shares withheld to pay employee income taxes(2,403)(1,002)(827)
Repurchase of common shares to be held as treasury shares(16,048)(7,507)(40,535)
Cash dividends paid(74,306)(70,353)(69,113)
Net cash provided by (used in) financing activities$103,515 $554,774 $(178,963)
(Decrease) increase in cash and cash equivalents(151,294)210,518 (7,258)
Cash and cash equivalents at beginning of year
370,474 159,956 167,214 
Cash and cash equivalents at end of year
$219,180 $370,474 $159,956 
Cash paid for:
Interest
$16,704 $29,157 $63,038 
Federal income taxes
25,505 24,260 15,186 
Non cash items:
Transfer of debt securities from HTM to AFS$— $— $349,773 
Loans transferred to OREO150 1,790 1,671 
Right-of-use assets obtained in exchange for lease obligations1,190 7,821 11,475 
New commitments in affordable housing tax credit investments10,000 10,000 10,000 
New commitments in other investment securities3,000— — 
The accompanying notes are an integral part of the consolidated financial statements.




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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.

The COVID-19 pandemic has caused significant, unprecedented disruption around the world that has affected daily living and negatively impacted the global economy. The effects of the COVID-19 pandemic may meaningfully impact significant estimates such as the allowance for credit losses, goodwill, mortgage servicing rights, and pension plan obligations and related expenses. Additionally, the COVID-19 pandemic may particularly impact certain loan concentrations in the hotel and accommodations, restaurant and food service, and strip shopping center industries.

Reclassifications
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
The Corporation’s national bank subsidiary, The Park National Bank ("PNB"), previously was required to maintain average reserve balances with the Federal Reserve Bank of Cleveland. The Federal Reserve Board announced on March 15, 2020 that the Federal Reserve Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions. There were no compensating balance arrangements in existence at December 31, 2021 or 2020.
 
Investment Securities
Debt securities are classified upon acquisition into one of three categories: HTM, AFS, or trading (see Note 4 - Investment Securities).
 
HTM securities are those debt securities that the Corporation has the positive intent and ability to hold to maturity and are recorded at amortized cost. AFS debt securities are those debt securities that would be available to be sold in the future in response to the Corporation’s liquidity needs, changes in market interest rates, and asset-liability management strategies, among other reasons. AFS debt securities are reported at fair value, with unrealized holding gains and losses excluded from earnings, but included in other comprehensive income (loss), net of applicable income taxes. The Corporation did not hold any trading securities during any period presented.
 
Interest income from debt securities includes amortization of purchase premium or discount. Premiums and discounts on investment securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses realized on the sale of debt securities are recorded on the trade date and determined using the specific identification method.

A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days past due. Interest accrued but not received for a security placed on nonaccrual status is reversed against interest income.
ACL - Debt Securities AFS
For debt securities AFS in an unrealized loss position, Park first assesses whether it intends to sell, or it is more likely than not that Park will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For debt securities AFS that do not meet the aforementioned criteria, Park evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized
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cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes.
 
Changes in the ACL are recorded as a provision for (or recovery of) credit loss expense. Losses are charged against the ACL when management believes that uncollectibility of a debt security AFS is confirmed or when either of the criteria regarding intent or requirement to sell is met.

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

ACL - HTM Debt Securities
Management measures expected credit losses on HTM debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Park does not currently hold any HTM debt securities.

Equity Securities
Equity securities, included within "Other investment securities" on the Consolidated Balance Sheets, are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.

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.
 
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).
 
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 values 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 $17.1 million at December 31, 2021 and was reported in "Accrued interest receivable" on the Consolidated Balance Sheets. Late charges on loans are recognized as income when they are collected. Net loan origination fees and costs are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

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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 a specific reserve or record a charge-off when collection is in doubt and there is, or likely will be, a collateral shortfall related to the estimated value of the collateral securing a loan. The Company’s charge-off policy for consumer loans is dependent on the class of the loan. Residential mortgage loans, HELOCs, and consumer loans secured by residential real estate are typically 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
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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 loans, to customers in the Company's primary market areas. Credit approval for consumer loans requires income sufficient to repay principal and interest due, stable employment, an established credit record and sufficient collateral for secured loans. Consumer loans typically have shorter terms and lower balances with higher yields as compared to real estate mortgage loans, but generally carry higher risks of default. 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, three North Carolina counties, four South Carolina counties and one Kentucky county where PNB operates, with the exception of nationwide aircraft loans and nationwide asset-based lending to consumer finance companies. The primary industries represented by these customers include real estate rental and leasing, finance and insurance, construction, health care and social assistance, accommodation and food services, manufacturing, other services, retail trade, and agriculture, forestry, fishing and hunting.

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 loss 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 not exceed the aggregate of the amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant and available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical credit loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.

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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 SegmentMeasurement MethodLoss Driver
Commercial, financial and agricultural
Commercial, financial and agriculturalDiscounted Cash FlowOhio Unemployment, Ohio GDP
PPP loansOtherNot Applicable
OverdraftsHistorical Loss ExperienceNot Applicable
Commercial real estate Discounted Cash FlowOhio Unemployment, Ohio GDP
Construction real estate:
CommercialDiscounted Cash FlowOhio Unemployment, Ohio GDP
RetailDiscounted Cash FlowOhio Unemployment, Ohio GDP
Residential real estate:
CommercialDiscounted Cash FlowOhio Unemployment, Ohio HPI
MortgageDiscounted Cash FlowOhio Unemployment, Ohio HPI
HELOCDiscounted Cash FlowOhio Unemployment, Ohio HPI
InstallmentDiscounted Cash FlowOhio Unemployment, Ohio HPI
Consumer:
ConsumerDiscounted Cash FlowOhio Unemployment, Ohio GDP
GFSCDiscounted Cash FlowOhio Unemployment, Ohio GDP
Check loansHistorical Loss ExperienceNot Applicable
LeasesRemaining LifeNot Applicable

Expected credit losses are estimated over the contractual term of the loans, adjusted for prepayments when appropriate. The contractual term excludes extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by Park.

In general, Park utilized a DCF method to estimate the quantitative portion of the allowance for credit losses for loans evaluated on a collective pooled basis. For each segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA utilized Park's own Federal Financial Institutions Examination Council's ("FFIEC") Call Report data for the commercial, financial and agricultural and residential real estate segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer segments.

In creating the DCF model, Park established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. Park's policy is to utilize its own data, which includes loan-level loss data from 2013 through December 31, 2021, whenever possible. Park and peer FFIEC Call Report data are utilized when there are insufficient defaults for a statistically sound calculation, or if Park does not have its own loan-level detail reflecting similar economic conditions as the forecasted loss drivers.

Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, and loss history, and forecasted loss drivers. Park utilizes a third party to provide economic forecasts under various scenarios, which are weighted in order to reflect model risk in the current economic environment. The weighting of the scenarios is evaluated on a quarterly basis considering the various scenarios in the context of the current economic environment and presumed risk of loss.

Additional key assumptions in the DCF model include the PD, LGD, and prepayment/curtailment rates. When possible, Park utilizes its own PDs for the reasonable and supportable forecast period. When it is not possible to use Park's own PDs, the LDA is utilized to determine PDs based on the forecasted economic factors. In all cases, the LDA is then utilized to determine the long-term historical average, which is reached over the reversion period. When possible, Park's utilizes its own LGDs for the reasonable and supportable forecast period. When it is not possible to use Park's own LGDs, the LGD is derived using a
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method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the level of PD forecasted. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the reversion period and long-term historical average. Prepayment and curtailment rates were calculated based on Park's own data utilizing a three-year average.

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

Park reviews various internal and external factors to consider the need for any qualitative adjustments to the quantitative model. Factors considered include the following:
•The nature and volume of Park’s financial assets;
•The existence, growth, and effect of any concentrations of credit;
•The volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets;
•Park’s lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, write-offs, and recoveries;
•The quality of Park's credit review function;
•The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff;
•The effect of other external factors such as the regulatory, legal and technological environments, competition, and events such as natural disasters or pandemics;
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in the markets in which Park operates that affect the collectibility of financial assets;
•Where the U.S. economy is within a given credit cycle; and
•The extent that there is government assistance (stimulus).

Allowance for Credit Losses - Loans - Individually Evaluated
Loans that do not share risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. Park has determined that any commercial loans which have been placed on nonaccrual status or classified as TDRs will be individually evaluated and are labeled as individually evaluated. Individual analysis establishes a specific reserve for loans in scope.  Specific reserves on individually evaluated commercial loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as appropriate.

Allowance for Credit Losses - Off-Balance Sheet Credit Exposures
Park estimates expected credit losses over the contractual period in which Park is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by Park. The allowance for credit losses on off-balance sheet credit exposures is adjusted within "Miscellaneous other expense" on the Consolidated Statements of Income. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over the commitments' respective estimated lives. Funding rates are based on a historical analysis of Park's portfolio, while estimates of credit losses are determined using the same loss rates as funded loans.

Troubled Debt Restructurings ("TDRs")
Management classifies loans as TDRs when a borrower is experiencing financial difficulty and Park has granted a concession. 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 under the Company’s internal underwriting policy. Management’s policy is to modify loans by extending the term or by granting a temporary or permanent contractual interest rate below the market rate, not by forgiving debt. A court's discharge of a borrower's debt in a Chapter 7 bankruptcy is considered a concession when the borrower does not reaffirm the discharged debt.

Additionally, Park has worked with borrowers impacted by the COVID-19 pandemic and provided modifications in the form of either interest only deferral or principal and interest deferral, in each case, for initial periods up to 90 days. As necessary, Park made available a second 90-day interest only deferral or principal and interest deferral bringing the total potential deferral period to six months. A majority of these modifications were excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. In accordance with this guidance, such modified loans will be considered current and will continue to accrue interest during the deferral period.

Premises and Equipment
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
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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
Leasehold improvementsShorter 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. 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 “Other income”. In certain circumstances where management believes the devaluation may not be permanent in nature, Park utilizes a valuation allowance to record OREO devaluations, which is also expensed through the line item “Other income”. Costs relating to development and improvement of such properties are capitalized (not in excess of fair value less estimated costs to sell), and costs relating to holding the properties are charged to the line item "Other expense".

Foreclosed Assets
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.  Additionally, TDRs in which Park obtains one of more of the debtor’s non-real estate assets in place of all or part of the receivable are accounted for as foreclosed assets.  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, 2021 and 2020, Park had $3.3 million and $3.6 million, respectively, of foreclosed assets included within “Other assets.”
 
Mortgage Servicing Rights
When Park sells mortgage loans with servicing retained, MSRs are recorded at fair value with the income statement effect recorded in "Other service income". Capitalized MSRs are amortized in proportion to and over the period of the estimated future servicing income of the underlying loan and are included within “Other service income”.
 
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 25 - 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, recorded in "Other service income". 

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
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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.

Other intangible assets consist of core deposit intangibles. Core deposit intangibles are amortized on an accelerated basis over a period of ten years. 

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
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe that there are currently such matters that will have a material effect on the financial statements.

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 bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
 
An uncertain tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination, 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 23 - 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 18 - 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
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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 and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. 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 hedge transactions 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 income are amortized into earnings 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 agreements. 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 it 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 through an agreement to repurchase them before their maturity.
 
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 allocates the benefits over years of service. (See Note 19 - 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 18 - Share-Based Compensation and Note 22 - Earnings Per Common Share.)

Operating Segments
The Corporation is a financial holding company headquartered in Newark, Ohio. The reportable segment for the Corporation is its chartered national bank subsidiary, PNB (headquartered in Newark, Ohio).


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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 are not effective for Park as of December 31, 2021:

Adoption of New Accounting Pronouncements

ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments: Effective January 1, 2021, Park adopted ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") ("ASC 326"), as amended. The new accounting guidance in ASU 2016-13 replaces the incurred loss methodology with an expected loss methodology, which is referred to as the current expected credit loss ("CECL") methodology. The CECL methodology is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, HTM debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments), and net investments in leases recognized by a lessor. The CECL methodology requires an entity to estimate credit losses over the life of an asset or off-balance sheet credit exposure. The new accounting guidance was to have originally been effective for Park for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019.

Section 4014 of the CARES Act provided financial institutions with optional temporary relief from having to comply with ASU 2016-13, including the CECL methodology for estimating the allowance for credit losses. This temporary relief was set to expire on the earlier of the date on which the national emergency concerning COVID-19 terminated or December 31, 2020, with adoption being effective retrospectively as of January 1, 2020.

Section 540 of the Consolidated Appropriations Act, 2021, amended Section 4014 of the CARES Act by extending the relief period provided in the CARES Act. The Consolidated Appropriations Act, 2021, modified the CARES Act so that temporary relief will expire on the earlier of the first day of the fiscal year that begins after the date on which the national emergency concerning COVID-19 terminates or January 1, 2022.

Park elected to delay the implementation of ASU 2016-13 following the approval of the CARES Act and continued to use the incurred loss methodology for estimating the allowance for credit losses in 2020. ASU 2016-13 requires financial institutions to calculate an allowance utilizing a reasonable and supportable forecast period which Park has established as a one-year period. In the unprecedented circumstances surrounding the COVID-19 pandemic and the response thereto, Park believed that adopting ASU 2016-13 in the first quarter of 2020 would have added an unnecessary level of subjectivity and volatility to the calculation of the allowance for credit losses. With the approval of the Consolidated Appropriations Act, 2021, management elected to further delay adoption of ASU 2016-13 to January 1, 2021. This allowed Park to utilize the CECL standard for the entire year of adoption.

Park adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning on and after after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with the then applicable U.S. GAAP. Park recorded a net decrease to retained earnings of $8.0 million as of January 1, 2021 for the cumulative effect of adopting ASC 326.

Park adopted ASC 326 using the prospective transition approach for financial assets PCD that were previously classified as PCI and accounted for under ASC 310-30. In accordance with ASC 326, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2021, the amortized cost basis of the PCD assets was adjusted to reflect the addition of $52,000 to the allowance for credit losses. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2021.

As permitted by ASC 326, Park elected to maintain pools of loans accounted for under ASC 310-30. In accordance with ASC 326, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were TDRs as of the date of adoption.

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The following table illustrates the impact of ASC 326:

January 1, 2021
(In thousands)As Reported Under ASC 326Pre-ASC 326 AdoptionImpact of ASC 326 Adoption
Assets:
Loans$7,177,666 $7,177,785 $(119)
ACL on loans
Commercial, financial and agricultural 17,351 25,608 (8,257)
Commercial real estate 25,599 23,480 2,119 
Construction real estate5,390 7,288 (1,898)
Residential real estate14,484 11,363 3,121 
Consumer28,343 17,418 10,925 
Leases598 518 80 
Total ACL on loans$91,765 $85,675 $6,090 
Liabilities:
ACL on off-balance sheet commitments$3,982 $116 $3,866 
Net deferred tax liability777 2,892 (2,115)
Shareholders' equity:$1,032,300 $1,040,256 $(7,956)

ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans: In August 2018, the FASB issued ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing disclosures that are no longer considered cost beneficial, clarifying the specific requirements of disclosures and adding disclosure requirements identified as relevant. The amendments in ASU 2018-14 were effective for fiscal years ended after December 15, 2020. The adoption of this guidance on January 1, 2021 did not have an impact on Park’s consolidated financial statements, but did impact disclosures.

ASU 2019-20 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes: In December 2019, the FASB issued ASU 2019-20 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-20 includes amendments to simplify accounting for income taxes by removing certain exceptions and adding requirements with the intention of simplifying and clarifying existing guidance. The amendments in ASU 2019-20 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The adoption of this guidance on January 1, 2021, did not have a material impact on Park's consolidated financial statements.

ASU 2020-01 - Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815: In January 2020, the FASB issued ASU 2020-01 - Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 represents changes to clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815. These amendments improve current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting for these transactions. The amendments in ASU 2020-01 are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The adoption of this guidance on January 1, 2021, did not have a material impact on Park's consolidated financial statements.


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ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effect of Reference Rate Reform on Financial Reporting: In March 2020, the FASB issued ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effect of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional expedients and exceptions to applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform if certain criteria are met. The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022. The adoption of this guidance did not have a material impact on Park's consolidated financial statements, but Park will consider this guidance as contracts are transitioned from LIBOR to another reference rate.

ASU 2020-08 - Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs: In October 2020, the FASB issued ASU 2020-08 - Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs. ASU 2020-08 clarifies that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. The amendments in ASU 2020-08 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application was not permitted. The adoption of this guidance on January 1, 2021, did not have a material impact on Park's consolidated financial statements.

ASU 2021-01 - Reference Rate Reform (Topic 848): Scope: In January 2021, the FASB issued ASU 2021-01 - Reference Rate Reform (Topic 848): Scope. This ASU clarifies the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. The amendments in this ASU are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments in this ASU are effective immediately for all entities. The adoption of this guidance did not have a material impact on Park's consolidated financial statements, but Park will consider this guidance as contracts are transitioned from LIBOR to another reference rate.

ASU 2021-06 - Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946): In August 2021, FASB issued ASU 2021-06 - Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946). ASU 2021-06 updates the codification to align with SEC Final Rule Releases No. 33-10786 and No. 33-10835. Specific to financial institutions, these SEC releases updated required annual statistical disclosures. The amendments in ASU 2021-06 were effective immediately. Park has updated the statistical disclosures in its Annual Report on Form 10-K for the fiscal year ending December 31, 2021, to align with this guidance.

Issued But Not Yet Effective Accounting Standards

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

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.

Through February 16, 2012, Park operated a second banking subsidiary, Vision Bank ("Vision"), which was engaged in a general commercial banking business, primarily in Baldwin County, Alabama and the panhandle of Florida. Promptly following the sale of the Vision business to Centennial Bank (a wholly-owned subsidiary of Home BancShares, Inc.), Vision surrendered its Florida banking charter to the Florida Office of Financial Regulation and became a non-bank Florida corporation. Vision (the Florida corporation) merged with and into a wholly-owned, non-bank subsidiary of Park, SEPH, with SEPH being the surviving entity. SEPH holds the remaining assets and liabilities retained by Vision subsequent to the sale. SEPH also holds OREO that had previously been transferred to SEPH from Vision. SEPH's assets consist primarily of nonperforming loans and OREO. This non-bank subsidiary represents a run off portfolio of the legacy Vision assets.

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

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4. Investment Securities
"Debt securities" and "Other investment securities" are summarized below.
 
Debt Securities
The following table summarizes the amortized cost and fair value of debt securities at December 31, 2021 and December 31, 2020 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss). There was no related allowance for credit losses at December 31, 2021.
 
(In thousands)Amortized CostGross Unrealized Holding GainsGross Unrealized Holding LossesFair Value
2021:
Debt Securities Available-for-Sale
Obligations of states and political subdivisions$366,933 $22,682 $24 $389,591 
U.S. Government sponsored entities’ asset-backed securities849,114 13,437 8,088 854,463 
Collateralized loan obligations500,066 3 1,395 498,674 
Corporate debt securities11,250 169 7 11,412 
Total
$1,727,363 $36,291 $9,514 $1,754,140 

(In thousands)Amortized CostGross Unrealized Holding GainsGross Unrealized Holding LossesFair Value
2020:
Debt Securities Available-for-Sale
Obligations of states and political subdivisions$279,245 $25,973 $— $305,218 
U.S. Government sponsored entities’ asset-backed securities726,589 26,248 728 752,109 
Corporate debt securities2,000 14— 2,014 
Total
$1,007,834 $52,235 $728 $1,059,341 

On September 1, 2019, Park adopted the portion of ASU 2019-04 which allowed for a one-time reclassification of securities from HTM to AFS. On that date, Park transferred HTM securities with a fair value of $373.9 million to the AFS classification. The transfer occurred at fair value and had a related unrealized gain, net of taxes, of $19.1 million recorded in other comprehensive income. All debt securities were classified as AFS at December 31, 2021 and December 31, 2020.

The following table provides detail on investment securities in an unrealized loss position for which an allowance for credit losses has not been recorded at December 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position:
 
Less than 12 Months12 Months or LongerTotal
(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
2021:
Debt Securities Available-for-Sale
Obligations of states and political subdivisions$1,834 $24 $— $— $1,834 $24 
U.S. Government sponsored entities’ asset-backed securities333,653 4,996 73,431 3,092 407,084 8,088 
Collateralized loan obligations429,671 1,395 — — 429,671 1,395 
Corporate debt securities2,243 7 — — 2,243 7 
Total
$767,401 $6,422 $73,431 $3,092 $840,832 $9,514 
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Investment securities in an unrealized loss position at December 31, 2020, were as follows:

Less than 12 Months12 Months or LongerTotal
(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
2020:
Debt Securities Available-for-Sale
U.S. Government sponsored entities' asset-backed securities
$86,393 $695 $4,727 $33 $91,120 $728 
Total$86,393 $695 $4,727 $33 $91,120 $728 
 
At December 31, 2021, Park’s debt security portfolio consisted of $1.8 billion of securities, $840.8 million of which were in an unrealized loss position with unrealized losses of $9.5 million. Of the $840.8 million of securities in an unrealized loss position, $73.4 million were in an unrealized loss position for 12 months or longer. The majority of the unrealized losses were related to Park’s U.S. Government sponsored entities' asset-backed securities portfolio. Unrealized losses have not been recognized into earnings as they represent negative adjustments to fair value relative to the rate of interest paid on the securities and not losses related to the creditworthiness of the respective issuers. Management does not intend to sell, and it is not more likely than not that management would be required to sell, the securities prior to their anticipated recovery. Management believes the value will recover as the securities approach maturity or market rates change.

There was no allowance for credit losses recorded for debt securities AFS at December 31, 2021. Additionally, for the years ended December 31, 2021, 2020, and 2019, there were no credit-related investment impairment losses recognized.

The amortized cost and estimated fair value of investments in debt securities at December 31, 2021, are shown in the following table by contractual maturity, except for asset-backed securities and collateralized loan obligations, which are shown as a single total, due to the unpredictability of the timing in principal repayments. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
 
(In thousands)Amortized CostFair Value
Tax Equivalent Yield (1)
Debt Securities Available-for-Sale
Obligations of states and political subdivisions
Due five through ten years$197,895 $213,154 3.75 %
Due greater than ten years169,038 176,437 2.91 %
Total$366,933 $389,591 3.36 %
U.S. Government sponsored entities’ asset-backed securities$849,114 $854,463 1.73 %
Collateralized loan obligations$500,066 $498,674 1.61 %
Corporate debt securities
Due five through ten years$11,250 $11,412 3.93 %
(1) The tax equivalent yield for obligations of states and political subdivisions includes the effects of a taxable equivalent adjustment using a 21% federal corporate income tax rate.

At December 31, 2021, investment securities with an amortized cost of $396.3 million were pledged for government and trust department deposits, $327.9 million were pledged to secure repurchase agreements and $9.5 million were pledged as collateral for FHLB advance borrowings. At December 31, 2020, investment securities with an amortized cost of $328.6 million were pledged for government and trust department deposits, $348.6 million were pledged to secure repurchase agreements and $13.9 million were pledged as collateral for FHLB advance borrowings.
 
At December 31, 2021, 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.
 
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There were no sales of AFS debt securities during 2021. During 2020, Park sold certain AFS debt securities with a book value of $112.5 million at a gross loss of $64,000, and sold certain AFS debt securities with a book value of $196.4 million at a gross gain of $3.4 million. During 2019, Park sold certain AFS debt securities with a book value of $62.4 million at a gross loss of $0.7 million and sold certain AFS debt securities with a book value of $29.1 million at a gross gain of $271,000.

Other Investment Securities
Other investment securities (as shown on the Consolidated Balance Sheets) consist of 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, 2021 and 2020 was as follows:

(In thousands)December 31, 2021December 31, 2020
FHLB stock$13,413 $22,090 
FRB stock14,653 14,653 
Equity investments carried at fair value2,129 2,511 
Equity investments carried at modified cost (1)
4,689 4,689 
Equity investments carried at net asset value26,384 21,522 
Total other investment securities$61,268 $65,465 
(1) There have been no impairments, downward adjustments, or upward adjustments made to equity investments carried at modified cost.

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 FRB stock were purchased or sold in 2021. During the year ended December 31, 2020, the FHLB repurchased 79,697 shares of FHLB stock with a book value of $8.0 million. No shares of FRB stock were purchased or sold in 2020. During the year ended December 31, 2019, the FHLB repurchased 133,281 shares of FHLB stock with a book value of $13.3 million. Park purchased 128,553 shares of FRB stock with a book value of $6.4 million in 2019.

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

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

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5. Loans
The composition of the loan portfolio at December 31, 2021 and December 31, 2020 was as follows:
 
December 31, 2021December 31, 2020
(In thousands)Amortized CostAmortized CostAccrued Interest ReceivableRecorded Investment
Commercial, financial and agricultural: (1)
1,588,989 $6,528 $1,595,517 
Commercial, financial and agricultural (1)
$1,223,079 (2)(2)(2)
PPP loans74,420 (2)(2)(2)
Overdrafts1,127 (2)(2)(2)
Commercial real estate (1)
1,801,792 1,748,189 $6,017 $1,754,206 
Construction real estate:
Commercial214,561 226,991 $572 $227,563 
Retail107,225 116,430 $235 $116,665 
Residential real estate:  
Commercial533,802 526,222 $1,161 $527,383 
Mortgage1,033,658 1,096,358 $947 $1,097,305 
HELOC165,605 182,028 $647 $182,675 
Installment5,642 8,436 $22 $8,458 
Consumer:1,659,704 $4,510 $1,664,214 
Consumer1,685,793 (2)(2)(2)
GFSC1,793 (2)(2)(2)
Check loans2,093 (2)(2)(2)
Leases20,532 24,438 $14 $24,452 
Total$6,871,122 $7,177,785 $20,653 $7,198,438 
Allowance for credit losses(83,197)(85,675)
Net loans$6,787,925 $7,092,110 

(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that were not broken out by class.
(2) Results for reporting periods beginning after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. Category was not broken out as a separate class at December 31, 2020.

In order to support customers, Park participated in the CARES Act Paycheck Protection Program ("PPP"). PPP loans were broken out as a separate class as of December 31, 2021. Included within commercial, financial and agricultural loans as of December 31, 2020 were $331.6 million of PPP loans. For its assistance in originating the first round of PPP loans during 2020, Park received an aggregate of $20.2 million in fees from the SBA, and for its assistance in originating additional PPP loans during 2021, Park received an aggregate of $12.9 million in fees from the SBA. During the years ended December 31, 2021 and December 31, 2020, $16.3 million and $13.7 million, respectively, of PPP fee income was recognized within loan interest income. There was no PPP fee income earned during the year ended December 31, 2019.

Loans are shown net of deferred origination fees, costs and unearned income of $19.5 million at December 31, 2021, and of $23.6 million at December 31, 2020, which represented a net deferred income position in both years. At December 31, 2021 and December 31, 2020, included in the net deferred origination fees, costs and unearned income were $2.8 million and $6.5 million, respectively, in net origination fees related to PPP loans. At December 31, 2021 and December 31, 2020, loans included purchase accounting adjustments of $4.2 million and $7.2 million, respectively, which represented a net deferred income position at each date. This fair market value purchase accounting adjustment is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.

Overdrawn deposit accounts of $1.1 million and $2.0 million were reclassified to loans at December 31, 2021 and December 31, 2020, respectively. As of December 31, 2021, overdrafts were within their own class and as of December 31, 2020, overdrafts were included in the commercial, financial and agricultural loan segment in the previous table.
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Credit Quality
The following table presents the amortized cost of nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing, by class of loan, at December 31, 2021:
 
 December 31, 2021
(In thousands)Nonaccrual
Loans		Accruing
TDRs		Loans Past Due
90 Days
 or More
and Accruing		Total
Nonperforming
Loans
Commercial, financial and agricultural:
Commercial, financial and agricultural$13,271 $9,396 $— $22,667 
PPP loans— — 793 793 
Overdrafts— — — — 
Commercial real estate40,142 7,713 — 47,855 
Construction real estate:
Commercial52 169 — 221 
Retail716 9 — 725 
Residential real estate:
Commercial2,366 240 — 2,606 
Mortgage11,718 7,779 372 19,869 
HELOC1,590 803 — 2,393 
Installment82 1,508 — 1,590 
Consumer:
Consumer1,518 700 431 2,649 
GFSC79 6 11 96 
Check loans— — — — 
Leases1,188 — — 1,188 
Total loans$72,722 $28,323 $1,607 $102,652 

 

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

 December 31, 2020
(In thousands)Nonaccrual
Loans		Accruing
TDRs		Loans Past Due 90 Days or More and AccruingTotal
Nonperforming
Loans
Commercial, financial and agricultural$23,261 5,619 $— $28,880 
Commercial real estate67,426 2,931 377 70,734 
Construction real estate:   
Commercial3,110 — — 3,110 
Mortgage1431 — 45 
Residential real estate:    
Commercial4,304 253 — 4,557 
Mortgage14,016 8,400 416 22,832 
HELOC1,286 909 77 2,272 
Installment184 1,728 — 1,912 
Consumer2,172 1,017 724 3,913 
Leases1,595 — — 1,595 
Total loans$117,368 $20,888 $1,594 $139,850 

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

December 31, 2021
(In thousands)Nonaccrual Loans With No ACLNonaccrual Loans With an ACLRelated ACL
Commercial, financial and agricultural:
Commercial, financial and agricultural11,494 1,777 1,343 
PPP loans— — — 
Overdrafts— — — 
Commercial real estate39,151 991 188 
Construction real estate:
Commercial52 — — 
Retail— 716 67 
Residential real estate:
Commercial2,366 — — 
Mortgage— 11,718 73 
HELOC— 1,590 99 
Installment— 82 24 
Consumer
Consumer— 1,518 393 
GFSC— 79 10 
Check loans— — — 
Leases914 274 43 
Total loans$53,977 $18,745 $2,240 


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

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

December 31, 2020
(In thousands)Unpaid Principal BalanceRecorded InvestmentACL Allocated
With no related allowance recorded
Commercial, financial and agricultural23,316 22,970 — 
Commercial real estate63,639 63,467 — 
Construction real estate:
Commercial3,110 3,110 — 
Residential real estate:
Commercial4,522 4,448 — 
Leases568 568 — 
With an allowance recorded
Commercial, financial and agricultural5,881 5,866 3,758 
Commercial real estate6,890 6,890 1,316 
Construction real estate:
Commercial— — — 
Residential real estate:
Commercial109 109 16 
Leases1,027 1,027 344 
Total$109,062 $108,455 $5,434 

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

 December 31, 2021
(In thousands)Real EstateBusiness AssetsOtherTotal
Commercial, financial and agricultural
Commercial, financial and agricultural$9,321 $13,366 $156 $22,843 
Commercial real estate52,901 37 — 52,938 
Construction real estate:
Commercial1,178 — — 1,178 
Residential real estate:
Commercial2,906 — 57 2,963 
Mortgage370 — — 370 
HELOC148 — — 148 
Leases— 1,211 — 1,211 
Total loans$66,824 $14,614 $213 $81,651 


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Interest income on nonaccrual loans individually evaluated for impairment is recognized on a cash basis only when Park expects to receive the entire recorded investment in the loans. Interest income on accruing TDRs individually evaluated for impairment continues to be recorded on an accrual basis. The following table presents interest income recognized on nonaccrual loans for the year ended December 31, 2021:

Interest Income Recognized
(In thousands)December 31, 2021
Commercial, financial and agricultural:
Commercial, financial and agricultural$180 
PPP loans— 
Overdrafts— 
Commercial real estate1,844 
Construction real estate:
Commercial39 
Retail4 
Residential real estate:
Commercial204 
Mortgage301 
HELOC17 
Installment2 
Consumer:
Consumer92 
GFSC14 
Check loans
Leases73 
Total loans$2,770 

The following table presents the average recorded investment and interest income recognized subsequent to impairment on loans individually evaluated for impairment as of and for the years ended December 31, 2020 and 2019:
  
December 31, 2020December 31, 2019
(In thousands)Recorded InvestmentAverage Recorded InvestmentInterest Income RecognizedRecorded InvestmentAverage Recorded InvestmentInterest Income Recognized
Commercial, financial and agricultural$28,836 $30,280 $735 $33,088 $21,415 $527 
Commercial real estate70,357 55,279 1,890 41,791 32,132 1,241 
Construction real estate:
   Commercial3,110 1,291 50 453 1,987 26 
Residential real estate:
   Commercial4,557 4,329 204 2,025 2,175 99 
Consumer— — — — — — 
Leases1,595 1,115 — 134 59 — 
Total$108,455 $92,294 $2,879 $77,491 $57,768 $1,893 


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

 December 31, 2021
(In thousands)Accruing Loans
Past Due 30-89
Days
Past Due 
Nonaccrual
Loans and Loans Past
Due 90 Days or
More and 
Accruing (1)
Total Past Due
Total Current (2)
Total 
Amortized Cost
Commercial, financial and agricultural:
Commercial, financial and agricultural$2,908 $9,547 $12,455 $1,210,624 $1,223,079 
PPP loans242 793 1,035 73,385 74,420 
Overdrafts— — — 1,127 1,127 
Commercial real estate65 1,461 1,526 1,800,266 1,801,792 
Construction real estate:
Commercial— — — 214,561 214,561 
Retail346 660 1,006 106,219 107,225 
Residential real estate:
Commercial283 438 721 533,081 533,802 
Mortgage6,170 5,933 12,103 1,021,555 1,033,658 
HELOC565 1,011 1,576 164,029 165,605 
Installment49 31 80 5,562 5,642 
Consumer:
Consumer2,614 618 3,232 1,682,561 1,685,793 
GFSC153 52 205 1,588 1,793 
Check loans10 — 10 2,083 2,093 
Leases60 526 586 19,946 20,532 
Total loans$13,465 $21,070 $34,535 $6,836,587 $6,871,122 

(1) Includes an aggregate of $1.6 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes an aggregate of $53.3 million of nonaccrual loans which were current in regards to contractual principal and interest payments.

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

 December 31, 2020
(in thousands)Accruing Loans
Past Due 30-89
Days
Past Due 
Nonaccrual
Loans and Loans Past
Due 90 Days or
More and 
Accruing (1)
Total Past Due
Total Current (2)
Total Recorded
Investment
Commercial, financial and agricultural$7,372 $13,968 $21,340 $1,574,177 $1,595,517 
Commercial real estate82 972 1,054 1,753,152 1,754,206 
Construction real estate:
Commercial— 39 39 227,524 227,563 
Mortgage77 — 77 115,647 115,724 
Installment12 — 12 929 941 
Residential real estate:
Commercial17 493 510 526,873 527,383 
Mortgage9,538 7,814 17,352 1,079,953 1,097,305 
HELOC805 810 1,615 181,060 182,675 
Installment67 71 138 8,320 8,458 
Consumer5,496 1,213 6,709 1,657,505 1,664,214 
Leases186 984 1,170 23,282 24,452 
Total loans$23,652 $26,364 $50,016 $7,148,422 $7,198,438 

(1) Includes an aggregate of $1.6 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes an aggregate of $92.6 million of nonaccrual loans which were current in regards to contractual principal and interest payments.

Credit Quality Indicators
Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information at December 31, 2021 and December 31, 2020 is included in the previous tables. The past due information is the primary credit quality indicator within the following classes of loans: (1) overdrafts in the commercial, financial and agricultural portfolio segment; (2) retail loans in the construction real estate portfolio segment; (3) mortgage loans, HELOC and installment loans in the residential real estate portfolio segment; and (4) consumer loans, GFSC loans, and check loans in the consumer portfolio segment. The primary credit indicator for commercial loans is based on an internal grading system that grades all commercial loans on a scale from 1 to 8. Credit grades are continuously monitored by the responsible loan officer and adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded 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 a specific reserve. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and included within the individually evaluated category. A loan is deemed impaired, and is individually evaluated, when management determines the borrower's ability to perform in accordance with the contractual loan agreement is in doubt. Any commercial loan graded an 8 (loss) is completely charged off.




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

December 31, 2021Term Loans Amortized Cost Basis by Origination Year
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
Commercial, financial and agricultural: Commercial, financial and agricultural (1)
Risk rating
Pass267,016 208,078 100,736 52,705 36,528 59,909 468,749 1,193,721 
Special Mention1,608 1,592 429 59 277 — 11,986 15,951 
Substandard106 906 401 1,345 549 7,818 484 11,609 
Doubtful— 30 465 227 463 125 488 1,798 
Total 268,730 210,606 102,031 54,336 37,817 67,852 481,707 1,223,079 

Commercial, financial and agricultural: PPP
Risk rating
Pass$69,588 $4,832 $— $— $— $— $— $74,420 
Special Mention— — — — — — — — 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total$69,588 $4,832 $— $— $— $— $— $74,420 

Commercial real estate (1)
Risk rating
Pass376,468 445,780 263,786 154,637 115,571 317,371 14,890 1,688,503 
Special Mention786 6,206 32,965 9,354 4,297 17,829 996 72,433 
Substandard3,897 2,578 1,385 11,373 5,967 14,541 450 40,191 
Doubtful— — — — 47 618 — 665 
Total381,151 454,564 298,136 175,364 125,882 350,359 16,336 1,801,792 

Construction real estate: Commercial
Risk rating
Pass96,929 76,867 7,003 4,841 1,856 3,412 22,444 213,352 
Special Mention202 — — 691 — — — 893 
Substandard— 52 — 264 — — — 316 
Doubtful— — — — — — — — 
Total97,131 76,919 7,003 5,796 1,856 3,412 22,444 214,561 

Residential Real Estate: Commercial
Risk rating
Pass138,801 165,202 67,921 44,896 26,583 70,434 15,507 529,344 
Special Mention95 884 106 79 — 497 135 1,796 
Substandard735 22 691 41 95 993 29 2,606 
Doubtful56 — — — — — — 56 
Total139,687 166,108 68,718 45,016 26,678 71,924 15,671 533,802 

Leases
Risk rating
Pass6,705 5,729 2,628 2,151 705 845 — 18,763 
Special Mention198 111 184 67 21 — — 581 
Substandard— 698 — 23 19 78 — 818 
Doubtful— — 332 16 22 — — 370 
Total6,903 6,538 3,144 2,257 767 923 — 20,532 


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December 31, 2021Term Loans Amortized Cost Basis by Origination Year
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal

Total Commercial Loans
Risk rating
Pass955,507 906,488 442,074 259,230 181,243 451,971 521,590 3,718,103 
Special Mention2,889 8,793 33,684 10,250 4,595 18,326 13,117 91,654 
Substandard4,738 4,256 2,477 13,046 6,630 23,430 963 55,540 
Doubtful56 30 797 243 532 743 488 2,889 
Total963,190 919,567 479,032 282,769 193,000 494,470 536,158 3,868,186 

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

The table below presents the recorded investment by loan grade at December 31, 2020 for all commercial loans:
 
December 31, 2020
(In thousands)5 Rated6 RatedNonaccrual and Accruing TDRsPCIPass-RatedRecorded
Investment
Commercial, financial and agricultural (1)
14,638 — 28,880 337 1,551,662 $1,595,517 
Commercial real estate (1)
87,439 117 70,357 7,461 1,588,832 1,754,206 
Construction real estate:
  Commercial164 — 3,110 1,002 223,287 227,563 
Residential real estate:
  Commercial798 22 4,557 1,510 520,496 527,383 
Leases331 — 1,595 112 22,414 24,452 
Total Commercial Loans$103,370 $139 $108,499 $10,422 $3,906,691 $4,129,121 

(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.


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Park considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential and consumer loan classes, Park also evaluates credit quality based on the aging status of the loan, which was previously presented, and by performing status. The following tables present the amortized cost in residential and consumer loans based on performing status. Park defines a loan as nonperforming if it is on nonaccrual status, designated as an accruing TDR, or is greater than 90 days past due and accruing.

December 31, 2021Term Loans Amortized Cost Basis by Origination Year
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
Commercial, financial and agricultural: Overdrafts
Performing1,127 — — — — — — 1,127 
Nonperforming— — — — — — — — 
Total 1,127 — — — — — — 1,127 

Construction Real Estate: Retail
Performing68,374 26,247 5,710 2,743 1,505 1,842 79 106,500 
Nonperforming— 647 57 — — 21 — 725 
Total 68,374 26,894 5,767 2,743 1,505 1,863 79 107,225 

Residential Real Estate: Mortgage
Performing230,299 217,022 114,077 68,774 59,939 323,678 — 1,013,789 
Nonperforming— 626 785 824 574 17,060 — 19,869 
Total 230,299 217,648 114,862 69,598 60,513 340,738 — 1,033,658 

Residential Real Estate: HELOC
Performing400 — 121 58 41 2,640 159,952 163,212 
Nonperforming89 40 — 37 90 1,811 326 2,393 
Total 489 40 121 95 131 4,451 160,278 165,605 

Residential Real Estate: Installment
Performing— 3 418 111 1,049 2,471 — 4,052 
Nonperforming— 12 5 26 78 1,469 — 1,590 
Total — 15 423 137 1,127 3,940 — 5,642 

Consumer: Consumer
Performing649,638 505,555 259,230 119,222 64,699 62,136 22,664 1,683,144 
Nonperforming241 506 755 399 155 593 — 2,649 
Total 649,879 506,061 259,985 119,621 64,854 62,729 22,664 1,685,793 

Consumer: GFSC
Performing— 243 986 292 63 5 108 1,697 
Nonperforming— 9 73 5 9 — — 96 
Total — 252 1,059 297 72 5 108 1,793 

Consumer: Check loans
Performing— — — — — — 2,093 2,093 
Nonperforming— — — — — — — — 
Total — — — — — — 2,093 2,093 

Total Consumer Loans
Performing949,838 749,070 380,542 191,200 127,296 392,772 184,896 2,975,614 
Nonperforming
330 1,840 1,675 1,291 906 20,954 326 27,322 
Total 950,168 750,910 382,217 192,491 128,202 413,726 185,222 3,002,936 
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Loans and Leases Acquired with Deteriorated Credit Quality
In conjunction with the NewDominion acquisition, Park acquired loans with a book value of $277.9 million as of the July 1, 2018 acquisition date. These loans were recorded at the initial fair value of $272.8 million. NewDominion loans acquired with deteriorated credit quality (ASC 310-30) with a book value of $5.1 million were recorded at the initial fair value of $4.9 million. In conjunction with the Carolina Alliance acquisition, Park acquired loans and leases with a book value of $589.7 million as of the April 1, 2019 acquisition date.Carolina Alliance loans and leases were recorded at the initial fair value of $578.6 million. Loans and leases acquired with deteriorated credit quality (ASC 310-30) with a book value of $19.9 million were recorded at the initial fair value of $18.4 million.

Upon adoption of CECL on January 1, 2021, $52,000 of the credit discount on PCD loans was reclassified to the allowance for credit losses. At December 31, 2021, there was no allowance for credit losses on PCD loans. The carrying amount of loans acquired with deteriorated credit quality at December 31, 2021 and December 31, 2020 was $7.1 million and $11.2 million, respectively.

Troubled Debt Restructurings
Management typically classifies loans as TDRs when a borrower is experiencing financial difficulties and Park has granted a concession to the borrower as part of a modification or in the loan renewal process. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of the borrower's debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy. Management’s policy is to modify loans by extending the term or by granting a temporary or permanent contractual interest rate below the market rate, not by forgiving debt. A court's discharge of a borrower's debt in a Chapter 7 bankruptcy is considered a concession when the borrower does not reaffirm the discharged debt.

During the two years ended December 31, 2021, Park modified a total of 5,138 consumer loans, with an aggregate balance of $72.2 million, and modified a total of 1,406 commercial loans, with an aggregate balance of $488.1 million, in each case related to a hardship caused by the COVID-19 pandemic and responses thereto. Park has worked with borrowers and provided modifications in the form of either interest only deferral or principal and interest deferral, in each case, for initial periods of up to 90 days. As necessary, Park made available a second 90-day interest only deferral or principal and interest deferral bringing the total potential deferral period to six months. Modifications were structured in a manner to best address each individual customer's then current situation. A majority of these modifications were excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. The modified loans are considered current and continue to accrue interest during the deferral period.

Certain loans which were modified during the years ended December 31, 2021 and 2020 did not meet the definition of a TDR as the modification was a delay in a payment that was considered to be insignificant. Management considers a forbearance period of up to three months or a delay in payment of up to 30 days to be insignificant. TDRs may be classified as accruing if the borrower has been current for a period of at least six months with respect to loan payments and management expects that the borrower will be able to continue to make payments in accordance with the terms of the restructured note. Management reviews all accruing TDRs quarterly to ensure payments continue to be made in accordance with the modified terms.

The terms of certain other loans were modified during the years ended December 31, 2021 and 2020 that did not meet the definition of a TDR. Excluding COVID-19 related modifications, there were $0.2 million of substandard commercial loans modified during each of the years ended December 31, 2021 and December 31, 2020 which did not meet the definition of a TDR. Excluding COVID-19 related modifications, consumer loans modified during 2021 which did not meet the definition of a TDR had a total amortized cost as of December 31, 2021 of $32.9 million. Excluding COVID-19 related modifications, consumer loans modified during 2020 which did not meet the definition of a TDR had a total recorded investment as of December 31, 2020 of $57.9 million. Many of these loans were to borrowers who were not experiencing financial difficulties but who were looking to reduce their cost of funds.

At December 31, 2021 and 2020, there were $20.9 million and $25.8 million, respectively, of TDRs included in the nonaccrual loan totals. At December 31, 2021 and 2020, $10.5 million and $12.9 million, respectively, of these nonaccrual TDRs were performing in accordance with the terms of the restructured notes. At December 31, 2021 and 2020, loans totaling $28.3 million and $20.9 million, respectively, were included in accruing TDR loan totals. Management will continue to review the restructured loans and may determine it is appropriate to move certain nonaccrual TDRs to accrual status in the future.

At December 31, 2021 and 2020, Park had commitments to lend $3.0 million and $6.7 million, respectively, of additional funds to borrowers whose outstanding loan terms had been modified in a TDR.

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At December 31, 2021 and 2020, there were $0.3 million and $0.2 million, respectively, of specific reserves related to TDRs. Modifications made in 2021 and 2020 were largely the result of renewals and extending the maturity date of the loans at terms consistent with the original notes. These modifications were deemed to be TDRs primarily due to Park’s conclusion that the borrower would likely not have qualified for similar terms through another lender. Many of the modifications deemed to be TDRs were previously identified as impaired loans, and thus were also previously evaluated for impairment under ASC 310. Additional specific reserves of $174,000 were recorded during the year ended December 31, 2021, as a result of TDRs identified in the 2021 year. Additional specific reserves of $7,000 were recorded during the year ended December 31, 2020, as a result of TDRs identified in the 2020 year. Additional specific reserves of $1,300 were recorded during the year ended December 31, 2019, as a result of TDRs identified in the 2019 year.

Quarterly, management reviews renewals/modifications of loans previously identified as TDRs to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms and the terms of the renewal/modification are considered to be market terms based on the current risk characteristics of the borrower, management considers the potential removal of the TDR classification. If deemed appropriate, the TDR classification is removed if the borrower has complied with the terms of the loan at the date of the renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification. The majority of these TDRs were originally considered restructurings in a prior year as a result of a renewal/modification with an interest rate that was not commensurate with the risk of the underlying loan at the time of the renewal/modification. During the years ended December 31, 2021 and 2020, Park removed the TDR classification on $4.1 million and $2.3 million, respectively, of loans that met the requirements discussed above.

The following tables detail the number of contracts modified as TDRs during the years ended December 31, 2021, 2020 and 2019 as well as the amortized cost/ recorded investment of these contracts at December 31, 2021, 2020, and 2019. The amortized cost/ recorded investment pre- and post-modification is generally the same due to the fact that Park does not typically forgive principal.

Year ended
December 31, 2021
(In thousands)Number of ContractsAccruingNonaccrualAmortized
Cost
Commercial, financial and agricultural
Commercial, financial and agricultural10$1,356 $169 $1,525 
PPP loans— — — — 
Overdrafts— — — — 
Commercial real estate15 2,002 6,747 8,749 
Construction real estate:
Commercial1 — — — 
   Retail2 — 705 705 
Residential real estate:
Commercial5 95 574 669 
Mortgage14 146 396 542 
HELOC8 211 105 316 
Installment8 120 — 120 
Consumer:
Consumer131 116 417 533 
GFSC— — — — 
Check loans— — — — 
Leases1 — 325 325 
Total loans195$4,046 $9,438 $13,484 

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Year ended
December 31, 2020
(In thousands)Number of ContractsAccruingNonaccrualRecorded Investment
Commercial, financial and agricultural12$107 $3,706 $3,813 
Commercial real estate9— 3,235 3,235 
Construction real estate:
Commercial— — — — 
Mortgage1 26 — 26 
Installment1 — 14 14 
Residential real estate:
Commercial3153 3 156 
Mortgage27888 1,068 1,956 
HELOC714 52 66 
Installment18163 65 228 
Consumer214218 634 852 
Total loans292$1,569 $8,777 $10,346 
 
Year ended
December 31, 2019
(In thousands)Number of ContractsAccruingNonaccrualRecorded Investment
Commercial, financial and agricultural30$6,040 $7,821 $13,861 
Commercial real estate8415 7,855 8,270 
Construction real estate:
Commercial3— 415 415 
Mortgage2 77 — 77 
Installment— — — — 
Residential real estate:
Commercial3— 100 100 
Mortgage21535 589 1,124 
HELOC18126 234 360 
Installment341,047 28 1,075 
Consumer324225 1,166 1,391 
Total loans443$8,465 $18,208 $26,673 
 
Of those loans which were modified and determined to be a TDR during the year ended December 31, 2021, $5.4 million were on nonaccrual status as of December 31, 2020. Of those loans which were modified and determined to be a TDR during the year ended December 31, 2020, $0.4 million were on nonaccrual status as of December 31, 2019. Of those loans which were modified and determined to be a TDR during the year ended December 31, 2019, $2.1 million were on nonaccrual status as of December 31, 2018.

The following table presents the amortized cost/ recorded investment in financing receivables which were modified as TDRs within the previous 12 months and for which there was a payment default during the year ended December 31, 2021, December 31, 2020, and December 31, 2019. For this table, a loan is considered to be in default when it becomes 30 days
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contractually past due under the modified terms. The additional allowance for credit loss resulting from the defaults on TDR loans was immaterial.
 
Year ended
December 31, 2021		Year ended
December 31, 2020		Year ended
December 31, 2019
(In thousands)Number of ContractsAmortized CostNumber of ContractsRecorded InvestmentNumber of ContractsRecorded Investment
Commercial, financial and agricultural:4 $2,776 1 $20 
Commercial, financial and agricultural— $— (1)(1)(1)(1)
PPP loans— — (1)(1)(1)(1)
Overdrafts— — (1)(1)(1)(1)
Commercial real estate— — 1 223 — — 
Construction real estate:
Commercial— — — — — — 
Retail1 648 1 14 — — 
Residential real estate:
Commercial— — 1 3 — — 
Mortgage4 280 11 993 7 665 
HELOC2 135 — — 6 141 
Installment1 27 3 32 — — 
Consumer34 360 56 539 
Consumer14 169 (1)(1)(1)(1)
GFSC— — (1)(1)(1)(1)
Check loans— — (1)(1)(1)(1)
Leases— — — — — — 
Total loans22 $1,259 55 $4,401 70 $1,365 
(1) Results for reporting periods beginning after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. Category was not broken out as a separate class at December 31, 2020.

Of the $1.3 million in modified TDRs which defaulted during the year ended December 31, 2021, $115,000 were accruing loans and $1.1 million were nonaccrual loans. Of the $4.4 million in modified TDRs which defaulted during the year ended December 31, 2020, $706,000 were accruing loans and $3.7 million were nonaccrual loans. Of the $1.4 million in modified TDRs which defaulted during the year ended December 31, 2019, $350,000 were accruing loans and $1.0 million were nonaccrual loans.
 
Certain of the Corporation’s executive officers, directors and related entities of directors are loan customers of PNB. As of December 31, 2021 and 2020, credit exposure aggregating approximately $33.5 million and $51.3 million, respectively, was outstanding to such parties. Of this total exposure, approximately $27.1 million and $32.0 million was outstanding at December 31, 2021 and 2020, respectively, with the remaining balance representing available credit. During 2021, new loans and advances on existing loans were made to these executive officers, directors and related entities of directors totaling $1.2 million and $9.7 million, respectively. These extensions of credit were offset by principal payments of $12.6 million and the removal of loans from the related party listing totaling $3.2 million. During 2020, new loans and advances on existing loans were $0.6 million and $12.4 million, respectively. These extensions of credit were offset by principal payments of $9.7 million.

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.

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During the first quarter of 2021, Park adopted ASU 2016-13, including the CECL methodology for estimating the ACL. This standard was adopted prospectively on January 1, 2021, resulting in a $6.1 million increase to the ACL and a $3.9 million increase to the allowance for unfunded credit losses. A cumulative effect adjustment resulting in an $8.0 million decrease to retained earnings and a $2.1 million increase to deferred tax assets was also recorded as of the adoption of ASU 2016-13.

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

•Forecast model - For each portfolio segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized Park's own FFIEC Call Report data for the commercial, financial and agricultural and residential real estate portfolio segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer portfolio segments. Park plans to update the LDA annually; however, due to the impact of COVID-19, the LDA analysis was last updated in the fourth quarter of 2019.
•Probability of default – PD is the probability that an asset will be in default within a given time frame. Park has defined default to be when a charge-off has occurred, a loan is placed on nonaccrual, or a loan is greater than 90 days past due. Whenever possible, Park utilizes its own loan-level PDs for the reasonable and supportable forecast period. When loan-level data is not available reflecting the forecasted economic conditions, a forecast model is utilized to estimate PDs.
•Loss given default – LGD is the percentage of the asset not expected to be collected due to default. Whenever possible, Park utilizes its own loan-level LGDs for the reasonable and supportable forecast period. When it is not possible to use Park's own LGDs, the LGD is derived using a method referred to as Frye Jacobs.
•Prepayments and curtailments – Prepayments and curtailments are calculated based on Park’s own data utilizing a three-year average. This analysis is updated annually in the fourth quarter and was last updated in the fourth quarter of 2021.
•Forecast and reversion – Park has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.
•Economic forecast - Park utilizes a third party to provide economic forecasts under various scenarios, which are weighted in order to reflect model risk in the current economic environment. The scenario weighting is evaluated by management on a quarterly basis.
◦As of January 1, 2021, the date of CECL adoption, Park weighted a "most likely" scenario 80%, a "slower near-term growth" scenario 10%, and a "moderate recession" scenario 10%. As of January 1, 2021, the "most likely" scenario forecasted Ohio unemployment to range between 5.31% and 5.79% during the next four quarters.
◦As of March 31, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease significantly, to a range between 3.70% and 4.93% during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2021, management considered this improved economic forecast while balancing the risks associated with the COVID-19 pandemic, including the risk of pandemic-related losses lagging behind the projected improvement in unemployment. The calculation utilizing the 80% "most likely" scenario, 10% "slower near-term growth" scenario, and 10% "moderate recession scenario" resulted in a quantitative reserve of $57.9 million, which would have resulted in a decline of $17.0 million from the quantitative reserve of $74.9 million as of January 1, 2021. Management then considered the reason for this decline and whether or not it was appropriate given the economic environment at March 31, 2021. Upon review, management noted that the decline was the result of a significant decrease in forecasted unemployment. The March 31, 2021 "most likely" scenario forecasted unemployment rates lower than any post-1975 Ohio unemployment rates of record. Given the uncertainty at March 31, 2021 due to the COVID-19 pandemic, management did not believe that such a significant decrease in reserves was appropriate and sought to re-evaluate the weightings in order to calculate a more accurate life of loan loss estimate. Management determined it was appropriate to weight the "most likely" scenario 50% and the "moderate recession" scenario 50%.
◦As of December 31, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease, to a range between 3.32% and 3.97%, during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2021, management considered the range of forecasted unemployment as well as a number of economic indicators. While some economic indications continued to be optimistic, the Omicron variant, rising inflation, volatility in consumer confidence, employment, supply chain and workforce challenges continued to cause uncertainty to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the previous quarter weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2021.


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Qualitative Considerations
Park reviews various internal and external factors to consider the need for any qualitative adjustments to the quantitative model. Factors considered include the following:
•The nature and volume of Park’s financial assets; the existence, growth, and effect of any concentrations of credit and the volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets. Specifically, management considers:
◦Trends (e.g., growth, reduction) in specific categories of the loan portfolio, as well as adjustments to the types of loans offered by Park.
◦Level of and trend in loan delinquencies, troubled loans, commercial watch list loans and nonperforming loans.
◦Level of and trend in new nonaccrual loans.
◦Level of and trend in loan charge-offs and recoveries.
•Park's lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, write-offs, and recoveries.
•The quality of Park’s credit review function.
•The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff.
•The effect of other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or pandemics.
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in the markets in which Park operates that affect the collectibility of financial assets.
•Where the U.S. economy is within a given credit cycle.
•The extent that there is government assistance (stimulus).

During 2020, Park added an additional reserve for three industries at particularly high risk due to the COVID-19 pandemic: hotels and accommodations; restaurants and food service; and strip shopping centers. These industries have experienced high levels of deferrals and have been particularly impacted by shut downs of non-essential businesses, increased health department regulations, and changes in consumer behavior. Management expects that a relatively higher percentage of the 4-rated credits in these portfolios will eventually migrate to special mention, substandard, or impaired status. In adopting CECL, management determined it was appropriate to retain this qualitative adjustment as this adjustment takes into account the additional risk in these portfolios, which is not captured in the quantitative calculation. As of December 31, 2021, additional reserves totaling $5.2 million were added for these portfolios on top of the quantitative reserve already calculated. This is an increase from $3.8 million as of December 31, 2020, which had been calculated under the previous incurred loss methodology.

A breakout of the 4-rated balances within these portfolios and the additional reserve related to these portfolios is detailed in the following table:

December 31, 2021December 31, 2020
(in thousands)4-Rated BalanceAdditional Reserve4-Rated BalanceAdditional Reserve
Hotels and accommodations$148,018 $2,226 $96,909 $1,391 
Restaurants and food service40,648 917 33,409 637 
Strip shopping centers184,171 2,033 177,706 1,731 
Total$372,837 $5,176 $308,024 $3,759 

Additionally, management applied a 1.00% reserve to all hotels and accommodations loans in the collectively evaluated population to account for increased valuation risk. This was consistent with the 2020 year end and considered various economic conditions due to COVID-19 variants, continued volatility in the hotel industry, and travel trends, all of which impacted valuations. At December 31, 2021, Park's originated hotels and accommodation loans included in the population of collectively evaluated loans had a balance of $203.9 million with an additional reserve related to valuation risks of $2.0 million. At December 31, 2020, Park's originated hotels and accommodation loans included in the population of collectively evaluated loans had a balance of $181.4 million with an additional reserve related to valuation risks of $1.8 million.

There is still a significant amount of uncertainty related to the economic impact of COVID-19, including the duration of the pandemic, the risk related to new variants, future government programs that may be established in response to the pandemic, and the resiliency of the U.S. economy. Management will continue to evaluate its estimate of expected credit losses as new information becomes available.

At December 31, 2021 and 2020, Park had $74.4 million and $331.6 million, respectively, of PPP loans which were included in the commercial, financial and agricultural portfolio segment. These loans are guaranteed by the SBA and thus have not been
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reserved for using the same methodology as the rest of Park’s loan portfolio. A 10 basis point reserve was calculated for these loans to reflect minimal credit risk at December 31, 2021 and December 31, 2020.

ACL Activity
The activity in the allowance for credit losses for the years ended December 31, 2021, 2020, and 2019 is summarized in the following tables.

Year ended December 31, 2021
(In thousands)Commercial, financial and agriculturalCommercial real estateConstruction real estateResidential real estateConsumerLeasesTotal
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-offs957 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) Provision(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 
 
Year ended December 31, 2020
(In thousands)Commercial, financial and agriculturalCommercial real estateConstruction real estateResidential real estateConsumerLeasesTotal
Allowance for credit losses:
Beginning balance$20,203 $10,229 $5,311 $8,610 $12,211 $115 $56,679 
Charge-offs1,468 1,824 6 356 6,634 16 10,304 
Recoveries(20,765)(738)(1,122)(991)(3,629)(1)(27,246)
Net (recoveries) charge-offs (19,297)1,086 (1,116)(635)3,005 15 (16,942)
(Recovery) Provision(13,892)14,337 861 2,118 8,212 418 12,054 
        Ending balance$25,608 $23,480 $7,288 $11,363 $17,418 $518 $85,675 

Year ended December 31, 2019
(In thousands)Commercial, financial and agriculturalCommercial real estateConstruction real estateResidential real estateConsumerLeasesTotal
Allowance for credit losses:
Beginning balance$16,777 $9,768 $4,463 $8,731 $11,773 $— $51,512 
     Charge-offs2,231 400 — 239 8,307 — 11,177 
  Recoveries(1,241)(720)(2,682)(787)(4,742)(1)(10,173)
Net charge-offs (recoveries)990 (320)(2,682)(548)3,565 (1)1,004 
Provision (Recovery)4,416 141 (1,834)(669)4,003 114 6,171 
Ending balance$20,203 $10,229 $5,311 $8,610 $12,211 $115 $56,679 

ACL Summary
Loans collectively evaluated for impairment in the following tables include all performing loans at December 31, 2021 and December 31, 2020, as well as nonperforming loans internally classified as consumer loans. Nonperforming consumer loans are not typically individually evaluated for impairment, but receive a portion of the statistical allocation of the ACL. Loans individually evaluated for impairment include all impaired loans internally classified as commercial loans at December 31, 2021 and December 31, 2020, which are evaluated for impairment in accordance with U.S. GAAP (See Note 1-Significant Accounting Policies).







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The composition of the ACL at December 31, 2021 and December 31, 2020 was as follows:
 
 December 31, 2021
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
ACL:       
Ending allowance balance attributed to loans:       
Individually evaluated for impairment$1,385$188$—$—$—$43$1,616
Collectively evaluated for impairment12,64025,2785,75811,42426,286195$81,581
Acquired with deteriorated credit quality——————$—
Total ending allowance balance$14,025$25,466$5,758$11,424$26,286$238$83,197
Loan balance:       
Loans individually evaluated for impairment$22,666$47,820$222$2,606$—$1,188$74,502
Loans collectively evaluated for impairment1,275,7831,748,854320,6081,735,2261,689,67919,3216,789,471
Loans acquired with deteriorated credit quality1775,118956875—237,149
Total ending loan balance$1,298,626$1,801,792$321,786$1,738,707$1,689,679$20,532$6,871,122
ACL as a percentage of loan balance:       
Loans individually evaluated for impairment6.11 %0.39 %— %— %— %3.62 %2.17 %
Loans collectively evaluated for impairment0.99 %1.45 %1.80 %0.66 %1.56 %1.01 %1.20 %
Loans acquired with deteriorated credit quality— %— %— %— %— %— %— %
Total1.08 %1.41 %1.79 %0.66 %1.56 %1.16 %1.21 %


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 December 31, 2020
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
ACL:       
Ending allowance balance attributed to loans:       
Individually evaluated for impairment$3,758$1,316$—$16$—$344$5,434
Collectively evaluated for impairment21,80922,0937,28811,29217,418174$80,074
Acquired with deteriorated credit quality4171—55——167
Total ending allowance balance$25,608$23,480$7,288$11,363$17,418$518$85,675
Loan balance:       
Loans individually evaluated for impairment$28,811$70,334$3,110$4,557$—$1,595$108,407
Loans collectively evaluated for impairment1,559,8421,670,510339,3121,806,1261,659,70422,7317,058,225
Loans acquired with deteriorated credit quality
3367,3459992,361—11211,153
Total ending loan balance$1,588,989$1,748,189$343,421$1,813,044$1,659,704$24,438$7,177,785
ACL as a percentage of loan balance:       
Loans individually evaluated for impairment13.04 %1.87 %— %0.35 %— %21.57 %5.01 %
Loans collectively evaluated for impairment1.40 %1.32 %2.15 %0.63 %1.05 %0.77 %1.13 %
Loans acquired with deteriorated credit quality12.20 %0.97 %— %2.33 %— %— %1.50 %
Total1.61 %1.34 %2.12 %0.63 %1.05 %2.12 %1.19 %
Recorded investment:       
Loans individually evaluated for impairment$28,836$70,357$3,110$4,557$—$1,595$108,455
Loans collectively evaluated for impairment1,566,3441,676,388340,1161,808,8921,664,21422,7457,078,699
Loans acquired with deteriorated credit quality 3377,4611,0022,372—11211,284
Total ending recorded investment$1,595,517$1,754,206$344,228$1,815,821$1,664,214$24,452$7,198,438




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7. Goodwill and Other Intangible Assets
The following table shows the activity in goodwill and other intangible assets for the years ended December 31, 2021, 2020 and 2019.
 
(in thousands)GoodwillOther
Intangible Assets		Total
January 1, 2019$112,739 $6,971 $119,710 
Acquired goodwill and other intangible assets46,856 8,207 55,063 
Amortization— 2,355 2,355 
Trade name intangible impairment— 1,300 1,300 
December 31, 2019$159,595 $11,523 $171,118 
Amortization— 2,263 2,263 
December 31, 2020$159,595 $9,260 $168,855 
Amortization— 1,798 1,798 
December 31, 2021$159,595 $7,462 $167,057 

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, 2021, 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. Management continues to monitor economic factors, including economic conditions as a result of the COVID-19 pandemic and responses thereto, to evaluate goodwill impairment.

Acquired Intangible Assets

The following table shows the balance of acquired intangible assets as of December 31, 2021 and 2020.

20212020
(in thousands)Gross Carrying AmountAccumulated Amortization/ImpairmentGross Carrying AmountAccumulated Amortization
Other intangible assets:
Core deposit intangibles$14,456 $6,994 $14,456 $5,196 
Trade name intangible1,300 1,300 1,300 1,300 
Total$15,756 $8,294 $15,756 $6,496 

During 2019, Park announced its 2020 rebranding initiative to operate all 12 banking divisions of PNB under one name. The NewDominion trade name intangible was initially recorded assuming an indefinite useful life. Considering Park's rebranding initiative, Park concluded that the trade name intangible represented a definite life asset, and impairment of $1.3 million was recorded during 2019.

Core deposit intangibles are being amortized, on an accelerated basis, over a period of ten years. Amortization expense for the core deposit intangibles was $1.8 million, $2.3 million and $2.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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The following is a schedule of estimated amortization expense for each of the next five years:

(in thousands)Total
2022$1,487 
20231,323 
20241,215 
20251,042 
2026887 

8. Loans Held for Sale
Mortgage loans held for sale are carried at their fair value. Mortgage loans held for sale were $9.4 million and $31.7 million at December 31, 2021 and 2020, respectively. These amounts are included in "Loans" on the Consolidated Balance Sheets and in the residential real estate loan segments in Note 5 - Loans and Note 6 - Allowance for Credit Losses. The contractual balance was $9.2 million and $30.9 million at December 31, 2021 and 2020, respectively. The gain expected upon sale was $166,000 and $753,000 at December 31, 2021 and 2020, respectively. None of these loans were 90 days or more past due or on nonaccrual status as of December 31, 2021 or 2020.

During 2020, Park transferred a non-performing loan held for investment, with a book balance of $4.4 million, to the loans held for sale portfolio, and subsequently completed the sale of this non-performing loan held for sale, recognizing no gain or loss on sale. No non-performing loans were held for sale or sold during 2021 or 2019.

9. 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 properties held at December 31, 2021 and December 31, 2020 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, 2021December 31, 2020
OREO:
Commercial real estate$— $625 
Residential real estate775 806 
Total OREO$775 $1,431 
Loans in process of foreclosure:
Residential real estate$1,148 $1,643 

In addition to real estate, Park may also repossess different types of collateral. As of December 31, 2021 and December 31, 2020, Park had $3.3 million and $3.6 million in other repossessed assets which are included in "Other assets" on the Consolidated Balance Sheets. For both periods presented, the other repossessed assets largely consisted of an aircraft acquired as part of a loan workout.

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10. Premises and Equipment
The major categories of premises and equipment and accumulated depreciation are summarized as follows:
 
December 31 (In thousands)20212020
Land$21,992 $22,421 
Buildings97,128 97,351 
Equipment, furniture and fixtures(1)
76,675 89,390 
Leasehold improvements6,436 6,381 
Software(1)
24,698 N.A.
Total$226,929 $215,543 
Less accumulated depreciation(137,921)(126,883)
Premises and equipment, net$89,008 $88,660 
 (1) Prior to 2021, software was included within equipment, furniture and fixtures

Depreciation expense amounted to $13.3 million, $10.8 million and $9.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.
  
Park records leased assets where Park acts as the lessor within "Other assets" on the Consolidated Balance Sheets. Equipment subject to lease agreements at December 31, 2021 and 2020 is summarized below:

December 31 (In thousands)20212020
Equipment$7,298 $8,561 
Less accumulated depreciation(4,860)(4,665)
Leased assets, net$2,438 $3,896 

Depreciation expense on operating lease assets of $1.5 million, $1.8 million, and $1.3 million was recorded for the years ended December 31, 2021, 2020 and 2019, respectively.

11. 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, 2021 and 2020.

(In thousands)December 31, 2021December 31, 2020
Affordable housing tax credit investments$58,711 $56,024 
Unfunded commitments28,484 29,298 

Commitments are funded when capital calls are made by the general partner of a limited partnership. Park expects that the commitments as of December 31, 2021 will be funded between 2022 and 2032.

During the years ended December 31, 2021, 2020 and 2019, Park recognized amortization expense of $7.3 million, $7.0 million and $6.9 million, respectively, which was included within the provision for income taxes. For the years ended December 31, 2021, 2020 and 2019, Park recognized tax credits and other benefits from its affordable housing tax credit investments of $8.8 million, $8.7 million and $8.8 million, respectively.

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12. Deposits
At December 31, 2021 and 2020, non-interest bearing and interest bearing deposits were as follows:
 
December 31 (In thousands)20212020
Non-interest bearing$3,066,419 $2,727,100 
Interest bearing4,838,109 4,845,258 
Total$7,904,528 $7,572,358 
 
At December 31, 2021, the maturities of time deposits were as follows: 

(In thousands)
2022$450,374 
2023158,577 
202440,819 
202536,352 
202625,405 
After 5 years133 
Total$711,660 

At December 31, 2021 and 2020, respectively, Park had approximately $29.6 million and $20.2 million of deposits received from Park's executive officers, Park directors and related entities of Park directors.

Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2021 and 2020 were $65.8 million and $77.2 million, respectively.

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

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

At December 31, 2021 and December 31, 2020, Park's repurchase agreement borrowings totaled $213.8 million and $317.2 million, respectively. These borrowings were collateralized with U.S. government sponsored entities' asset-backed securities with a fair value of $334.9 million and $366.0 million at December 31, 2021 and December 31, 2020, respectively. Declines in the value of the collateral would require Park to pledge additional securities. As of December 31, 2021 and December 31, 2020, Park had $1,225 million and $438.6 million, respectively, of available unpledged securities.

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The following table presents the carrying value of Park's repurchase agreement borrowings by remaining contractual maturity and collateral pledged at December 31, 2021 and December 31, 2020:

December 31, 2021
(In thousands)Remaining Contractual Maturity of the Agreements
Overnight and ContinuousUp to 30 days30 - 90 daysGreater than 90 daysTotal
U.S. government sponsored entities' asset-backed securities$213,786 $— $— $— $213,786 
December 31, 2020
(In thousands)Remaining Contractual Maturity of the Agreements
Overnight and ContinuousUp to 30 days30 - 90 daysGreater than 90 daysTotal
U.S. government sponsored entities' asset-backed securities$317,230 $— $— $— $317,230 

See Note 14 - Short-Term Borrowings for additional information related to repurchase agreements.

14. Short-Term Borrowings
Short-term borrowings were as follows:

December 31 (In thousands)20212020
Securities sold under agreements to repurchase
$213,786 $317,230 
FHLB advances25,000 25,000 
Total short-term borrowings$238,786 $342,230 
 
The outstanding balances for all short-term borrowings as of December 31, 2021 and 2020 and the weighted-average interest rates as of and paid during each of the years then ended were as follows: 

(In thousands)Repurchase agreementsFHLB Advances
2021
Ending balance$213,786 $25,000 
Highest month-end balance297,118 25,000 
Average daily balance261,967 25,025 
Weighted-average interest rate:
As of year-end0.03 %0.23 %
Paid during the year (1)
0.04 %0.23 %
2020
Ending balance$317,230 $25,000 
Highest month-end balance317,230 25,000 
Average daily balance250,266 26,751 
Weighted-average interest rate:
As of year-end0.03 %0.26 %
Paid during the year (1)
0.19 %0.80 %
(1) Interest rate swaps with notional amounts totaling $25.0 million at both December 31, 2021 and December 31, 2020 were designated as cash flow hedges of certain FHLB advances. Including interest expense related to the swaps, the weighted average interest rate paid during the year on FHLB advances was 2.69% and 2.38% for 2021 and 2020, respectively.

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During 2020 and 2021, outstanding FHLB advances were collateralized by investment securities owned by PNB and by various loans pledged under a blanket agreement by PNB. At December 31, 2021 and December 31, 2020, $9.5 million and $13.9 million, respectively, of investment securities were pledged as collateral for FHLB advances. At December 31, 2021 and December 31, 2020, $1,749.3 million and $1,520.5 million, respectively, of commercial real estate and residential mortgage loans were pledged under a blanket agreement to the FHLB by PNB. See Note 13 - Repurchase Agreement Borrowings for information related to investment securities collateralizing repurchase agreements.

15. Long-Term Debt
Long-term debt is listed below:
 
December 31,20212020
(In thousands)Outstanding BalanceInterest RateOutstanding BalanceInterest Rate
Total U.S. Bank term note by year of maturity:
2022$— — %32,500 1.84 %
Total$— — %32,500 1.84 %
 
On February 18, 2020, Park prepaid $50 million of FHLB advances, incurring a $1.8 million prepayment penalty recognized within "FHLB prepayment penalty" on the Consolidated Statement of Income for the year ended December 31, 2020. These advances had an average interest rate of 3.01% and maturity dates of March 14, 2022 and September 15, 2022.

On December 3, 2020, Park prepaid $100 million of FHLB advances, incurring an $8.7 million prepayment penalty recognized within "FHLB prepayment penalty" on the Consolidated Statement of Income for the year ended December 31, 2020. These advances had an interest rate of 3.40% and a maturity date of December 1, 2023.
 
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.

16. 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 carry a floating rate based on three-month LIBOR plus 148 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 LIBOR plus 148 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.

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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 shall 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 is being amortized through the Subordinated Note call date. At December 31, 2021 and 2020, the Subordinated Notes, net of unamortized issuance costs, totaled $173.2 million and $172.8 million, and qualify as Tier 2 capital for Park under the Federal Reserve Board capital adequacy rules.

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

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

Borrowing Derivatives: Interest rate swaps with notional amounts totaling $25.0 million at both December 31, 2021 and December 31, 2020 were designated as cash flow hedges of certain FHLB advances.

Loan Derivatives: In conjunction with the Carolina Alliance acquisition, Park acquired interest rate swaps related to certain commercial loans. Simultaneously with borrowers entering into interest rate swaps, Carolina Alliance entered into offsetting
interest rate swaps executed with a third party, such that Carolina Alliance minimized its net interest rate risk exposure resulting
from such transactions. These interest rate swaps had a notional amount totaling $29.7 million and $33.3 million as of December 31, 2021 and December 31, 2020, respectively.

All of the Company's interest rate swaps were determined to be fully effective during the years ended December 31, 2021 and 2020. 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. The amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective. Park expects the hedges to remain fully effective during the remaining respective terms of the interest rate swaps.

Summary information about Park's interest rate swaps as of December 31, 2021 and December 31, 2020 was as follows:

December 31, 2021December 31, 2020
(In thousands, except weighted average data)Borrowing DerivativesLoan DerivativesBorrowing DerivativesLoan Derivatives
Notional amounts$25,000 $29,651 $25,000 $33,310 
Weighted average pay rates2.595 %4.668 %2.595 %4.695 %
Weighted average receive rates0.124 %4.668 %0.218 %4.695 %
Weighted average maturity (years)0.58.21.59.3
Unrealized losses$262 $— $885 $— 

Interest expense recorded on swap transactions was $614,000, $423,000 and $42,000 for the years ended December 31, 2021, 2020, and 2019, respectively.
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Interest Rate Swaps

The following table presents the net gains (losses), net of income taxes, recorded in OCI and the Consolidated Statements of Income related to interest rate swaps for the years ended December 31, 2021, 2020 and 2019.

Year ended December 31, 2021
(In thousands)Amount of Gain (Loss) Recognized in OCI (Effective Portion)Amount of Gain (Loss) Reclassified from OCI to Interest IncomeAmount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts$492 $— $— 

Year ended December 31, 2020
(In thousands)Amount of Gain (Loss) Recognized in OCI (Effective Portion)Amount of Gain (Loss) Reclassified from OCI to Interest IncomeAmount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts$(244)$— $— 

Year ended December 31, 2019
(In thousands)Amount of Gain (Loss) Recognized in OCI (Effective Portion)Amount of Gain (Loss) Reclassified from OCI to Interest IncomeAmount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts$(454)$— $— 

The following table reflects the interest rate swaps included in the Consolidated Balance Sheets as of December 31, 2021 and 2020.

(In thousands)December 31, 2021December 31, 2020
Notional AmountFair ValueNotional AmountFair Value
Included in other assets:
Borrowing derivatives - interest rate swaps related to FHLB advances$— $— $— $— 
Loan derivatives - instruments associated with loans
 Matched interest rate swaps with borrower 29,651 1,952 33,310 3,934 
 Matched interest rate swaps with counterparty— — — — 
   Total included in other assets$29,651 $1,952 $33,310 $3,934 
Included in other liabilities:
Borrowing derivatives - interest rate swaps related to FHLB advances$25,000 $(262)$25,000 $(885)
Loan derivatives - instruments associated with loans
 Matched interest rate swaps with borrower — — — — 
 Matched interest rate swaps with counterparty29,651 (1,952)33,310 (3,934)
    Total included in other liabilities$54,651 $(2,214)$58,310 $(4,819)

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 the Company's commitments to fund the loans, the Company enters into forward commitments for
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the future delivery of mortgage loans when interest rate locks are entered into. These mortgage banking derivatives are not designated in hedge relationships. The fair value of the interest rate locks is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Fair values of these mortgage banking derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in "Other service income" in the Consolidated Statements of Income.

At December 31, 2021 and December 31, 2020, Park had $13.3 million and $58.2 million, respectively, of interest rate lock commitments. The fair value of these mortgage banking derivatives was reflected by a derivative asset of $0.3 million and $1.5 million at December 31, 2021 and December 31, 2020, respectively.

Other Derivatives
In connection with the sale of Park’s Class B Visa shares during 2009, Park entered into a swap agreement with the purchaser of the shares. The swap agreement adjusts for dilution in the conversion ratio of Class B Visa shares resulting from certain Visa litigation. At both December 31, 2021 and 2020, the fair value of the swap liability of $226,000 was an estimate of the exposure based upon probability-weighted potential Visa litigation losses.

18. Share-Based Compensation
The Park National Corporation 2013 Long-Term Incentive Plan (the "2013 Incentive Plan") was adopted by the Board of Directors of Park on January 28, 2013 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 22, 2013. The 2013 Incentive Plan made equity-based awards and cash-based awards available for grant to participants (who could have been employees or non-employee directors) in the form of incentive stock options (for employees only), nonqualified stock options, SARs, restricted common shares (“Restricted Stock”), restricted stock unit awards that may be settled in common shares, cash or a combination of the two (“Restricted Stock Units”), unrestricted common shares (“Other Stock-Based Awards”) and cash-based awards. Under the 2013 Incentive Plan, 600,000 common shares were authorized to be delivered in connection with grants under the 2013 Incentive Plan. The common shares to be delivered under the 2013 Incentive Plan were to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At December 31, 2021, there were no common shares available to be issued under the 2013 Incentive Plan.

The Park National Corporation 2017 Long-Term Incentive Plan for Employees (the "2017 Employees LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. 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, 2021, 450,000 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, 2021, 86,850 common shares were available for future grants under the 2017 Non-Employee Directors LTIP.

The 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP have replaced the provisions of the 2013 Incentive Plan with respect to the grant of future awards. As a result of the approval of the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP, Park did not grant any additional awards under the 2013 Incentive Plan after April 24, 2017. Awards made under the 2013 Incentive Plan have either vested or expired.
During 2021, 2020 and 2019, Park granted 13,400, 13,450 and 13,500 common shares, respectively, to directors of Park and to directors of PNB (and its divisions) under the 2017 Non-Employee Directors LTIP. The common shares granted to directors were not subject to a vesting period and resulted in expense of $1.7 million, $1.3 million, and $1.3 million in 2021, 2020, and 2019, respectively, which is included in professional fees and services on the Consolidated Statements of Income. 
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During 2021, 2020 and 2019, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 61,890, 62,265 and 58,740 common shares, respectively, to certain employees of Park and its subsidiaries. Additionally, during 2019, Park granted awards of TBRSUs, under the 2017 Employees LTIP, covering an aggregate of 15,700 shares to Carolina Alliance Division employees. The number of PBRSUs earned or settled will depend on the level of achievement with respect to certain performance criteria and are also subject to subsequent service-based vesting. The number of TBRSUs earned or settled are subject to service-based vesting.

A summary of changes in the common shares subject to nonvested PBRSUs and TBRSUs for the years ended December 31, 2021 and 2020 follows:

Common shares subject to PBRSUs and TBRSUs
Nonvested at January 1, 2020194,722 
Granted62,265 
Vested(44,379)
Forfeited(3,101)
Adjustment for performance conditions of PBRSUs (1)
(5,399)
Nonvested at January 1, 2021204,108 
Granted61,890 
Vested(48,106)
Forfeited(3,522)
Adjustment for performance conditions of PBRSUs (1)
(2,551)
Nonvested at December 31, 2021 (2)
211,819 
(1) The number of PBRSUs earned depends on the level of achievement with respect to certain performance criteria. Adjustment herein represents the difference between the maximum number of common shares which could be earned and the actual number earned for those PBRSUs as to which the performance period was completed.
(2) Nonvested amount herein represents the maximum number of nonvested PBRSUs and TBRSUs. As of December 31, 2021, an aggregate of 206,827 PBRSUs and TBRSUs are expected to vest.

A summary of awards vested during the twelve months ended December 31, 2021 and 2020 follows:

Twelve Months Ended
December 31,
20212020
PBRSU and TBRSU vested48,10644,379
Common shares withheld to satisfy employee income tax withholding obligations18,43614,038
Net common shares issued29,670 30,341 


Share-based compensation expense of $6.3 million, $6.0 million and $5.0 million was recognized for the years ended December 31, 2021, 2020 and 2019, respectively, related to PBRSU and TBRSU awards to employees. The following table details expected additional share-based compensation expense related to PBRSUs and TBRSUs currently outstanding:

(In thousands)
2022$4,091 
20232,658 
20241,107 
2025178 
Total$8,034 

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19. 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 2021 or 2020 and there is no contribution expected to be made in 2022.
 
Using accrual measurement dates of December 31, 2021 and 2020, plan assets and benefit obligation activity for the Pension Plan are listed below:

(In thousands)20212020
Change in fair value of plan assets
Fair value at beginning of measurement period$230,442 $210,623 
Actual return on plan assets48,138 27,800 
Benefits paid(15,107)(7,981)
Fair value at end of measurement period$263,473 $230,442 
Change in benefit obligation
Projected benefit obligation at beginning of measurement period$184,410 $154,419 
Service cost9,916 8,319 
Interest cost5,359 5,283 
Actuarial loss (1,614)24,370 
Benefits paid(15,107)(7,981)
Projected benefit obligation at the end of measurement period$182,964 $184,410 
Funded status at end of year (fair value of plan assets less benefit obligation)$80,509 $46,032 
 
The decrease in the projected benefit obligation ("PBO") from $184.4 million as of December 31, 2020 to $183.0 million as of December 31, 2021, was largely the result of an increase in the discount rate from 3.00% to 3.23%. The decrease in the PBO was partially offset by changes due to mortality assumption updates and demographic losses driven by salary increases greater than assumed.

The asset allocation for the Pension Plan as of each measurement date, by asset category, was as follows:
 
Percentage of Plan Assets
Asset categoryTarget Allocation20212020
Equity securities50% - 100%82 %84 %
Fixed income and cash equivalentsremaining balance18 %16 %
Total100 %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% and 7.00% at December 31, 2021 and December 31, 2020, respectively. This return was based on the expected long-term return of each of the asset categories, weighted based on the median of the target allocation for each class.

The accumulated benefit obligation for the Pension Plan was $146.2 million and $149.5 million at December 31, 2021 and 2020, respectively.
 
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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, 2021 and 2020, the fair value of the 115,800 common shares held by the Pension Plan was $15.9 million, or $137.31 per share and $12.2 million, or $105.01 per share, respectively.
 
The weighted average assumptions used to determine benefit obligations at December 31, 2021, 2020 and 2019 were as follows:
 
202120202019
Discount rate3.23 %3.00 %3.53 %
Rate of compensation increase
Under age 308.25 %8.25 %10.00 %
Ages 30-396.00 %6.00 %6.00 %
Ages 40-495.00 %5.00 %4.00 %
Ages 50-544.25 %4.25 %3.00 %
Ages 55-593.75 %3.75 %3.00 %
Ages 60-643.50 %3.50 %3.00 %
Ages 65 and over3.25 %3.25 %3.00 %

The estimated future pension benefit payments reflecting expected future service for the next ten years are shown below (in thousands):

2022$12,775 
202311,500 
202412,102 
202512,405 
202612,360 
2027-203161,702 
Total$122,844 
 
The following table shows ending balances of accumulated other comprehensive loss at December 31, 2021 and 2020.
 
(In thousands)20212020
Prior service credit$137 $152 
Net actuarial loss(7,469)(43,723)
Total(7,332)(43,571)
Deferred taxes1,540 9,150 
Accumulated other comprehensive loss$(5,792)$(34,421)

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Using actuarial measurement dates of December 31 for 2021, 2020 and 2019, components of net periodic benefit income and other amounts recognized in other comprehensive income (loss) were as follows:
 
(In thousands)202120202019Affected 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$(9,916)$(8,319)$(5,873)Employee benefits
Interest cost(5,359)(5,283)(5,491)Other components of net periodic benefit income
Expected return on plan assets15,731 14,410 12,105 Other components of net periodic benefit income
Recognized net actuarial loss and prior service credit(2,220)(1,175)(1,882)Other components of net periodic benefit income
Net periodic benefit loss$(1,764)$(367)$(1,141)
Net actuarial gain (loss) and prior service credit$34,019 $(10,981)$1,913 
Amortization of net loss2,220 1,175 1,882 
Total recognized in other comprehensive income (loss)36,239 (9,806)3,795 
Total recognized in net benefit income (loss) and other comprehensive income (loss)$34,475 $(10,173)$2,654 
 
The weighted average assumptions used to determine net periodic benefit loss for the years ended December 31, 2021, 2020 and 2019 are listed below:
 
202120202019
Discount rate3.00 %3.53 %4.60 %
Rate of compensation increase
     Under age 308.25 %10.00 %10.00 %
     Ages 30-396.00 %6.00 %6.00 %
     Ages 40-495.00 %4.00 %4.00 %
  Ages 50-54 4.25 %3.00 %3.00 %
Ages 55-593.75 %3.00 %3.00 %
Ages 60-64 3.50 %3.00 %3.00 %
Ages 65 and over 3.25 %3.00 %3.00 %
Expected long-term return on plan assets7.00 %7.00 %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.


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The fair value of the plan assets at December 31, 2021 and December 31, 2020, by asset class, is as follows.
Fair Value MeasurementsFair Value Measurements
at December 31, 2021, Usingat December 31, 2020, Using
(In thousands)(Level 1)(Level 2)(Level 1)(Level 2)
Interest-bearing account$3,222 $4,731 $2,785 $4,837 
Mutual funds60,987 — 54,461 — 
U.S. Government agency obligations— 15,254 — 5,530 
Corporate bonds— 16,815 — 24,986 
Common stocks162,464 — 137,843 — 
$226,673 $36,800 $195,089 $35,353 

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 $4.3 million, $4.2 million, and $3.9 million for 2021, 2020 and 2019, 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 $13.4 million and $12.3 million for 2021 and 2020, respectively, and is recorded within "Other liabilities" on the Consolidated Balance Sheets . The expense for the Corporation was as follows:

(In thousands)202120202019Affected Line Item in the Consolidated
Statements of Income
Service cost$1,345 $1,680 $816 Employee benefits
Interest cost510 403 484 Miscellaneous expense
Total SERP expense$1,855 $2,083 $1,300 

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20. 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)20212020
Deferred tax assets:
Allowance for credit losses$18,153 $19,512 
Accumulated other comprehensive loss – Pension Plan1,540 9,150 
Accumulated other comprehensive loss – Unrealized losses on swaps55 186 
Deferred compensation6,294 3,887 
OREO valuation adjustments909 1,012 
    Net deferred loan fees2,569 3,283 
Deferred contract bonus432 571 
Nonvested equity-based compensation2,694 2,567 
Net operating loss ("NOL") carryforward3,197 3,629 
    Fixed assets249 — 
Operating lease liability3,111 3,561 
Partnership adjustments69 — 
Other1,854 1,424 
Total deferred tax assets$41,126 $48,782 
Deferred tax liabilities:
Accumulated other comprehensive loss - Unrealized gains on securities$5,623 $10,507 
Fixed assets— 3,360 
Deferred investment income6,363 6,637 
Pension Plan19,182 20,407 
MSRs3,333 2,781 
Partnership adjustments— 204 
Purchase accounting adjustments880 604 
Operating lease right-of-use asset2,917 3,343 
Lessor adjustments2,764 3,433 
Other514 398 
Total deferred tax liabilities$41,576 $51,674 
Net deferred tax liability$(450)$(2,892)

As of December 31, 2021 and 2020, Park had a net deferred tax asset balance related to federal NOL carryforwards of approximately $2.8 million and $3.1 million, respectively, which expire at various dates from 2031-2039. Park also had a net deferred tax asset balance related to state NOL carryforwards of approximately $0.4 million and $0.5 million at December 31, 2021 and 2020, 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, 2021 or 2020 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.

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The components of the provision for federal income taxes are shown below:
 
December 31, (In thousands)202120202019
Currently payable
Federal
$28,726 $22,769 $14,797 
State
1,382 1,432 1,191 
       Amortization of qualified affordable housing projects7,313 7,046 6,927 
Deferred
Federal
(3,006)(4,812)(815)
State
(125)287 (29)
Total$34,290 $26,722 $22,071 

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, 2021, 2020 and 2019.
 
202120202019
Statutory federal corporate income tax rate21.0 %21.0 %21.0 %
Changes in rates resulting from:
Tax exempt interest income, net of disallowed interest(1.2)%(1.5)%(2.0)%
Bank owned life insurance(0.5)%(0.7)%(0.8)%
Investments in qualified affordable housing projects, net of tax benefits(0.8)%(1.1)%(1.5)%
KSOP dividend deduction(0.5)%(0.6)%(0.6)%
Other0.2 %0.2 %1.6 %
Effective Tax Rate18.2 %17.3 %17.7 %

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 $1.0 million, $1.1 million and $1.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.
 
Unrecognized Tax Benefits
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits.

(In thousands)202120202019
January 1 Balance$633 $954 $1,226 
    Additions based on tax positions related to the current year10 12 12 
    Additions for tax positions of prior years— — 2 
    Reductions for tax positions of prior years— — (3)
    Reductions due to statute of limitations(304)(333)(283)
December 31 Balance$339 $633 $954 

The amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in the future periods at December 31, 2021, 2020 and 2019 was $0.3 million, $0.6 million and $0.9 million, respectively. Park does not expect the total amount of unrecognized tax benefits to significantly increase or decrease during the next year.
 
The income related to interest and penalties recorded on unrecognized tax benefits in the Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019 was $45,500, $35,000, and $7,500, respectively. The amount accrued for interest and penalties at December 31, 2021, 2020 and 2019 was $65,500, $111,000 and $146,000, respectively.
 
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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 conduct business. No material adjustments have been made on closed federal and state tax audits. Generally, all tax years ended prior to December 31, 2018 are closed to examination by federal and state taxing authorities.

21. 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, 2021, 2020 and 2019.


(in thousands)		Changes in Pension Plan assets and benefit obligationsUnrealized gains (losses) on AFS debt securitiesUnrealized net holding loss on cash flow hedgeTotal
Beginning balance at January 1, 2021$(34,421)$40,690 $(698)$5,571 
Other comprehensive income (loss) before reclassifications26,875 (19,537)492 $7,830 
Amounts reclassified from accumulated other comprehensive loss 1,754 — — $1,754 
Net current period other comprehensive income (loss) income$28,629 $(19,537)$492 $9,584 
Ending balance at December 31, 2021$(5,792)$21,153 $(206)$15,155 
Beginning balance at January 1, 2020$(26,674)$17,539 $(454)$(9,589)
Other comprehensive (loss) income before reclassifications (8,675)25,747 (244)$16,828 
Amounts reclassified from accumulated other comprehensive loss (income)928 (2,596)— $(1,668)
Net current period other comprehensive (loss) income$(7,747)$23,151 $(244)$15,160 
Ending balance at December 31, 2020$(34,421)$40,690 $(698)$5,571 
Beginning balance at January 1, 2019$(29,672)$(20,116)$— $(49,788)
Other comprehensive income (loss) before reclassifications (1)
1,511 37,322 (454)$38,379 
Amounts reclassified from accumulated other comprehensive loss1,487 333 — $1,820 
Net current period other comprehensive income (loss)$2,998 $37,655 $(454)$40,199 
Ending balance at December 31, 2019$(26,674)$17,539 $(454)$(9,589)
(1) During the year ended December 31, 2019, Park transferred HTM securities with a fair value of $373.9 million to AFS classification. The transfer occurred at fair value and had a related unrealized gain of $24.2 million ($19.1 million net of taxes), recorded in other comprehensive income.

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The following table provides information concerning amounts reclassified out of accumulated other comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019:

Amount Reclassified from Accumulated Other Comprehensive Income (Loss)Affected Line Item in the Consolidated Statements of Income
(In thousands)202120202019
Amortization of defined benefit pension items
Amortization of net loss$2,220 $1,175 $1,882 Employee benefits
   Income before income taxes2,220 1,175 1,882 Income before income taxes
Income taxes466 247 395 Income taxes
   Net of income tax$1,754 $928 $1,487 Net income
Unrealized gains & losses on AFS debt securities
(Gain) loss on the sale of debt securities$— $(3,286)$421 Net gain (loss) on the sale of debt securities
   (Income) loss before income taxes— (3,286)421 Income before income taxes
Income tax (benefit) expense— (690)88 Income taxes
  Net of income (benefit) tax$— $(2,596)$333 Net income

22. 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)		202120202019
Numerator:
Net income$153,945 $127,923 $102,700 
Denominator:
Weighted-average common shares outstanding
16,291,016 16,302,825 16,234,342 
Effect of dilutive PBRSUs and TBRSUs
134,190 104,677 95,114 
Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs
16,425,206 16,407,502 16,329,456 
Earnings per common share:
Basic earnings per common share$9.45 $7.85 $6.33 
Diluted earnings per common share$9.37 $7.80 $6.29 
 
Park awarded 61,890, 62,265 and 58,740 PBRSUs to certain employees during the years ended December 31, 2021, 2020 and 2019, respectively. Park awarded 15,700 TBRSUs to Carolina Alliance Division employees during the year ended December 31, 2019.

On April 1, 2019, Park issued 1,037,205 common shares to complete its acquisition of Carolina Alliance.

During the years ended December 31, 2021, 2020 and 2019, Park repurchased 75,000, 76,000 and 86,650 common shares, respectively, to fund the PBRSUs, TBRSUs and common shares awarded to directors of Park and to directors of PNB (and its divisions) and repurchased 62,659 and 334,603 common shares during the years ended December 31, 2021 and 2019, respectively, pursuant to Park's previously announced stock repurchase authorizations. There were no common shares repurchased during the year ended December 31, 2020 pursuant to Park's previously announced stock repurchase authorizations.
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23. 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, 2021, approximately $116.8 million of the total shareholders’ equity of PNB was available for the payment of dividends to Park National Corporation, without approval by the applicable regulatory authorities.

24. 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)20212020
Loan commitments$1,364,224 $1,372,182 
Standby letters of credit18,216 17,015 
 
The loan commitments are generally for variable rates of interest.
 
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.

25. Loan Servicing
Park serviced sold mortgage loans of $2,132 million at December 31, 2021, compared to $1,972 million at December 31, 2020 and $1,447 million at December 31, 2019. At December 31, 2021, $3.3 million of the sold mortgage loans were sold with recourse compared to $1.7 million at December 31, 2020 and $2.3 million at December 31, 2019. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. As of December 31, 2021 and 2020, management had established a reserve of $57,000 and $30,000, respectively, to account for future loan repurchases.
 
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.
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Activity for MSRs and the related valuation allowance follows:
 
December 31 (In thousands)202120202019
MSRs:
Carrying amount, net, beginning of year$12,210 $10,070 $10,178 
Additions4,945 8,627 2,355 
Amortization(3,512)(4,123)(1,870)
Change in valuation allowance1,621 (2,364)(593)
Carrying amount, net, end of year$15,264 $12,210 $10,070 
Valuation allowance:
Beginning of year$3,189 $825 $232 
Change in valuation allowance(1,621)2,364 593 
End of year$1,568 $3,189 $825 

The fair value of MSRs was $15.3 million and $12.2 million at December 31, 2021 and 2020, respectively. The fair value of MSRs at December 31, 2021 was established using a discount rate of 12% and constant prepayment speeds ranging from 11.10% to 27.90%. The fair value of MSRs at December 31, 2020 was established using a discount rate of 12% and constant prepayment speeds ranging from 13.20% to 27.54%.

Servicing fees included in other service income were $5.3 million, $4.1 million and $3.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.

26. 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, Kentucky, North Carolina, South Carolina,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 contracts include fixed payments plus, for many of Park’s real estate leases, variable payments such as Park's proportionate share of property taxes, insurance, and common area maintenance.

Park elected the practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease components. Additionally, Park has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a cash basis.

Management determines if an arrangement is or contains a lease at contract inception. If an arrangement is determined to be or contain a lease, Park recognizes a ROU asset and a lease liability at the lease commencement date. Leases are classified as operating or finance leases at the lease commencement date. At December 31, 2021 and 2020, all of Park's leases were classified as operating leases.

Park’s lease liability is initially and subsequently measured at 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 interest rate cannot be readily determined, its incremental borrowing rate.Generally, management cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, Park utilizes its incremental borrowing rate as the discount rate for leases. Park’s incremental borrowing rate for a lease is the rate of interest Park would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. To manage its capital and liquidity needs, Park periodically obtains wholesale funding from the FHLB on an over-collateralized basis. The impact of utilizing an interest rate on an over-collateralized borrowing versus a fully collateralized borrowing is not material. Therefore, the FHLB yield curve was selected by management as a baseline to determine Park’s discount rates for leases.

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•The lease term for all of the Company’s leases includes the noncancellable period of the lease plus any additional periods covered by either Park's option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. If a lease contract contains multiple renewal options, management generally models lease cash flows through the first renewal option period unless the contract contains economic incentives or other conditions that increase the likelihood that additional renewals are reasonably certain to be exercised.

•Lease payments included in the measurement of the lease liability are comprised of the following:
–Fixed payments, including in-substance fixed payments, owed over the lease term;
–For certain of Park's gross real estate leases, non-lease components such as real estate taxes, insurance, and common area maintenance; and
–Variable lease payments that depend on an index or rate, initially measured using the index or rate at the lease commencement date.

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Park's operating lease ROU asset and lease liability are presented in “Operating lease right-of-use asset" and "Operating lease liability," respectively, on Park's Consolidated Balance Sheets. The carrying amounts of Park's ROU asset and lease liability at December 31, 2021 were $13.4 million and $14.3 million, respectively. At December 31, 2020, the carrying amounts of Park's ROU assets and lease liability were $15.1 million and $16.1 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, 2021, 2020 and 2019 follows:

(in thousands)Year ended December 31, 2021Year ended December 31, 2020Year ended December 31, 2019
Lease cost
Operating lease cost$2,827 $3,463 $3,165 
Sublease income(253)(352)(383)
Total lease cost$2,574 $3,111 $2,782 
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$3,199 $3,553 $3,192 
ROU assets obtained in exchange for new operating lease liabilities1,190 7,821 505 
Reductions to ROU assets resulting from reductions to lease obligations$(2,865)$(3,084)$(2,855)

Park's operating leases had a weighted average remaining term of 6.8 years and 7.2 years at December 31, 2021 and 2020, respectively. At both December 31, 2021 and 2020, the weighted average discount rate of Park's operating leases was 2.3%.

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Undiscounted cash flows included in lease liabilities at December 31, 2021 have expected contractual payments as follows:

(in thousands)December 31, 2021
2022$3,108 
20232,978 
20241,880 
20251,540 
20261,452 
Thereafter4,496 
Total undiscounted minimum lease payments$15,454 
Less: imputed interest(1,115)
Total lease liabilities$14,339 

In September 2021, the Company entered into a noncancellable operating lease for an additional retail office for an initial term of 12 years, with two five-year renewal options. The lease commences on July 1, 2022, and therefore, is not recognized as of December 31, 2021. The fixed payments due on an undiscounted basis over the noncancellable 12-year period of the lease are $3.5 million. The Company will assess the lease term at the lease commencement date, but does not presently expect that either of the five-year renewal periods will be exercised.

In December 2021, the Company entered into a noncancellable operating lease for an additional retail office for an initial term of 10 years, with two five-year renewal options. The lease is expected to commence sometime during June 2022 and September 2022, and therefore, is not recognized as of December 31, 2021. The fixed payments due on an undiscounted basis over the noncancellable 10-year period of the lease are $3.5 million. The Company will assess the lease term at the lease commencement date, but does not presently expect that either of the five-year renewal periods will be exercised.

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 assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and Park must use other valuation methods to develop a fair value. The fair value of individually evaluated collateral dependent loans is typically based on the fair value of the underlying collateral, which is estimated through third-party appraisals in accordance with Park's valuation requirements under its commercial and real estate loan policies.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis:
 
The following table presents assets and liabilities measured at fair value on a recurring basis:
 
Fair Value Measurements at December 31, 2021 using:
(In thousands)Level 1Level 2Level 3Balance at December 31, 2021
Assets    
Investment securities:    
Obligations of states and political subdivisions$— $389,591 $— $389,591 
U.S. Government sponsored entities’ asset-backed securities— 854,463 — 854,463 
Collateralized loan obligations— 498,674 — 498,674 
Corporate debt securities— 11,412 — 11,412 
Equity securities1,630 — 499 2,129 
Mortgage loans held for sale— 9,387 — 9,387 
Mortgage IRLCs— 333 — 333 
Loan interest rate swaps— 1,952 — 1,952 
Liabilities    
Fair value swap$— $— $226 $226 
Borrowing interest rate swap— 262 — 262 
Loan interest rate swaps— 1,952 — 1,952 
 
Fair Value Measurements at December 31, 2020 using:
(In thousands)Level 1Level 2Level 3Balance at December 31, 2020
Assets    
Investment securities:    
Obligations of states and political subdivisions$— $305,218 $— $305,218 
U.S. Government sponsored entities’ asset-backed securities— 752,109 — 752,109 
Corporate debt securities— 2,014 — 2,014 
Equity securities2,026 — 485 2,511 
Mortgage loans held for sale— 31,666 — 31,666 
Mortgage IRLCs— 1,545 — 1,545 
Loan interest rate swaps— 3,934 — 3,934 
Liabilities    
Fair value swap$— $— $226 $226 
Borrowing interest rate swap— 885 — 885 
Loan interest rate swaps— 3,934 — 3,934 

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).
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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 are classified as Level 3..

Mortgage Interest Rate Lock Commitments: Mortgage IRLCs are based on current secondary market pricing and are classified as Level 2.
 
Mortgage loans held for sale: Mortgage loans held for sale are carried at their fair value. Mortgage loans held for sale are estimated using market prices for similar product types and, therefore, are classified in Level 2.

The table below is a reconciliation of the beginning and ending balances of the Level 3 inputs for the years ended December 31, 2021 and 2020, for financial instruments measured on a recurring basis and classified as Level 3:
 
Level 3 Fair Value Measurements
(In thousands)Equity SecuritiesFair Value Swap
Balance at January 1, 2021$485 $(226)
Total Gains
Included in other income14 — 
Balance at December 31, 2021$499 $(226)
Balance at January 1, 2020$456 $(226)
Total Gains
Included in other income29 — 
Balance at December 31, 2020$485 $(226)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis:
 
The following methods and assumptions were used by the Company in determining the fair value of assets and liabilities measured at fair value on a nonrecurring basis as described below:

Individually evaluated collateral dependent loans: When a loan is individually evaluated, it is valued at the lower of cost or fair value. Collateral dependent loans which are individually evaluated and carried at fair value have been partially charged off or receive specific allocations of the allowance for credit losses. For collateral dependent loans, fair value is generally based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value. Collateral is then adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’s business, resulting in a Level 3 fair value classification. Individually evaluated loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Additionally, updated independent valuations are obtained annually for all collateral dependent loans in accordance with Company policy.

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.
 
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Appraisals for both individually evaluated collateral dependent loans and OREO are performed by licensed appraisers. Appraisals are generally obtained to support the fair value of collateral. In general, there are three types of appraisals received by the Company: real estate appraisals, income approach appraisals, and lot development loan appraisals. These are discussed below:
 
•Real estate appraisals typically incorporate measures such as recent sales prices for comparable properties. Appraisers may make adjustments to the sales prices of the comparable properties as deemed appropriate based on the age, condition or general characteristics of the subject property. Management generally applies a 15% discount to real estate appraised values which management expects will cover all disposition costs (including selling costs). This 15% discount is based on historical discounts to appraised values on sold OREO properties.

•Income approach appraisals typically incorporate the annual net operating income of the business divided by an appropriate capitalization rate, as determined by the appraiser. Management generally applies a 15% discount to income approach appraised values which management expects will cover all disposition costs (including selling costs).

•Lot development loan appraisals are typically performed using a discounted cash flow analysis. Appraisers determine an anticipated absorption period and a discount rate that takes into account an investor’s required rate of return based on recent comparable sales. Management generally applies a 6% discount to lot development appraised values, which is an additional discount above the net present value calculation included in the appraisal, to account for selling costs.

Other repossessed assets: Other repossessed assets are initially recorded at fair value less costs to sell when acquired. The carrying value of other repossessed assets is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs. As of December 31, 2021 and 2020, other repossessed assets primarily consisted of aircraft acquired as part of a loan workout. Fair value is based on Aircraft Bluebook and VREF Aircraft Value Reference values based on the model of aircraft and adjustments for flight hours, features and other variables. Such adjustments result in a Level 3 classification of the inputs for determining fair value.

MSRs: MSRs are carried at the lower of cost or fair value. MSRs do not trade in active, open markets with readily observable prices. For example, sales of MSRs do occur, but precise terms and conditions typically are not readily available. As such, management, with the assistance of a third-party specialist, determines fair value based on the discounted value of the future cash flows estimated to be received. Significant inputs include the discount rate and assumed prepayment speeds. The calculated fair value is then compared to market values where possible to ascertain the reasonableness of the valuation in relation to current market expectations for similar products. Accordingly, MSRs are classified as Level 2.
 
The following tables present assets and liabilities measured at fair value on a nonrecurring basis. Individually evaluated collateral dependent loans secured by real estate are carried at fair value if they have been charged down to fair value or if a specific valuation allowance has been established. As of December 31, 2021 and 2020, there were no PCD loans carried at fair value. A new cost basis is established at the time a property is initially recorded in OREO. 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, 2021 Using:
(In thousands)Level 1Level 2Level 3Balance at December 31, 2021
Individually evaluated collateral dependent loans recorded at fair value:
Commercial real estate$— $— $831 $831 
Residential real estate— — 272 272 
Total individually evaluated collateral dependent loans recorded at fair value$— $— $1,103 $1,103 
MSRs$— $13,482 $— $13,482 
OREO recorded at fair value:
Residential real estate— — 775 775 
Total OREO recorded at fair value$— $— $775 $775 
Other repossessed assets$— $— $2,750 $2,750 
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Fair Value Measurements at December 31, 2020 Using:
(In thousands)Level 1Level 2Level 3Balance at December 31, 2020
Impaired loans recorded at fair value:
   Commercial real estate$— $— $6,749 $6,749 
   Residential real estate— — 175 175 
Total impaired loans recorded at fair value$— $— $6,924 $6,924 
MSRs$— $12,179 $— $12,179 
OREO recorded at fair value:
  Residential real estate— — 735 735 
Total OREO recorded at fair value$— $— $735 $735 
Other repossessed assets$— $— $3,164 $3,164 

The table below provides additional detail on those individually evaluated loans which are recorded at fair value as well as the remaining individually evaluated loan portfolio not included above. The remaining individually evaluated loans consist of 1) loans which are not collateral dependent, 2) loans which are not secured by real estate, and 3) loans carried at cost as the fair value of the underlying collateral or the present value of expected future cash flows on each of the loans exceeded the book value for each respective credit.

December 31, 2021
(In thousands)Loan
Balance		Prior Charge-OffsSpecific Valuation AllowanceCarrying Balance
Total individually evaluated collateral dependent loans recorded at fair value$1,291 $240 $188 $1,103 
Remaining individually evaluated loans 73,211 384 1,428 71,783 
Total individually evaluated loans$74,502 $624 $1,616 $72,886 

December 31, 2020
(In thousands)Recorded InvestmentPrior Charge-OffsSpecific Valuation AllowanceCarrying Balance
Impaired loans recorded at fair value$8,256 $269 $1,332 $6,924 
Remaining impaired loans100,199 386 4,102 96,097 
Total impaired loans$108,455 $655 $5,434 $103,021 

The income (expense) from credit adjustments related to individually evaluated/impaired loans carried at fair value for the years ended December 31, 2021, 2020 and 2019 was $0.5 million, $(4.7) million, and $(0.2) million, respectively.

MSRs totaled $15.3 million at December 31, 2021. Of this $15.3 million MSR carrying balance, $13.5 million was recorded at fair value and included a valuation allowance of $1.6 million. The remaining $1.8 million was recorded at cost, as the fair value exceeded cost at December 31, 2021. At December 31, 2020, MSRs totaled $12.2 million. Of this $12.2 million MSR carrying balance, $12.2 million was recorded at fair value and included a valuation allowance of $3.2 million. The remaining $31,000 was recorded at cost, as the fair value exceeded cost at December 31, 2020. The income (expense) related to MSRs carried at fair value for the years ended December 31, 2021, 2020 and 2019 was $1.6 million, $(2.4) million and $(0.6) million, respectively.

Total OREO held by Park at December 31, 2021 and 2020 was $0.8 million and $1.4 million, respectively. Approximately 100% and 51% of OREO held by Park at December 31, 2021 and 2020, respectively, was carried at fair value due to fair value adjustments made subsequent to the initial OREO measurement. At December 31, 2021 and 2020, OREO held at fair value,
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less estimated selling costs, amounted to $0.8 million and $0.7 million, respectively. The net (expense) income related to OREO fair value adjustments was $(32,000), $0.1 million and $(0.2) million for the years ended December 31, 2021, 2020 and 2019, respectively.

Other repossessed assets totaled $3.3 million at December 31, 2021, of which $2.8 million were recorded at fair value. Other repossessed asset totaled $3.6 million at December 31, 2020, of which $3.2 million were recorded at fair value. The net expense related to fair value adjustments on other repossessed assets was $414,000 and $435,000 for the years ended December 31, 2021 and 2020, respectively. There was no expense related to fair value adjustments on other repossessed assets for the year ended December 31, 2019.

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2021 and December 31, 2020:

December 31, 2021
(In thousands)Fair ValueValuation TechniqueUnobservable Input(s)Range (Weighted Average)
Individually evaluated collateral dependent loans:    
Commercial real estate$831 Sales comparison approachAdj to comparables
0.0% - 232.0% (28.3%)
Residential real estate$272 Sales comparison approachAdj to comparables
0.5% - 78.6% (11.6%)
Cost approachAccumulated depreciation
8.3% (8.3%)
Other real estate owned:
Residential real estate$775 Sales comparison approachAdj to comparables
5.0% - 32.5% (19.1%)

December 31, 2020
(In thousands)Fair ValueValuation TechniqueUnobservable Input(s)Range (Weighted Average)
Impaired loans:     
Commercial real estate$6,749 Sales comparison approachAdj to comparables
0.0% - 139.0% (11.8%)
Income approachCapitalization rate
9.3% - 20.0% (10.3%)
Cost approachEntrepreneurial profit
10.0% (10.0%)
Cost approachAccumulated depreciation
2.6% (2.6%)
Residential real estate$175 Sales comparison approachAdj to comparables
2.0% - 47.8% (11.9%)
Other real estate owned:
Residential real estate$735 Sales comparison approachAdj to comparables
7.8% - 9.9% (8.9%)

Assets Measured at Net Asset Value:

Park's portfolio of equity investments in limited partnerships which provide mezzanine funding ("Partnership Investments") are valued using the NAV practical expedient in accordance with ASC 820.

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As of December 31, 2021 and December 31, 2020, Park had Partnerships Investments with a NAV of $18.0 million and $15.4 million, respectively. As of December 31, 2021 and December 31, 2020, Park had $8.4 million and $6.2 million in unfunded commitments related to these Partnership Investments. For the years ended December 31, 2021, 2020 and 2019, Park recognized income of $4.5 million, $2.4 million and $4.8 million, respectively, related to these Partnership Investments.

The fair value of financial instruments at December 31, 2021 and December 31, 2020, was as follows:

December 31, 2021
  Fair Value Measurements
(In thousands)Carrying valueLevel 1Level 2Level 3Total fair value
Financial assets:
Cash and money market instruments$219,180 $219,180 $— $— $219,180 
Investment securities (1)
1,754,140 — 1,754,140 — 1,754,140 
Other investment securities (2)
2,129 1,630 — 499 2,129 
Mortgage loans held for sale9,387 — 9,387 — 9,387 
Mortgage IRLCs333 — 333 — 333 
Individually evaluated loans carried at fair value1,103 — — 1,103 1,103 
Other loans, net6,777,102 — — 6,783,848 6,783,848 
Loans receivable, net$6,787,925 $— $9,720 $6,784,951 $6,794,671 
Financial liabilities:     
Time deposits$711,660 $— $714,307 $— $714,307 
Other1,465 1,465 — — 1,465 
Deposits (excluding demand deposits)$713,125 $1,465 $714,307 $— $715,772 
Short-term borrowings$238,786 $— $238,786 $— $238,786 
Subordinated notes188,210 — 207,912 — 207,912 
Derivative financial instruments - assets:
Loan interest rate swaps1,952 — 1,952 — 1,952 
Derivative financial instruments - liabilities:    
Fair value swap$226 $— $— $226 $226 
Borrowing interest rate swap262 — 262 — 262 
Loan interest rate swaps1,952 — 1,952 — 1,952 
(1) Includes debt securities AFS.
(2) Excludes FHLB stock and FRB stock which are carried at their respective redemption values, investment securities accounted for at modified cost as these investments do not have a readily determinable fair value, and Partnership Investments valued using the NAV practical expedient.

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December 31, 2020
  Fair Value Measurements
(In thousands)Carrying valueLevel 1Level 2Level 3Total fair value
Financial assets:
Cash and money market instruments$370,474 $370,474 $— $— $370,474 
Investment securities (1)
1,059,341 — 1,059,341 — 1,059,341 
Other investment securities (2)
2,511 2,026 — 485 2,511 
Loans held for sale31,666 — 31,666 — 31,666 
Mortgage IRLCs1,545 — 1,545 — 1,545 
Impaired loans carried at fair value6,924 — — 6,924 6,924 
Other loans, net7,051,975 — — 7,072,339 7,072,339 
Loans receivable, net$7,092,110 $— $33,211 $7,079,263 $7,112,474 
Financial liabilities:     
Time deposits$864,573 $— $870,804 $— $870,804 
Other1,379 1,379 — — 1,379 
Deposits (excluding demand deposits)$865,952 $1,379 $870,804 $— $872,183 
Short-term borrowings$342,230 $— $342,230 $— $342,230 
Long-term debt32,500 — 31,376 — 31,376 
Subordinated notes187,774 — 179,147 — 179,147 
Derivative financial instruments - assets:     
Loan interest rate swaps3,934 — 3,934 — 3,934 
Derivative financial instruments - liabilities:
Fair value swap$226 $— $— $226 $226 
Borrowing interest rate swap885 — 885 — 885 
Loan interest rate swaps3,934 — 3,934 — 3,934 
(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. During the first quarter of 2015, Park adopted the Basel III regulatory capital framework as approved by the federal banking agencies. The adoption of this framework modified the calculation of the various capital ratios, added an additional ratio, common equity tier 1, and revised the adequately and well-capitalized thresholds under the prompt corrective action regulations applicable to PNB. Additionally, under this framework, in order to avoid limitations on capital distributions, including dividend payments and stock repurchases, Park must hold a capital conservation buffer of 2.50% above the adequately capitalized risk-based capital ratios. The Federal Reserve Board also adopted requirements Park must maintain to be deemed "well-capitalized" and to remain a financial holding company.
 
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Each of PNB and Park met all of the well-capitalized ratio guidelines applicable to it at December 31, 2021. The following table indicates the capital ratios for PNB and Park at December 31, 2021 and 2020.
 
As of December 31, 2021
 LeverageTier 1
Risk-Based		Common Equity Tier 1Total
Risk-Based
PNB8.58 %11.05 %11.05 %12.56 %
Park9.77 %12.57 %12.37 %16.05 %
Adequately capitalized ratio4.00 %6.00 %4.50 %8.00 %
Adequately capitalized ratio plus capital conservation buffer4.00 %8.50 %7.00 %10.50 %
Well-capitalized ratio - PNB5.00 %8.00 %6.50 %10.00 %
Well-capitalized ratio - ParkN/A6.00 %N/A10.00 %
 
As of December 31, 2020
 LeverageTier 1
Risk-Based		Common Equity Tier 1Total
Risk-Based
PNB8.59 %10.66 %10.66 %12.16 %
Park9.63 %11.92 %11.72 %15.43 %
Adequately capitalized ratio4.00 %6.00 %4.50 %8.00 %
Adequately capitalized ratio plus capital conservation buffer4.00 %8.50 %7.00 %10.50 %
Well-capitalized ratio - PNB5.00 %8.00 %6.50 %10.00 %
Well-capitalized ratio - ParkN/A6.00 %N/A10.00 %


 
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The following table reflects various measures of capital for Park and PNB:
 
To Be Adequately CapitalizedTo Be Well-Capitalized
(In thousands)Actual AmountRatioAmountRatioAmountRatio
At December 31, 2021
Total Risk-Based Capital
(to risk-weighted assets)
PNB$937,438 12.56 %$597,094 8.00 %$746,368 10.00 %
Park1,202,225 16.05 %599,102 8.00 %748,878 10.00 %
Tier 1 Risk-Based Capital
(to risk-weighted assets)
PNB$825,045 11.05 %$447,821 6.00 %$597,094 8.00 %
Park941,536 12.57 %449,327 6.00 %449,327 6.00 %
Leverage Ratio
(to average total assets)
PNB$825,045 8.58 %$384,582 4.00 %$480,728 5.00 %
Park941,536 9.77 %385,313 4.00 %N/AN/A
Common Equity Tier 1
(to risk-weighted assets)
PNB$825,045 11.05 %$335,866 4.50 %$485,139 6.50 %
Park926,536 12.37 %336,995 4.50 %N/AN/A
At December 31, 2020
Total Risk-Based Capital
(to risk-weighted assets)
PNB$891,585 12.16 %$586,764 8.00 %$733,455 10.00 %
Park1,137,305 15.43 %589,619 8.00 %737,023 10.00 %
Tier 1 Risk-Based Capital
(to risk-weighted assets)
PNB$782,148 10.66 %$440,073 6.00 %$586,764 8.00 %
Park878,740 11.92 %442,214 6.00 %442,214 6.00 %
Leverage Ratio
(to average total assets)
PNB$782,148 8.59 %$364,079 4.00 %$455,098 5.00 %
Park878,740 9.63 %365,143 4.00 %N/AN/A
Common Equity Tier 1
(to risk-weighted assets)
PNB782,148 10.66 %330,055 4.50 %476,746 6.50 %
Park863,740 11.72 %331,661 4.50 %N/AN/A

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

U.S. GAAP requires management to disclose information about the different types of business activities in which a company engages and also information on the different economic environments in which a company operates, so that the users of the financial statements can better understand a company’s performance, better understand the potential for future cash flows, and make more informed judgments about the company as a whole. Park has one reportable segment as: (i) discrete financial information is available for this reportable segment and (ii) this segment is aligned with internal reporting to Park’s Chief Executive Officer, who is the chief operating decision-maker.  
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Operating results for the year ended December 31, 2021 (In thousands)
PNBAll OtherTotal
Net interest income$328,398 $1,495 $329,893 
Recovery of credit losses(8,554)(3,362)(11,916)
Other income126,802 3,142 129,944 
Other expense266,678 16,840 283,518 
Income before income taxes197,076 (8,841)188,235 
Income tax expense (benefit)37,615 (3,325)34,290 
Net income (loss)$159,461 $(5,516)$153,945 
Balances at December 31, 2021
Assets$9,538,217 $22,037 $9,560,254 
Loans6,868,935 2,187 6,871,122 
Deposits8,157,720 (253,192)7,904,528 

Operating results for the year ended December 31, 2020 (In thousands)
PNBAll OtherTotal
Net interest income $326,375 $1,255 $327,630 
Provision for (recovery of) credit losses30,813 (18,759)12,054 
Other income 124,231 1,433 125,664 
Other expense268,938 17,657 286,595 
Income before income taxes150,855 3,790 154,645 
Income tax expense (benefit)27,125 (403)26,722 
Net income $123,730 $4,193 $127,923 
Balances at December 31, 2020
Assets$9,236,915 $42,106 $9,279,021 
Loans7,165,840 11,945 7,177,785 
Deposits7,820,983 (248,625)7,572,358 

Operating results for the year ended December 31, 2019 (In thousands)
PNBAll OtherTotal
Net interest income $293,130 $4,607 $297,737 
Provision for (recovery of) credit losses8,356 (2,185)6,171 
Other income 92,392 4,801 97,193 
Other expense237,433 26,555 263,988 
Income (loss) before income taxes139,733 (14,962)124,771 
Income tax expense (benefit)26,133 (4,062)22,071 
Net income (loss)$113,600 $(10,900)$102,700 
Balances at December 31, 2019
Assets$8,521,537 $36,840 $8,558,377 
Loans6,481,644 19,760 6,501,404 
Deposits7,125,111 (72,499)7,052,612 

The operating results in the "All Other" column are used to reconcile the segment totals to the Consolidated Statements of Income. The reconciling amounts for consolidated total assets, loans and deposits consist of the elimination of intersegment borrowings, intersegment loans, intersegment deposits, and the assets of the Parent Company, SEPH and GFSC which were not eliminated.


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The following is a reconciliation of financial information for the reportable segments to the Corporation’s consolidated totals:
 
2021
(In thousands)Net Interest IncomeDepreciation ExpenseOther ExpenseIncome TaxesAssetsDeposits
Totals for reportable segments$328,398 $13,265 $253,413 $37,615 $9,538,217 $8,157,720 
Elimination of intersegment items1,250 — — — (1,413)(254,060)
All other totals - not eliminated245 2 16,838 (3,325)23,450 868 
Totals$329,893 $13,267 $270,251 $34,290 $9,560,254 $7,904,528 
 
2020
(In thousands)Net Interest IncomeDepreciation ExpenseOther ExpenseIncome TaxesAssetsDeposits
Totals for reportable segments$326,375 $10,803 $258,135 $27,125 $9,236,915 $7,820,983 
Elimination of intersegment items1,250 — — — (1,028)(250,965)
All other totals - not eliminated5 11 17,646 (403)43,134 2,340 
Totals$327,630 $10,814 $275,781 $26,722 $9,279,021 $7,572,358 
 
2019
(In thousands)Net Interest IncomeDepreciation ExpenseOther ExpenseIncome TaxesAssetsDeposits
Totals for reportable segments$293,130 $9,089 $228,344 $26,133 $8,521,537 $7,125,111 
Elimination of intersegment items1,250 — — — (18,910)(76,418)
All other totals - not eliminated3,357 23 26,532 (4,062)55,750 3,919 
Totals$297,737 $9,112 $254,876 $22,071 $8,558,377 $7,052,612 

30. 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 $4.3 million, $5.6 million and $5.3 million in 2021, 2020 and 2019, respectively.

 
 
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Condensed Balance Sheets
December 31, 2021 and 2020
(In thousands)20212020
Assets:
Cash$243,531 $248,814 
Investment in subsidiaries1,020,556 969,054 
Debentures receivable from PNB25,000 25,000 
Other receivables from subsidiaries— 1,823 
Other investments3,327 5,375 
Other assets16,909 23,333 
Total assets$1,309,323 $1,273,399 
Liabilities:
Long-term debt$— $32,500 
Subordinated notes188,210 187,774 
Other payables to subsidiaries— 132 
Other liabilities10,354 12,737 
Total liabilities$198,564 $233,143 
Total shareholders’ equity$1,110,759 $1,040,256 
Total liabilities and shareholders’ equity$1,309,323 $1,273,399 
 
Condensed Statements of Income
for the years ended December 31, 2021, 2020 and 2019
(In thousands)202120202019
Income:
Dividends from subsidiaries$115,500 $97,000 $97,500 
Interest and dividends1,250 1,250 1,250 
Other2,016 98 4,634 
Total income118,766 98,348 103,384 
Expense:
Interest expense8,887 4,311 1,950 
Other, net10,707 12,234 19,804 
Total expense19,594 16,545 21,754 
Income before income taxes and equity in undistributed income of subsidiaries$99,172 $81,803 $81,630 
Income tax benefit4,897 4,390 4,242 
Income before equity in undistributed income of subsidiaries104,069 86,193 85,872 
Equity in undistributed income of subsidiaries49,876 41,730 16,828 
Net income$153,945 $127,923 $102,700 
Other comprehensive income (1)
9,584 15,160 40,199 
Comprehensive income$163,529 $143,083 $142,899 
(1) See Consolidated Statements of Comprehensive Income for other comprehensive income (loss) detail.

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Statements of Cash Flows
for the years ended December 31, 2021, 2020 and 2019
(In thousands)202120202019
Operating activities:
Net income$153,945 $127,923 $102,700 
Adjustments to reconcile net income to net cash provided by operating activities:
   Undistributed income of subsidiaries(49,876)(41,730)(16,828)
   Compensation expense for issuance of treasury shares to directors1,676 1,274 1,325 
   Share-based compensation expense6,345 5,998 4,999 
 (Loss) gain on equity securities, net (1,218)245 (4,204)
   Decrease (increase) in other assets8,249 6,632 (8,544)
   (Decrease) increase in other liabilities(2,407)(6,325)10,006 
Net cash provided by operating activities116,714 94,017 89,454 
Investing activities:
Proceeds from sales of securities934 — — 
Outlays for business acquisitions— — (28,630)
Other, net2,332 (2,621)5,723 
  Net cash provided by (used in) investing activities3,266 (2,621)(22,907)
Financing activities:
Cash dividends paid(74,306)(70,353)(69,113)
Proceeds from issuance of long-term debt— 172,620 50,000 
Repayment of long-term debt(32,500)(10,000)(7,500)
Repurchase of treasury shares(16,048)(7,507)(40,535)
Cash payment for fractional shares(6)(3)(3)
Value of common shares withheld to pay employee income taxes(2,403)(1,002)(827)
Net cash (used in) provided by financing activities(125,263)83,755 (67,978)
 (Decrease) increase in cash(5,283)175,151 (1,431)
Cash at beginning of year248,814 73,663 75,094 
Cash at end of year$243,531 $248,814 $73,663 

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31. 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. The following table presents the Corporation's sources of other income by revenue stream and operating segment for the years ended December 31, 2021, 2020, and 2019

Year ended December 31, 2021
Revenue by Operating Segment (in thousands)PNBAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$10,264 $— $10,264 
   Employee benefit and retirement-related accounts9,705 — 9,705 
   Investment management and investment advisory agency accounts12,620 — 12,620 
   Other1,860 — 1,860 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees5,244 — 5,244 
    Demand deposit account (DDA) charges3,074 — 3,074 
    Other514 — 514 
Other service income (1)
    Credit card2,559 4 2,563 
    HELOC389 — 389 
    Installment148 — 148 
    Real estate24,907 — 24,907 
    Commercial1,280 525 1,805 
Debit card fee income25,865 — 25,865 
Bank owned life insurance income (2)
4,202 695 4,897 
ATM fees2,379 — 2,379 
Loss on the sale of OREO, net(4)— (4)
Gain on equity securities, net (2)
3,793 1,218 5,011 
Other components of net periodic pension benefit income (2)
7,946 206 8,152 
Miscellaneous (3)
10,057 494 10,551 
Total other income$126,802 $3,142 $129,944 
(1) Of the $29.8 million of revenue included within "Other service income", approximately $5.3 million is within the scope of ASC 606, with the remaining $24.5 million consisting primarily of residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $10.6 million, all of which are within the scope of ASC 606.

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Year ended December 31, 2020
Revenue by Operating Segment (in thousands)PNBAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$8,761 $— $8,761 
   Employee benefit and retirement-related accounts7,921 — 7,921 
   Investment management and investment advisory agency accounts10,652 — 10,652 
   Other1,539 — 1,539 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees4,999 — 4,999 
    Demand deposit account (DDA) charges2,920 — 2,920 
    Other526 — 526 
Other service income (1)
    Credit card2,108 4 2,112 
    HELOC424 — 424 
    Installment165 — 165 
    Real estate32,827 62 32,889 
    Commercial1,493 528 2,021 
Debit card fee income22,160 — 22,160 
Bank owned life insurance income (2)
4,521 268 4,789 
ATM fees1,773 — 1,773 
Gain on the sale of OREO, net836 371 1,207 
Net gain on sale of investment securities (2)
3,286 — 3,286 
Gain (loss) on equity securities, net (2)
2,429 (247)2,182 
Other components of net periodic pension benefit income (2)
7,759 193 7,952 
Miscellaneous (3)
7,132 254 7,386 
Total other income$124,231 $1,433 $125,664 
(1) Of the $37.6 million of revenue included within "Other service income", approximately $5.2 million is within the scope of ASC 606, with the remaining $32.4 million consisting primarily of residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $7.4 million, all of which are within the scope of ASC 606.



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Year ended December 31, 2019
Revenue by Operating Segment (in thousands)PNBAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$9,001 $— $9,001 
   Employee benefit and retirement-related accounts7,178 — 7,178 
   Investment management and investment advisory agency accounts10,024 — 10,024 
   Other1,565 — 1,565 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees7,073 — 7,073 
    Demand deposit account (DDA) charges3,105 — 3,105 
    Other657 — 657 
Other service income (1)
    Credit card2,354 7 2,361 
    HELOC403 4 407 
    Installment256 (83)173 
    Real estate11,167 (9)11,158 
    Commercial1,259 142 1,401 
Debit card fee income20,250 — 20,250 
Bank owned life insurance income (2)
4,168 389 4,557 
ATM fees1,828 — 1,828 
Loss on the sale of OREO, net(110)(112)(222)
Net loss on sale of investment securities (2)
(421)— (421)
Gain on equity securities, net (2)
913 4,205 5,118 
Other components of net periodic pension benefit income (2)
4,587 145 4,732 
Miscellaneous (3)
7,135 113 7,248 
Total other income$92,392 $4,801 $97,193 
(1) Of the $15.5 million of revenue included within "Other service income", approximately $4.9 million is within the scope of ASC 606, with the remaining $10.6 million consisting primarily of residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $7.2 million, 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 Park's contracts with trust customers for various fiduciary and investment-related services. These fees are earned over time as the Company provides the contracted monthly and quarterly services and are generally assessed based on the market value of the trust assets.

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

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

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

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

No response required.

ITEM 9A.CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures
With the participation of the Chairman of the Board and Chief Executive Officer (the principal executive officer) and the Chief Financial Officer, Secretary and Treasurer (the principal financial officer) of Park, Park’s management has evaluated the effectiveness of Park’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the fiscal year covered by this Annual Report on Form 10-K. Based on that evaluation, Park’s Chairman of the Board and Chief Executive Officer and Park’s Chief Financial Officer, Secretary and Treasurer have concluded that:
•information required to be disclosed by Park in this Annual Report on Form 10-K and the other reports that Park files or submits under the Exchange Act would be accumulated and communicated to Park’s management, including Park's principal executive officer and Park's principal financial officer, as appropriate to allow timely decisions regarding required disclosure;

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

•Park’s disclosure controls and procedures were effective as of the end of the fiscal year covered by this Annual Report on Form 10-K.

Management’s Annual Report on Internal Control over Financial Reporting
The “MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING” is included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
Audit Report of the Registered Public Accounting Firm
The “REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” is included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
Effective January 1, 2021, Park adopted the CECL accounting guidance under ASU 2016-13 and ASC 326. The Company designed new controls and modified existing controls as part of this adoption to ensure compliance with the revised accounting and disclosure requirements. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data. There were no other changes in Park's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, Park's internal control over financial reporting.

ITEM 9B.OTHER INFORMATION.

No response required.

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ITEM 9C.    DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors, Executive Officers and Persons Nominated or Chosen to Become Directors or Executive Officers
The information required by Item 401 of SEC Regulation S-K concerning the directors of Park and the nominees for election as directors of Park at the Annual Meeting of Shareholders to be held on April 25, 2022 (the “2022 Annual Meeting”) is incorporated herein by reference from the disclosure to be included under the caption “ELECTION OF DIRECTORS (Proposal 1)” in Park’s definitive Proxy Statement relating to the 2022 Annual Meeting to be filed pursuant to SEC Regulation 14A (“Park’s 2022 Proxy Statement”).
The information required by Item 401 of SEC Regulation S-K concerning the executive officers of Park is incorporated herein by reference from the disclosure to be included under the caption “EXECUTIVE OFFICERS” in Park’s 2022 Proxy Statement.
Compliance with Section 16(a) of the Exchange Act
No information is required to be disclosed in this Annual Report on Form 10-K under Item 405 of SEC Regulation S-K regarding delinquent reports required under Section 16(a) of the Securities Exchange Act of 1934, as amended, with respect to the 2021 fiscal year.
Committee Charters; Corporate Governance Guidelines; Code of Business Conduct and Ethics
Park’s Board of Directors has adopted charters for each of the Audit Committee, the Compensation Committee, the Executive Committee, the Nominating and Corporate Governance Committee and the Risk Committee. Park's Board of Directors has also adopted Corporate Governance Guidelines which are included as Exhibit A to the charter of the Nominating and Corporate Governance Committee.
    In accordance with the requirements of Section 807 of the NYSE American Company Guide, the Board of Directors of Park has adopted a Code of Business Conduct and Ethics covering the directors, officers and employees of Park and Park's subsidiaries, including Park’s Chairman of the Board and Chief Executive Officer (the principal executive officer), Park's President, Park’s Chief Financial Officer, Secretary and Treasurer (the principal financial officer) and Park’s Chief Accounting Officer (the principal accounting officer). Park intends to disclose the following events, if they occur, in a current report on Form 8-K within four business days following their occurrence: (A) the date and nature of any amendment to a provision of Park’s Code of Business Conduct and Ethics that (i) applies to Park’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, (ii) relates to any element of the code of ethics definition enumerated in Item 406(b) of SEC Regulation S-K, and (iii) is not a technical, administrative or other non-substantive amendment; and (B) a description of any waiver (including the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver), including an implicit waiver, from a provision of the Code of Business Conduct and Ethics granted to Park’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions that relates to one or more of the elements of the code of ethics definition set forth in Item 406(b) of SEC Regulation S-K. In addition, Park will disclose any waivers from the provisions of the Code of Business Conduct and Ethics granted to a director or an executive officer of Park in a current report on Form 8-K within four business days following their occurrence in accordance with the requirements of the Commentary to Section 807 of the NYSE American Company Guide.
The text of each of the Code of Business Conduct and Ethics, the Audit Committee Charter, the Compensation Committee Charter, the Executive Committee Charter, the Nominating and Corporate Governance Committee Charter (including the Corporate Governance Guidelines) and the Risk Committee Charter is posted on the “Corporate Information - Governance Documents” section of the “Investor Relations” page of Park’s Internet site located at http://www.parknationalcorp.com. Interested persons may also obtain copies of the Code of Business Conduct and Ethics, the Audit Committee Charter, the Compensation Committee Charter, the Executive Committee Charter, the Nominating and Corporate Governance Committee Charter and the Risk Committee Charter, without charge, by writing to the Chief Financial Officer,
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Secretary and Treasurer of Park at Park National Corporation, 50 North Third Street, P.O. Box 3500, Newark, Ohio 43058-3500, Attention: Brady T. Burt.
Procedures for Recommending Director Nominees
Information concerning the procedures by which shareholders of Park may recommend nominees to Park's Nominating and Corporate Governance Committee and Park’s full Board of Directors is incorporated herein by reference from the disclosure to be included under the caption “CORPORATE GOVERNANCE – Nominating Procedures” in Park’s 2022 Proxy Statement. These procedures have not materially changed from those described in Park’s definitive Proxy Statement for the 2021 Annual Meeting of Shareholders held on April 26, 2021.
Audit Committee
The information required by Items 407(d)(4) and 407(d)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “STRUCTURE AND MEETINGS OF BOARD OF DIRECTORS – Committees of the Board – Audit Committee” in Park’s 2022 Proxy Statement.

ITEM 11.EXECUTIVE COMPENSATION.

The information required by Item 402 of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the captions “EXECUTIVE COMPENSATION” and “DIRECTOR COMPENSATION” in Park’s 2022 Proxy Statement.
The information required by Item 407(e)(4) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION” in Park’s 2022 Proxy Statement.
The information required by Item 407(e)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “EXECUTIVE COMPENSATION – Compensation Committee Report” in Park’s 2022 Proxy Statement.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Beneficial Ownership of Common Shares of Park
The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “BENEFICIAL OWNERSHIP OF PARK COMMON SHARES” in Park’s 2022 Proxy Statement.
Equity Compensation Plan Information
    The information required by Item 201(d) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption "EQUITY COMPENSATION PLAN INFORMATION" in Park's 2022 Proxy Statement.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Certain Relationships and Related Person Transactions
The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the captions “CORPORATE GOVERNANCE – Independence of Directors,” “CORPORATE
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GOVERNANCE – Transactions with Related Persons” and “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION” in Park’s 2022 Proxy Statement.
Director Independence
The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “CORPORATE GOVERNANCE – Independence of Directors” in Park’s 2022 Proxy Statement.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information called for in this Item 14 is incorporated herein by reference from the disclosure to be included under the captions “AUDIT COMMITTEE MATTERS – Pre-Approval of Services Performed by Independent Registered Public Accounting Firm” and “AUDIT COMMITTEE MATTERS – Fees of Independent Registered Public Accounting Firm” in Park’s 2022 Proxy Statement.


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PART IV

ITEM 15.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)     The following documents are filed as part of this Annual Report on Form 10-K:

(1) Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm (Crowe LLP) -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
Consolidated Balance Sheets at December 31, 2021 and 2020 -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019 -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2021, 2020 and 2019 -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
Notes to Consolidated Financial Statements -- included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K
(2)     Financial Statement Schedules.

All schedules for which provision is made in the applicable accounting regulations of the SEC are not             required under the related instructions or are inapplicable and have been omitted.

(3)     Exhibits.

The documents listed in the Index to Exhibits that immediately precedes the "Signatures" pages of this Annual Report on Form 10-K are filed or furnished with this Annual Report on Form 10-K as exhibits or incorporated into this Annual Report on Form 10-K by reference, in each case as noted. Each management contract or compensatory plan or arrangement is identified as such in the Index to Exhibits.

(b)        The documents listed in the Index to Exhibits that immediately precedes the "Signatures" pages of this Annual Report on Form 10-K are filed or furnished with this Annual Report on Form 10-K as exhibits or incorporated into this Annual Report on Form 10-K by reference.

(c)         Financial Statement Schedules.

None.

ITEM 16.     FORM 10-K SUMMARY.

None.

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Index to Exhibits

Exhibit No.    Description of Exhibit

2.1    Agreement and Plan of Merger and Reorganization by and among Park National Corporation, The Park National Bank and NewDominion Bank, dated as of January 22, 2018 (incorporated herein by reference to Exhibit 2.1 to Park National Corporation's Current Report on Form 8-K dated and filed on January 26, 2018 (File No. 1-13006))*

2.2    Agreement and Plan of Merger and Reorganization by and between Park National Corporation and CAB Financial Corporation, dated as of September 12, 2018 (incorporated herein by reference to Exhibit 2.1 to Park National Corporation's Current Report on Form 8-K dated and filed on September 14, 2018 (File No. 1-13006))*

3.1(a)    Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on March 24, 1992 (incorporated herein by reference to Exhibit 3(a) to Park National Corporation's Form 8-B, filed on May 20, 1992 (File No. 0-18772) (“Park's Form 8-B”)) P

3.1(b)    Certificate of Amendment to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on May 6, 1993 (incorporated herein by reference to Exhibit 3(b) to Park National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772)) P

3.1(c)    Certificate of Amendment to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on April 16, 1996 (incorporated herein by reference to Exhibit 3(a) to Park National Corporation's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996 (File No. 1-13006))

3.1(d)    Certificate of Amendment by Shareholders to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on April 22, 1997 (incorporated herein by reference to Exhibit 3(a)(1) to Park National Corporation's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 1-13006) (“Park's June 30, 1997 Form 10-Q”))

3.1(e)    Certificate of Amendment by Shareholders as filed with the Ohio Secretary of State on December 18, 2008 in order to evidence the adoption by the shareholders of Park National Corporation on December 18, 2008 of an amendment to Article FOURTH of Park National Corporation's Articles of Incorporation to authorize Park National Corporation to issue up to 200,000 preferred shares, without par value (incorporated herein by reference to Exhibit 3.1 to Park National Corporation's Current Report on Form 8-K dated and filed on December 19, 2008 (File No. 1-13006))

3.1(f)    Certificate of Amendment by Directors to Articles as filed with the Ohio Secretary of State on December 19, 2008, evidencing the adoption of an amendment by the Board of Directors of Park National Corporation to Article FOURTH of Park National Corporation's Articles of Incorporation to establish the express terms of Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value, of Park National Corporation (incorporated herein by reference to Exhibit 3.1 to Park National Corporation's Current Report on Form 8-K dated and filed on December 23, 2008 (File No. 1-13006))

3.1(g)    Certificate of Amendment by Shareholders as filed with the Ohio Secretary of State on April 18, 2011 in order to evidence the adoption by Park National Corporation's shareholders of an amendment to Article SIXTH of Park National Corporation's Articles of Incorporation in order to provide that shareholders do not have preemptive rights (incorporated herein by reference to Exhibit 3.1 to Park National Corporation's Current Report on Form 8-K dated and filed on April 19, 2011 (File No. 1-13006))

3.1(h)    Articles of Incorporation of Park National Corporation [This document represents the Articles of Incorporation of Park National Corporation in compiled form incorporating all amendments. This compiled document has not been filed with the Ohio Secretary of State.] (incorporated herein by reference to Exhibit 3.1(h) to Park National Corporation's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011 (File No. 1-13006))

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Exhibit No.    Description of Exhibit

3.2(a)    Regulations of Park National Corporation (incorporated herein by reference to Exhibit 3(b) to Park's Form 8-B) P

3.2(b)    Certified Resolution regarding Adoption of Amendment to Subsection 2.02(A) of the Regulations of Park National Corporation by Shareholders on April 21, 1997 (incorporated herein by reference to Exhibit 3(b)(1) to Park's June 30, 1997 Form 10-Q)

3.2(c)    Certificate Regarding Adoption of Amendments to Sections 1.04 and 1.11 of Park National Corporation's Regulations by the Shareholders on April 17, 2006 (incorporated herein by reference to Exhibit 3.1 to Park National Corporation's Current Report on Form 8-K dated and filed on April 18, 2006 (File No. 1-13006))

3.2(d)    Certificate Regarding Adoption by the Shareholders of Park National Corporation on April 21, 2008 of Amendment to Regulations to Add New Section 5.10 to Article FIVE (incorporated herein by reference to Exhibit 3.2(d) to Park National Corporation's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 (File No. 1-13006) (“Park's March 31, 2008 Form 10-Q”))

3.2(e)    Regulations of Park National Corporation [This document represents the Regulations of Park National Corporation in compiled form incorporating all amendments.] (incorporated herein by reference to
Exhibit 3.2(e) to Park's March 31, 2008 Form 10-Q)

4.1(a)    Junior Subordinated Indenture, dated as of December 5, 2005, between Vision Bancshares, Inc. and Wilmington Trust Company, as Trustee (incorporated herein by reference to Exhibit 10.16 to Vision Bancshares, Inc.'s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005 (File No. 000-50719))

4.1(b)    First Supplemental Indenture, dated to be effective as of 6:00 p.m., Eastern Standard Time, on March 9, 2007, by and among Wilmington Trust Company, as Trustee; Park National Corporation; and Vision Bancshares, Inc. (incorporated herein by reference to Exhibit 4.1(b) to Park National Corporation's Current Report on Form 8-K dated and filed on March 15, 2007 (File No. 1-13006) (“Park's March 15, 2007 Form 8-K”))

4.2(a)    Amended and Restated Trust Agreement, dated as of December 5, 2005, among Vision Bancshares, Inc., as Depositor; Wilmington Trust Company, as Property Trustee and as Delaware Trustee; and the Administrative Trustees named therein, in respect of Vision Bancshares Trust I (incorporated herein by reference to Exhibit 10.15 to Vision Bancshares, Inc.'s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005 (File No. 000-50719))

    Note: Pursuant to the First Supplemental Indenture, dated to be effective as of 6:00 p.m., Eastern Standard Time, on March 9, 2007, by and among Wilmington Trust Company, as Trustee; Park National Corporation; and Vision Bancshares, Inc., Park National Corporation succeeded to and was substituted for Vision Bancshares, Inc. as “Depositor”

4.2(b)    Notice of Resignation of Administrative Trustees and Appointment of Successors, dated March 9, 2007, delivered to Wilmington Trust Company by the Resigning Administrative Trustees named therein, the Successor Administrative Trustees named therein and Park National Corporation (incorporated herein by reference to Exhibit 4.2(b) to Park's March 15, 2007 Form 8-K)

4.2(c)    Notice of Removal of Administrative Trustee and Appointment of Successor, dated February 21, 2013, delivered to Wilmington Trust Company by the continuing Administrative Trustees named therein, the successor Administrative Trustee named therein and Park National Corporation (incorporated herein by reference to Exhibit 4.2(c) to Park National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (File No. 1-13006) ("Park's 2012 Form 10-K"))





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Exhibit No.    Description of Exhibit

4.2(d)    Notice of Resignation of Administrative Trustee and Appointment of Successor, dated July 1, 2021, delivered to Wilmington Trust Company by the Resigning Administrative Trustee named therein, the Successor Administrative Trustee named therein, the continuing Current Administrative Trustees named therein and Park National Corporation (filed herewith)

4.3    Guarantee Agreement, dated as of December 5, 2005, between Vision Bancshares, Inc., as Guarantor, and Wilmington Trust Company, as Guarantee Trustee, in respect of Vision Bancshares Trust I (incorporated herein by reference to Exhibit 10.17 to Vision Bancshares, Inc.'s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005 (File No. 000-50719))

        Note: Pursuant to the First Supplemental Indenture, dated to be effective as of 6:00 p.m., Eastern Standard Time, on March 9, 2007, by and among Wilmington Trust Company, as Trustee; Park National Corporation; and Vision Bancshares, Inc., Park National Corporation succeeded to and was substituted for Vision Bancshares, Inc. as “Guarantor”

4.4    Agreement to furnish instruments and agreements defining rights of holders of long-term debt (filed herewith)

4.5    Description of Capital Stock of Park National Corporation (filed herewith)

4.6(a)    Credit Agreement, dated as of May 18, 2016, by and between Park National Corporation and U.S. Bank National Association (incorporated herein by reference to Exhibit 10.1 to Park National Corporation's Current Report on Form 8-K dated and filed on May 23, 2016 (File No. 1-13006)). NOTE: Credit Agreement, as amended, was terminated on August 2, 2021.
4.6(b)    First Amendment to Credit Agreement, made and entered into as of June 15, 2017, by and between Park National Corporation and U.S. Bank National Association (incorporated herein by reference to Exhibit 10.1 to Park National Corporation's Current Report on Form 8-K dated and filed on June 16, 2017 (File No. 1-13006)). NOTE: Credit Agreement, as amended, was terminated on August 2, 2021.
4.6(c)    Second Amendment to Credit Agreement, made and entered into as of May 17, 2018, by and between Park National Corporation and U.S. Bank National Association (incorporated herein by reference to Exhibit 10.1 to Park National Corporation's Current Report on Form 8-K dated and filed on May 21, 2018 (File No. 1-13006)). NOTE: Credit Agreement, as amended, was terminated on August 2, 2021.
4.6(d)    Third Amendment to Credit Agreement, made and entered into as of June 22, 2018, by and between Park National Corporation and U.S. Bank National Association (incorporated herein by reference to Exhibit 10.1 to Park National Corporation's Current Report on Form 8-K dated and filed on June 28, 2018 (File No. 1-13006)). NOTE: Credit Agreement, as amended, was terminated on August 2, 2021.
4.6(e)    Fourth Amendment to Credit Agreement, made and entered into as of June 30, 2019, by and between Park National Corporation and U.S. Bank National Association (incorporated herein by reference to Exhibit 4.1 to Park National Corporation's Current Report on Form 8-K dated and filed on June 26, 2019 (File No. 1-13006)("Park's June 26, 2019 Form 8-K")). NOTE: Credit Agreement, as amended, was terminated on August 2, 2021.
4.6 (f)    Fifth Amendment to Credit Agreement, made and entered into as of June 17, 2020, by and between Park National Corporation and U.S. Bank National Association (incorporated herein by reference to Exhibit 4.1 to Park National Corporation's Current Report on Form 8-K dated and filed on June 18, 2020 (File No. 1-13006). NOTE: Credit Agreement, as amended, was terminated on August 2, 2021.
4.6(g)    Revolving Note, dated June 20, 2019, in the principal amount of $15,000,000 and with a maturity date of June 20, 2021 (reflecting the defined Termination Date), issued by Park National Corporation to U.S. Bank National Association (incorporated herein by reference to Exhibit 4.2 to Park's June 26, 2019 Form 8-K). NOTE: Revolving Note expired, by its terms, on June 20, 2021.

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Exhibit No.    Description of Exhibit
4.6(h)    Term Note, dated June 20, 2019, in the principal amount of $50,000,000 and with a maturity date of June 20, 2022 (reflecting the defined Term Loan Termination Date), issued by Park National Corporation to U.S. Bank National Association (incorporated herein by reference to Exhibit 4.3 to Park's June 26, 2019 Form 8-K). NOTE: Term Note was paid in full on August 2, 2021.
4.7(a)    Indenture, dated as of August 20, 2020, between Park National Corporation, as Issuer, and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to Park National Corporation's Current Report on Form 8-K dated and filed on August 20, 2020 (File No. 1-13006)("Park's August 20, 2020 Form 8-K"))
4.7(b)    First Supplemental Indenture, dated as of August 20, 2020, between Park National Corporation, as Issuer, and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.2 to Park's August 20, 2020 Form 8-K")
4.7(c)    Form of 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030 issued by Park National Corporation (included in Exhibit 4.7(b) to this Annual Report on Form 10-K)(incorporated herein by reference to Exhibit 4.2 to Park's August 20, 2020 Form 8-K)
10.1†    Summary of Base Salaries for Executive Officers of Park National Corporation (filed herewith)

10.2†    Amended and Restated Split-Dollar Agreement, made and entered into effective as of June 15, 2015, by and between The Park National Bank and David L. Trautman (incorporated by reference to Exhibit 10.2(a) to Park National Corporation's Current Report on Form 8-K dated and filed on June 19, 2015 (File No. 1-13006) ("Park's June 19, 2015 Form 8-K"))

10.3†    Split-Dollar Agreement, made and entered into effective as of June 15, 2015, by and between The Park National Bank and Brady T. Burt (incorporated herein by reference to Exhibit 10.3 to Park's June 19, 2015 Form 8-K)

10.4†    Amended and Restated Split-Dollar Agreement, made and entered into effective as of June 15, 2015, by and between The Park National Bank, Park National Corporation and C. Daniel DeLawder (incorporated by reference to Exhibit 10.2(b) to Park's June 19, 2015 Form 8-K)

10.5†    Amended and Restated Split-Dollar Agreement, made and entered into effective as of June 15, 2015, by and between The Park National Bank and David L. Trautman (incorporated herein by reference to Exhibit 10.5 to Park National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (File No.1-13006) ("Park's 2015 Form 10-K"))

10.6†    Amended and Restated Split-Dollar Agreement, made and entered into effective as of June 15, 2015, by and between The Park National Bank and Brady T. Burt (incorporated by reference to Exhibit 10.4 to Park's June 19, 2015 Form 8-K)

10.7†    Amended and Restated Split-Dollar Agreement, made and entered into effective as of June 15, 2015, by and between The Park National Bank and C. Daniel Delawder (incorporated herein by reference to Exhibit 10.7 to Park's 2015 Form 10-K)

10.8†    Amended and Restated Split-Dollar Agreement, made and entered into effective as of January 27, 2020, by and between The Park National Bank and Matthew R. Miller (incorporated herein by reference to Exhibit 10.2 to Park National Corporation's Current Report on Form 8-K dated and filed on January 27, 2020 (File No.1-13006)("Park's January 27, 2020 Form 8-K"))

10.9(a)†    Amended and Restated Split-Dollar Agreement, made and entered into effective as of August 4, 2015, by and between The Park National Bank and Matthew R. Miller (incorporated herein by reference to Exhibit 10.4(a) to Park's January 27, 2020 Form 8-K)


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Exhibit No.    Description of Exhibit

10.9(b)†    First Amendment to the Amended and Restated Split-Dollar Agreement, made and entered into effective as of January 27, 2020, by and between The Park National Bank and Matthew R. Miller (incorporated herein by reference to Exhibit 10.4(b) to Park's January 27, 2020 Form 8-K)

10.10†    Supplemental Executive Retirement Benefits Agreement, made as of June 15, 2015, by and between The Park National Bank and David L. Trautman (incorporated herein by reference to Exhibit 10.1(a) to Park's June 19, 2015 Form 8-K)

10.11†    Supplemental Executive Retirement Benefits Agreement, made as of June 15, 2015, by and between The Park National Bank and Brady T. Burt (incorporated herein by reference to Exhibit 10.1(b) to Park's June 19, 2015 Form 8-K)

10.12(a)†    Supplemental Executive Retirement Benefits Agreement, made as of June 15, 2015, by and between The Park National Bank and C. Daniel DeLawder (incorporated herein by reference to Exhibit 10.1(c) to Park's June 19, 2015 Form 8-K)

10.12(b)†    Amendment to the Supplemental Executive Retirement Benefits Agreement, entered into December 3, 2019, effective as of October 1, 2019, by and between The Park National Bank and C. Daniel DeLawder (incorporated herein by reference to Exhibit 10.2 to Park National Corporation's Current Report on Form 8-K dated and filed on December 5, 2019 (File No.1-13006)("Park's December 5, 2019 Form 8-K"))

10.13†    Supplemental Executive Retirement Benefits Agreement, made as of February 18, 2008, by and between Park National Corporation and David L. Trautman (incorporated herein by reference to Exhibit 10.1 to Park National Corporation's Current Report on Form 8-K dated and filed on February 19, 2008 (File No. 1-13006))

10.14(a)†    Amended and Restated Supplemental Executive Retirement Benefits Agreement, made as of February 18, 2008, by and between Park National Corporation and C. Daniel DeLawder (incorporated herein by reference to Exhibit 10.14(a) to Park National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (File No. 1-13006))

10.14(b)†    Amendment to the Amended and Restated Supplemental Executive Retirement Benefits Agreement, entered into December 3, 2019, effective as of October 1, 2019, by and between The Park National Bank and C. Daniel DeLawder (incorporated herein by reference to Exhibit 10.1 to Park's December 5, 2019 Form 8-K)

10.15†    Supplemental Executive Retirement Benefits Agreement, made as of June 15, 2015, by and between The Park National Bank and Matthew R. Miller (incorporated herein by reference to Exhibit 10.3 to Park's January 27, 2020 Form 8-K)

10.16†    Supplemental Executive Retirement Benefits Agreement, made and entered into effective as of January 27, 2020, by and between The Park National Bank and Matthew R. Miller (incorporated herein by reference to Exhibit 10.1 to Park's January 27, 2020 Form 8-K)

10.17†    Summary of Certain Compensation for Directors of Park National Corporation (filed herewith)

10.18(a)†    Form of Split-Dollar Agreement, made and entered into effective as of December 28, 2007, covering certain Non-Employee Directors of Park National Corporation (incorporated herein by reference to Exhibit 10.2(a) to Park National Corporation's Current Report on Form 8-K dated and filed on January 2, 2008 (File No. 1-13006))

10.18(b)†    Schedule identifying Non-Employee Directors of Park National Corporation covered by form of Split-Dollar Agreement, made and entered into effective as of December 28, 2007 (incorporated herein by reference to Exhibit 10.18(b) to Park National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (File No. 1-3006))

10.19†    Park National Corporation 2013 Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Park National Corporation’s Current Report on Form 8-K dated and filed on April 23, 2013 (File No. 1-13006))
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Exhibit No.    Description of Exhibit
10.20†    Form of Park National Corporation 2013 Long-Term Incentive Plan Performance-Based Restricted Stock Unit Award Agreement used to evidence awards of Performance-Based Restricted Stock Units to employees of Park National Corporation and of its subsidiaries granted on and after January 24, 2014 and prior to December 5, 2016 (incorporated herein by reference to Exhibit 10.1 to Park National Corporation’s Current Report on Form 8-K dated and filed on January 27, 2014 (File No. 1-13006))
10.21†    Form of Park National Corporation 2013 Long-Term Incentive Plan Performance-Based Restricted Stock Unit Award Agreement used to evidence awards of Performance-Based Restricted Stock Units to employees of Park National Corporation and of its subsidiaries granted on and after December 5, 2016 and prior to April 24, 2017 (incorporated herein by reference to Exhibit 10.1 to Park National Corporation's Current Report on Form 8-K dated and filed on December 8, 2016 (File No. 1-13006))
10.22†    Park National Corporation 2017 Long-Term Incentive Plan for Non-Employee Directors (incorporated herein by reference to Exhibit 10.2 to Park National Corporation's Current Report on Form 8-K dated and filed on April 26, 2017 (File No. 1-13006)) ("Park's April 26, 2017 Form 8-K")
10.23†    Park National Corporation 2017 Long-Term Incentive Plan for Employees (incorporated herein by reference to Exhibit 10.1 to Park's April 26, 2017 Form 8-K)
10.24†    Form of Park National Corporation 2017 Long-Term Incentive Plan for Employees Performance-Based Restricted Stock Unit Award Agreement used to evidence awards of Performance-Based Restricted Stock Units to employees of Park National Corporation and of its subsidiaries granted after December 4, 2017 and prior to November 19, 2018 (incorporated herein by reference to Exhibit 10.1 to Park National Corporation's Current Report on Form 8-K dated and filed on December 5, 2017 (File No. 1-13006))
10.25†    Form of Park National Corporation 2017 Long-Term Incentive Plan for Employees Performance-Based Restricted Stock Unit Award Agreement used to evidence awards of Performance-Based Restricted Stock Units to employees of Park National Corporation and of its subsidiaries granted after November 19, 2018 and prior to January 1, 2020 (incorporated herein by reference to Exhibit 10.1 to Park National Corporation's Current Report on Form 8-K dated and filed on November 20, 2018 (File No. 1-13006))
10.26†    Form of Park National Corporation 2017 Long-Term Incentive Plan for Employees Amendment No. 1 to Performance-Based Restricted Stock Unit Award Agreement, made effective as of January 1, 2019, entered into with employees of Park National Corporation and of its subsidiaries with respect to performance-based restricted stock unit awards granted effective January 1, 2019 (incorporated herein by reference to Exhibit 10.3 to Park National Corporation's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 (File No. 1-13006)("Park's March 31, 2020 Form 10-Q"))
10.27†    Form of Park National Corporation 2017 Long-Term Incentive Plan for Employees Performance-Based Restricted Stock Unit Award Agreement used to evidence awards of performance-based restricted stock units to employees of Park National Corporation and of its subsidiaries granted effective as of January 1, 2020 and to be used to evidence such awards granted after January 1, 2020 (incorporated herein by reference to Exhibit 10.4 to Park's March 31, 2020 Form 10-Q)
10.28†    Park National Corporation 2017 Long-Term Incentive Plan for Employees Amendment No. 1 to Certain Performance-Based Restricted Stock Unit Award Agreements, entered into as of June 30, 2021, between Park National Corporation and C. Daniel DeLawder (incorporated herein by reference to Exhibit 10.1 to Park National Corporation's Current Report on Form 8-K dated and filed on July 9, 2021 (File No. 1-3006))
14    Code of Business Conduct and Ethics, as most recently approved by the Park National Corporation Board of Directors on April 23, 2021 (filed herewith)
21    Subsidiaries of Park National Corporation (filed herewith)

23    Consent of Independent Registered Public Accounting Firm (Crowe LLP) (filed herewith)

24    Power of Attorney of Directors and Executive Officers of Park National Corporation (filed herewith)

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Exhibit No.    Description of Exhibit

31.1    Rule 13a-14(a)/15d-14(a) Certifications - Principal Executive Officer (filed herewith)

31.2    Rule 13a-14(a)/15d-14(a) Certifications - Principal Financial Officer (filed herewith)

32    Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code - Principal Executive Officer and Principal Financial Officer (furnished herewith)

101    The following information from Park National Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets at December 31, 2021 and 2020; (ii) the Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019; (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019; (iv) the Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2021, 2020 and 2019; (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019; and (vi) the Notes to Consolidated Financial Statements (electronically submitted herewith)**

104    Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document with applicable taxonomy extension information contained in Exhibit 101) **    
___________________

*    Annexes, schedules and exhibits have been omitted pursuant to Item 601(b)(2) of SEC Regulation S-K, as in effect at the time of filing of the Agreement and Plan of Merger and Reorganization. A copy of any omitted attachment will be furnished supplementally by Park National Corporation to the SEC on a confidential basis upon request.

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

†    Management contract or compensatory plan or arrangement.

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



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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 PARK NATIONAL CORPORATION
   
   
   
Date: February 24, 2022By:/s/ David L. Trautman
  David L. Trautman,
  Chairman of the Board and Chief Executive Officer
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of February, 2022.
NameCapacity
 
/s/ David L. Trautman
David L. Trautman
Chairman of the Board, Chief Executive Officer and Director

 /s/ Matthew R. Miller
 Matthew R. Miller
President and Director
 
/s/ Brady T. Burt
Brady T. Burt
 
Chief Financial Officer, Secretary and Treasurer
 
/s/ Kelly A. Herreman
Kelly A. Herreman
 
Chief Accounting Officer
 
/s/ Donna M. Alvarado*
Donna M. Alvarado
 
Director
/s/ Frederic M. Bertley, Ph.D.*
Frederic M. Bertley, Ph.D.
Director
/s/ C. Daniel DeLawder*
C. Daniel DeLawder
Director
 
/s/ F. William Englefield IV*
F. William Englefield IV
 
Director
 
/s/ Alicia J. Hupp*
Alicia J. Hupp
 
Director
 
/s/ Jason N. Judd*
Jason N. Judd
 
Director
 
/s/ Stephen J. Kambeitz*
Stephen J. Kambeitz
 
Director
 
/s/ Timothy S. McLain*
Timothy S. McLain
 
Director
 
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NameCapacity
/s/ D. Byrd Miller III*
D. Byrd Miller III
Director
 
/s/ Robert E. O’Neill*
Robert E. O’Neill
Director
 /s/ Mark R. Ramser*
Mark R. Ramser
 
Director
/s/ Lee Zazworsky*
Leon "Lee" Zazworsky		Director
 
__________________________
*The undersigned, by signing his name hereto, does hereby sign this Annual Report on Form 10-K on behalf of each of the directors of the Registrant identified above pursuant to a Power of Attorney executed by the directors of the Registrant identified above, which Power of Attorney is filed with this Annual Report on Form 10-K in Exhibit 24.

By:/s/ Matthew R. Miller
 Matthew R. Miller
 President
Attorney-in-Fact
 


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