PARK NATIONAL CORP /OH/ (PRK) FY 2022 MD&A

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:

•Park's ability to execute our business plan successfully and within the expected timeframe as well as our ability to manage strategic initiatives;

•current and future economic and financial market conditions, either nationally or in the states in which Park and our subsidiaries do business, including the effects of higher unemployment rates, an acceleration in the pace of inflation, interest rate fluctuations, changes in the economy or global supply chain, supply-demand imbalances affecting local real estate prices, U.S. fiscal debt, budget and tax matters, geopolitical matters (including the impact of the Russia-Ukraine conflict and associated sanctions and export controls), and any slowdown in global economic growth, in addition to the continuing impact of the COVID-19 pandemic and recovery therefrom on our customers’ operations and financial condition, any of which may result in adverse impacts on the demand for loan, deposit and other financial services, delinquencies, defaults and counterparties' inability to meet credit and other obligations and the possible impairment of collectability of loans;

•factors that can impact the performance of our loan portfolio, including changes in real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance, including any loans acquired in acquisition transactions;

•the effect of monetary and other fiscal policies (including the impact of money supply, market 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, 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 net 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;

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•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 behaviors, changes in business and economic conditions, legislative and regulatory initiatives, or other factors may be different than anticipated;

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

•Park may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;

•the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;

•the adequacy of our internal controls and risk management program in the event of changes in the market, economic, operational (including those which may result from our associates working remotely), asset/liability repricing, legal, compliance, strategic, cybersecurity, liquidity, credit and interest rate risks associated with Park's business;

•competitive pressures among financial services organizations could increase significantly, including product and pricing pressures (which could in turn impact our credit spreads), changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Park's ability to attract, develop and retain qualified banking professionals;

•uncertainty regarding the nature, timing, cost and effect of changes in banking regulations or other regulatory or legislative requirements affecting the respective businesses of Park and our subsidiaries, including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry, specifically the reforms provided for in the Coronavirus Aid, Relief and Economic Security (CARES) Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the Basel III regulatory capital reforms, as well as regulations already adopted and which may be adopted in the future by the relevant regulatory agencies, including the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve Board, to implement the provisions of the CARES Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the provisions of the American Rescue Plan Act of 2021, the provisions of the Dodd-Frank Act, and the Basel III regulatory capital reforms;

•Park's ability to meet heightened supervisory requirements and expectations;

•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 possibility that future credit losses may be higher than currently expected due to changes in economic assumptions;

•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 cybersecurity 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 the 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,

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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, the costs and effects of unfavorable resolution of regulatory and other governmental examinations or other inquiries, and liabilities and business restrictions resulting from litigation and regulatory investigations;

•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, dislocations, regional or national protests and civil unrest (including any resulting branch closures or damages), military or terrorist activities or international hostilities (especially in light of the Russia-Ukraine conflict) on the economy and financial markets generally and on us or our counterparties specifically;

•a worsening of the U.S. economy due to financial, political, or other shocks;

•the effect of healthcare laws in the U.S. and potential changes for such laws 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 most recent acquisitions, including expected revenue synergies and cost savings from recent acquisitions not being fully realized or realized within the expected time frame;

•uncertainty surrounding the transition from the London Inter-Bank Offered Rate (LIBOR) to an alternate reference rate;

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

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

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

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Non-U.S. GAAP Financial Measures

Park's management uses certain non-U.S. GAAP financial measures to evaluate Park's performance. Specifically, management reviews the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio, and pre-tax, pre-provision net income.

Management has included in this Management's Discussion and Analysis of Financial Condition and Results of Operation, information relating to the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio, and pre-tax, pre-provision net income for the years ended December 31, 2022 and December 31, 2021. For the purpose of calculating the return on average tangible equity, a non-GAAP financial measure, net income for each period is divided by average tangible equity during the period. Average tangible equity equals average shareholders' equity during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating the return on average tangible assets, a non-GAAP financial measure, net income for each period is divided by average tangible assets during the period. Average tangible assets equals average assets during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating the tangible equity to tangible assets ratio, a non-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 equal total assets less goodwill and other intangible assets, in each case at period end. For the purpose of calculating pre-tax, pre-provision net income, a non-GAAP financial measure, income taxes and the provision for (recovery of) credit losses are added back to net income, in each case during the applicable period.

Management believes that the disclosure of the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio, and pre-tax, pre-provision net income presents additional information to the reader of the consolidated financial statements, which, when read in conjunction with the consolidated financial statements prepared in accordance with U.S. GAAP, assists in analyzing Park's operating performance, ensures comparability of operating performance from period to period, and facilitates comparisons with the performance of Park's peer financial holding companies and bank holding companies, while eliminating certain non-operational effects of acquisitions. In the tables included within the "ANALYSIS OF EARNINGS - Items Impacting Comparability" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations, Park has provided a reconciliation of average tangible equity to average shareholders' equity, average tangible assets to average assets, tangible equity to total shareholders' equity, tangible assets to total assets, and pre-tax, pre-provision net income to net income solely for the purpose of complying with SEC Regulation G and not as an indication that the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio, and pre-provision net income are substitutes for the return on average equity, the return on average assets, the total shareholders' equity to total assets ratio, and net income, respectively, as determined in accordance with U.S. GAAP

FTE (fully taxable equivalent) Financial Measures

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 corporate 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

Park originated $764.7 million in loans as part of the PPP. These loans are not typical of Park's loan portfolio in that they are part of a specific government program to support businesses during the COVID-19 pandemic and are 100% guaranteed by the 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.

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OVERVIEW

COVID-19 Considerations

During 2022 and 2021, Park provided calamity pay and special bonuses to certain associates related to the COVID-19 pandemic. The cost of the calamity pay and special bonuses was $747,000, $2.1 million and $3.6 million, for the years ended December 31, 2022, 2021, and 2020, respectively, and is included within "Salaries" expense.

Paycheck Protection Program

During 2020 and 2021, Park approved and funded 7,701 loans totaling $764.7 million as part of the PPP. For its assistance in making and retaining these loans, Park received an aggregate of $33.1 million in fees from the SBA, of which $3.0 million and $16.3 million were recognized within loan interest income during the years ended December 31, 2022 and 2021, respectively. At December 31, 2022, the remaining balance of PPP loans was $4.2 million.

Loan Modifications

During the COVID-19 pandemic, Park worked with borrowers and provided modifications in the form of either interest only deferral or principal and interest deferral, in each case, for initial periods of up to 90 days. 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 were considered current and continued to accrue interest during the deferral period. As of December 31, 2022, there were no loans which were still within the COVID-19 deferral period.

Financial Results by Segment

The following table reflects the net income (loss) by segment for the years ended December 31, 2022, 2021 and 2020. Park's segments include PNB and "All Other" which primarily consists of Park as the "Parent Company", GFSC and SEPH.

Highlights from the years ended December 31, 2022 and 2021 included:

•Net income for the year ended December 31, 2022 of $148.4 million represented a $5.6 million, or 3.6%, decrease compared to $153.9 million for the year ended December 31, 2021.

•Pre-tax, pre-provision net income for the year ended December 31, 2022 of $185.0 million represented a $8.7 million, or 4.9%, increase compared to $176.3 million for the year ended December 31, 2021.

•During the year ended December 31, 2022, Park recorded interest income of $3.1 million related to PPP loans, compared to $18.0 million during the year ended December 31, 2021.

•Park recognized a $5.6 million gain on the sale of OREO, net, during the year ended December 31, 2022 related to former Vision Bank relationships. There was no gain on the sale of OREO, net, related to former Vision Bank relationships during the the year ended December 31, 2021.

•Park recognized a $12.0 million OREO valuation markup during the year ended December 31, 2022 related to the foreclosure and subsequent sale of a property collateralizing a former Vision Bank relationship. There was no OREO valuation markup related to former Vision Bank relationships during the the year ended December 31, 2021.

•During the year ended December 31, 2022, Park recorded income of $1.2 million as a result of an annual Visa incentive, compared to $1.1 million during the year ended December 31, 2021.

•During the year ended December 31, 2022, Park recognized expense of $3.2 million related to one-time bonuses compared to $2.5 million during the year ended December 31, 2021.

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•During the year ended December 31, 2022, Park incurred expenses of $1.8 million, reflecting direct expenses related to the collection of payments on former Vision Bank loan relationships, compared to $1.4 million for the year ended December 31, 2021.

•During each of the years ended December 31, 2022 and 2021, Park contributed $4.0 million to its charitable foundation.

•PNB loan growth (excluding PPP loans) of 5.0% for the year ended December 31, 2022 compared to a decrease in loans (excluding PPP loans) of 0.6% for the year ended December 31, 2021.

•PNB total deposits, including off balance sheet deposits, decreased 4.5% for the year ended December 31, 2022 compared to an increase of 7.1% for the year ended December 31, 2021.

•Continued good credit quality with net loan charge-offs as a percentage of average loans of 0.03% for the year ended December 31, 2022, compared to net loan recoveries as a percentage of average loans of 0.05% for the year ended December 31, 2021.

Net income for both the year ended December 31, 2022 and the year ended December 31, 2021 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.

The Park National Bank (PNB)

The table below reflects PNB's net income for the years ended December 31, 2022, 2021 and 2020.

(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses and the related provision for (recovery of) credit losses for all periods subsequent to the date of adoption were calculated utilizing this guidance.

Net interest income of $350.6 million for the year ended December 31, 2022 represented a $22.2 million, or 6.8%, increase compared to $328.4 million for the year ended December 31, 2021. The increase was a result of a $37.5 million increase in interest income, partially offset by a $15.3 million increase in interest expense.

The $37.5 million increase in interest income was primarily due to a $26.5 million increase in investment income and a $11.0 million increase in interest income on loans. The $26.5 million increase in investment income was primarily the result of a $254.1 million increase in average investments, including money market investments, from $2.00 billion for the year ended December 31, 2021 to $2.26 billion for the year ended December 31, 2022. The increase was also the result of an increase in the yield on investments, which increased 103 basis points to 2.56% for the year ended December 31, 2022, compared to 1.53% for the year ended December 31, 2021. The increase in interest income on loans was primarily the result of a $176.9 million increase in average loans, excluding PPP loans, from $6.75 billion for the year ended December 31, 2021 to $6.93 billion for the year ended December 31, 2022, as well as an increase in the yield on loans, excluding PPP loans, which increased 26 basis points to 4.57% for the year ended December 31, 2022, compared to 4.31% for the year ended December 31, 2021. These increases were partially offset by a $15.0 million decrease in interest and fee income from PPP loans, which was $3.1 million for the year ended December 31, 2022, compared to $18.0 million for the year ended December 31, 2021.

The $15.3 million increase in interest expense was primarily due to a $14.7 million increase in interest expense on deposits, as well as a $628,000 increase in interest expense on borrowings. The increase in interest expense on deposits was the result of a $108.2 million increase in average on-balance sheet interest bearing deposits from $5.25 billion for the year ended December 31, 2021, to $5.36 billion for the year ended December 31, 2022 as well as the result of an increase in the cost of deposits of 27

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basis points, from 0.12% for the year ended December 31, 2021 to 0.39% for the year ended December 31, 2022. The increase in on-balance sheet interest bearing deposits was due an increase in transaction accounts, which was partially offset by decreases in both savings and time deposits. During the years ended December 31, 2022 and 2021, Park made the decision to continue its participation in a program to transfer deposits off-balance sheet, at the end of each quarter, in order to manage growth of the balance sheet.

The provision for credit losses of $5.8 million for the year ended December 31, 2022 represented a difference of $14.4 million, compared to a recovery of credit losses of $8.6 million for the year ended December 31, 2021. Refer to the “CREDIT METRICS AND PROVISION FOR (RECOVERY OF) CREDIT LOSSES" section for additional details regarding the level of the provision for (recovery of) credit losses recognized in each period presented above.

Other income of $115.2 million for the year ended December 31, 2022 represented a decrease of $11.6 million, or 9.1%, compared to $126.8 million for the year ended December 31, 2021. The $11.6 million decrease was primarily related to a $14.8 million decrease in other service income, which was primarily due to declines in fee income from mortgage loan originations and mortgage servicing rights, partially offset by increases in income from investor rate locks and mortgage loans held for sale. The decrease was also related to (i) a $1.7 million decrease in gain on equity securities, net; (ii) a $390,000 decrease in other miscellaneous income; and (iii) a $358,000 decrease in fiduciary income. These decreases were partially offset by increases of (i) $3.9 million in other components of net periodic benefit income; and (ii) $1.3 million in income from service charges on deposit accounts.

A summary of mortgage loan originations for each quarter of 2022 and 2021 and for the years ended December 31, 2022 and 2021 follows.

Total mortgage loan originations decreased $415.4 million, or 42.7%, to $558.0 million for the year ended December 31, 2022 compared to $973.3 million for the year ended December 31, 2021.

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The table below reflects PNB's other expense for the years ended December 31, 2022 and 2021.

Total other expense of $283.7 million for the year ended December 31, 2022 represented an increase of $17.0 million, or 6.4%, compared to $266.7 million for the year ended December 31, 2021. The increase in salaries expense was primarily related to increases in base salary expense and vacation accrual expense. The decrease in employee benefits expense was primarily related to a decrease in group insurance expense, partially offset by increases in payroll tax expense and other employee benefits, including retirement benefit expense. The increase in occupancy expense was primarily related to an increase in rental lease expense, including an impairment charge related to a leased office location. The increase in furniture and equipment expense was primarily related to an increase in depreciation expense. The increase in data processing fees was primarily related to an increase in software data processing expense, partially offset by a decrease in debit card processing expense. The increase in professional fees and services expense was primarily due to increases in legal expense, other fees and recruiting fees. The decrease in marketing expense was due to a decrease in advertising expenses. The increase in miscellaneous expense was due to increased expense for the allowance for unfunded lines of credit and increased training and travel-related expenses, which were partially offset by a decrease in operating lease depreciation expense.

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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, 2022 and 2021.

(1) Excludes $4.2 million and $74.4 million of PPP loans at December 31, 2022 and December 31, 2021.

(2) Average assets for the years ended December 31, 2022 and 2021.

(3) Efficiency ratio is calculated by dividing total other expense by the sum of fully taxable equivalent net interest income and other income. Fully taxable equivalent net interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustments were $3.5 million for the year ended December 31, 2022 and $2.9 million for the year ended December 31, 2021.

Loans outstanding at December 31, 2022 were $7.14 billion, compared to $6.87 billion at December 31, 2021, an increase of $272.4 million, and compared to $7.10 billion at September 30, 2022, an increase of $38.9 million. Excluding $4.2 million, $5.7 million and $74.4 million of PPP loans at December 31, 2022, September 30, 2022 and December 31, 2021, respectively, loans outstanding were $7.14 billion at December 31, 2022, compared to $6.79 billion at December 31, 2021, an increase of $342.6 million, and compared to $7.10 billion at September 30, 2022, an increase of $40.4 million. The table below breaks out the change in loans outstanding, by loan type.

(1) Excludes $4.2 million of PPP loans at December 31, 2022, $5.7 million of PPP loans at September 30, 2022, and $74.4 million of PPP loans at December 31, 2021.

PNB's allowance for credit losses increased by $2.3 million, or 2.7%, to $85.4 million at December 31, 2022, compared to $83.1 million at December 31, 2021. Net charge-offs were $3.6 million, or 0.05% of total average loans, for the year ended December 31 2022 and net recoveries were $640,000, or 0.01% of total average loans, for the year ended December 31, 2021. Refer to the “CREDIT METRICS AND PROVISION FOR (RECOVERY OF) CREDIT LOSSES" section for additional information regarding PNB's loan portfolio and the level of provision for credit losses recognized in each period presented.

Total deposits at December 31, 2022 were $8.53 billion, compared to $8.16 billion at December 31, 2021, an increase of $376.6 million, or 4.6%. Total deposits at December 31, 2022 were $8.53 billion, compared to $8.61 billion at September 30, 2022, a

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decrease of $72.0 million, or 0.8%. During the years ended December 31, 2022 and 2021, Park made the decision to continue participation 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, 2022, September 30, 2022 and December 31, 2021, Park had $195.9 million, $766.2 million, and $983.1 million, respectively, in deposits which were off-balance sheet. Total deposits would have decreased $410.5 million, or 4.5%, compared to December 31, 2021 had the $195.9 million and $983.1 million in deposits remained on the balance sheet at the respective dates. Total deposits would have decreased $642.2 million, or 6.9%, compared to September 30, 2022 had the $195.9 million and $766.2 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.

All Other

The table below summarizes the All Other net income (loss) for the years ended December 31, 2022, 2021, and 2020.

(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses and the related recovery of credit losses for all periods subsequent to the date of adoption were calculated utilizing this guidance.

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

Net interest (expense) income reflected net interest expense of $3.6 million for the year ended December 31, 2022, compared to net interest income of $1.5 million for the year ended December 31, 2021. The change was largely the result of a decrease of $4.2 million in loan interest income related to payment collections at SEPH and a decrease of $929,000 in net interest income from GFSC, partially offset by a decrease in interest expense on borrowings of $58,000 mainly related to the Park Subordinated Notes.

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

All Other had other income of $20.7 million for the year ended December 31, 2022, compared to $3.1 million for the year

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ended December 31, 2021. The change was largely due to (i) a $12.0 million increase in income from an OREO valuation markup; (ii) a $5.6 million increase in gain on the sale of OREO, net; (iii) a $749,000 increase in income from bank owned life insurance, mainly related to a death benefit payout; and (iv) a $304,000 increase in gain on equity securities carried at fair value or modified cost, which went from a $361,000 gain for the year ended December 31, 2021 to a $665,000 gain for the year ended December 31, 2022. The foregoing increases were partially offset by a $594,000 decrease in income due to an OREO devaluation and a $634,000 decrease in income related to partnership investments, which went from a $857,000 gain for the year ended December 31, 2021 to a $223,000 gain for the year ended December 31, 2022.

All Other had other expense of $14.3 million for the year ended December 31, 2022, compared to $16.8 million for the year ended December 31, 2021. The decrease was largely due to (i) a $715,000 decrease in salaries expense, (ii) a $460,000 decrease in occupancy expense, (iii) a $408,000 decrease in professional fees and services, (iv) a $284,000 decrease in employee benefits expense and (v) a $280,000 decrease in other insurance expense.

The table below provides certain balance sheet information for All Other as of or for the years ended December 31, 2022 and 2021.

(1) Average assets for the years ended December 31, 2022 and 2021, respectively.

Park National Corporation

The table below summarizes Park's net income for the years ended December 31, 2022, 2021, and 2020.

(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses and the related provision for (recovery of) credit losses for all periods subsequent to the date of adoption were calculated utilizing this guidance.

DIVIDENDS ON COMMON SHARES

Cash dividends declared on Park's common shares were $4.66 in 2022, $4.52 in 2021 and $4.28 in 2020. The quarterly cash dividend on Park's common shares was $1.04 per share for the first, second and third quarter of 2022, and $1.54 per share for the fourth quarter of 2022. The fourth quarter of 2022 included a one-time special cash dividend of $0.50 per share. This was the fifth year in a row that Park has declared a special cash dividend ($0.50 in 2022, $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 $1.23 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. 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

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$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.

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 consolidated financial statements and the accompanying notes.  Actual results could differ from those estimates.

The COVID-19 pandemic and subsequent economic uncertainty have caused significant, unprecedented disruption around the world that has affected daily living and negatively impacted the global economy. Additionally, geopolitical conflict (including the conflict in Ukraine) and inflationary pressures have added uncertainty to the overall economic environment. The effects of the COVID-19 pandemic, geopolitical conflict, and inflationary pressures 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 forecast 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 hypothetical sensitivity analyses, management calculated a quantitative allowance using a 100% weighting applied to a baseline scenario and a quantitative allowance using a 100% weighting applied to an adverse scenario. The adverse scenario assumes among other things that: (1) the military conflict between Russia and Ukraine worsens significantly and persists longer than anticipated resulting in a disruption in oil supply, exports of goods and food, and increased inflation; (2) supply chain issues erode, with increased shortages of many goods, also boosting inflation; (3) inflation remains elevated, which leads to a recession and increased unemployment; (4) the Federal Reserve Board continues to increase interest rates, at a higher degree than the baseline scenario, to combat high inflation affecting consumer spending as well as causing businesses to have higher costs associated with obtaining capital, therefore slowing down growth; and (5) new cases, hospitalizations and deaths from COVID-19 start to rise significantly again, slowing growth in spending on air travel, retail and hotels. The adverse scenario forecasts Ohio unemployment for the next twelve months to range from 6.4% to 8.5%. Excluding consideration of general reserve adjustments, this sensitivity analysis would result in a hypothetical increase in Park's ACL of $27.5 million as of December 31, 2022 if only the adverse scenario was used. Excluding consideration of general reserve adjustments, a corresponding $27.5 million decrease in Park's ACL would occur in a hypothetical scenario if only the baseline (most likely) scenario was used.

Refer to the “CREDIT METRICS AND PROVISION FOR (RECOVERY OF) 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

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from business combinations represents the value attributable to unidentifiable intangible assets in each business acquired. Park’s goodwill, as of December 31, 2022, relates to the value inherent in the banking industry and that value is dependent upon the ability of Park’s national bank subsidiary, PNB, to provide quality, cost-effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base, the inability to deliver cost-effective services over sustained periods or significant credit problems could lead to impairment of goodwill that could, in turn, adversely impact earnings in future periods.

U.S. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Park evaluates goodwill for impairment during the second quarter of each year, with financial data as of March 31. Based on the qualitative analysis performed as of April 1, 2022, the Company determined that goodwill for Park's reporting unit, PNB, was not impaired. The fair value of the goodwill, which resides on the books of PNB, is evaluated for potential impairment by reviewing the past and projected operating results for PNB, deposit and loan totals for PNB and banking industry comparable information.

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

Significant assumptions used to measure our annual pension expense include:

•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 assumptions are the discount rate and the expected return on assets. The discount rate utilized for the December 31, 2022 calculation was 5.32% and the expected return on plan assets was 6.92%. Presented below is the estimated impact on Park's projected benefit obligation ("PBO") and 2023 pension expense assuming changes in the significant assumptions.

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, 2022, Park operated 96 financial service offices (including those of PNB and Scope Leasing, Inc. ("Scope Aircraft Finance")) and a network of 115 automated teller machines in 26 Ohio counties, four North Carolina counties, four South Carolina counties and one Kentucky county. SEPH and Guardian each operated one administrative office, located in Newark, Ohio.

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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.

Average total deposits were $8,450 million in 2022, compared to $8,187 million in 2021 and $7,633 million in 2020. The table below provides a summary of deposit balances as of December 31, 2022 and 2021, along with the change over the past year.

During the years ended December 31, 2022 and 2021, 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, 2022 and December 31, 2021, Park had $195.9 million and $983.1 million, respectively, in off balance sheet deposits. Total deposits would have decreased $456.9 million, or 5.1%, compared to December 31, 2021 had the $195.9 million and $983.1 million in deposits remained on the balance sheet.

The average interest rate paid on interest bearing deposits was 0.39% in 2022, compared to 0.12% in 2021 and 0.41% in 2020. The average cost of interest bearing deposits for each quarter of 2022 was 0.81% for the fourth quarter, 0.46% for the third quarter, 0.16% for the second quarter and 0.08% for the first quarter.

As of December 31, 2022 and 2021, approximately $2.4 billion and $1.7 billion, respectively, of our deposit portfolio was uninsured. The uninsured amounts, those in excess of the $250,000 FDIC insurance limit, 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, 2022:

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 0.67% in 2022, compared to 0.27% in 2021 and 0.40% in 2020. The year-end balance for short-term borrowings was $227 million at December 31, 2022, compared to $239 million at December 31, 2021 and $342 million at December 31, 2020.

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 2022, the average

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balance of long-term debt was $188 million, compared to $206 million in 2021 and $216 million in 2020. The average interest rate paid on long-term debt was 4.69% in 2022, compared to 4.32% in 2021 and 3.55% in 2020. Average total debt (long-term and short-term) was $396 million in 2022, compared to $493 million in 2021 and $495 million in 2020. Average total debt decreased by $97.4 million, or 19.8%, in 2022 compared to 2021, and decreased by $2 million, or 0.3%, in 2021 compared to 2020. Average long-term debt was 48% of average total debt in 2022, compared to 42% of average total debt in 2021 and 44% of average total debt in 2020.

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 since December 30, 2010, Park has had the right to prepay the junior subordinated notes, without penalty.  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 18 - 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 10.85% at December 31, 2022, compared to 11.62% at December 31, 2021 and 11.21% at December 31, 2020. The ratio of tangible shareholders’ equity [shareholders' equity ($1,069.2 million) less goodwill ($159.6 million) and other intangible assets ($6.0 million)] to tangible assets [total assets ($9,855.0 million) less goodwill ($159.6 million) and other intangible assets ($6.0 million)] was 9.33% at December 31, 2022, compared to 10.05% at December 31, 2021 and 9.57% at December 31, 2020.

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, in each case, net of income taxes, as accumulated other comprehensive (loss) income which is part of Park’s shareholders’ equity.

The unrealized net holding loss, net of income taxes, on AFS debt securities was $95.7 million at year-end 2022, compared to an unrealized net holding gain, net of income taxes, of $21.2 million at year-end 2021 and of $40.7 million at year-end 2020.

The unrealized net holding loss, net of income taxes, on cash flow hedging derivatives was zero at year-end 2022, compared to $206,000 at year-end 2021 and $698,000 at year-end 2020.

In accordance with U.S. GAAP, Park adjusts accumulated other comprehensive (loss) income to recognize the net actuarial gain or loss and prior service cost or credit reflected in the funding status of Park’s pension plan.  See "Note 21 - 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 net other comprehensive loss of $888,000 in 2022, compared to net other comprehensive income of $28.6 million in 2021, and net other comprehensive loss of $7.7 million in 2020.

The net other comprehensive loss in 2022 was largely due to $1.9 million in prior service cost, as a result of plan amendments, partially offset by a $784,000 net actuarial gain. The $784,000 net actuarial gain was due to lower than expected investment

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returns on pension plan assets which were more than offset by a decrease in benefit obligations due to assumption changes. The net other 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 other comprehensive loss in 2020 was due to changes in actuarial assumptions which were partially offset by increased investment returns on pension plan assets.

At year-end 2022, the balance in accumulated other comprehensive loss pertaining to the pension plan was an unrealized loss of $6.7 million, compared to $5.8 million at December 31, 2021 and $34.4 million at December 31, 2020.

INVESTMENT OF FUNDS

Loans:  Average loans were $6,956 million in 2022, compared to $7,015 million in 2021 and $6,990 million in 2020. The average yield on average loan balances was 4.65% in 2022, compared to 4.53% in 2021 and 4.71% in 2020. Approximately 42% 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 2022 was 5.00% for the fourth quarter, 4.72% for the third quarter, 4.57% for the second quarter and 4.31% for the first quarter.

Loan interest income for 2022, 2021, and 2020 included $3.7 million, $8.0 million and $453,000, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB. In addition, loan interest income included $1.8 million, $3.3 million and $4.4 million, respectively, of the accretion of loan purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Loan interest income for 2022, 2021 and 2020 included interest and fee income related to PPP loans of $3.1 million, $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 4.55%, 4.27% and 4.63%, for the years ended December 31, 2022, 2021, and 2020. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 4.94% for the fourth quarter of 2022, 4.64% for the third quarter of 2022, 4.36% for the second quarter of 2022, and 4.22% for the first quarter of 2022.

At December 31, 2022, loan balances were $7,142 million, compared to $6,871 million at year-end 2021, an increase of $271 million, or 3.9%. Excluding $4.2 million and $74.4 million of PPP loans at December 31, 2022 and 2021, respectively, loans outstanding at December 31, 2022 were $7,138 million, compared to $6,797 million, an increase of $341 million, or 5.0%. 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.

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

(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 $1.8 million, or 0.1%, in 2022. The decrease in 2022 was due to a decrease in commercial real estate loans of $7.7 million, which were partially offset by an increase in commercial, financial and agricultural loans of $2.3 million and an increase in construction real estate loans of $3.6 million. 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 and a decrease in construction real estate loans of $21.6 million, which were partially offset by an increase in commercial real estate loans of

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$53.6 million. Included within commercial, financial and agricultural loans were $4.2 million, $74.4 million and $331.6 million of PPP loans. Excluding $4.2 million, $74.4 million and $331.6 million of PPP loans at December 31, 2022, 2021 and 2020, respectively, commercial, financial and agricultural loans increased $72.5 million, or 5.9%, in 2022 and decreased $33 million, or 2.6% in 2021.

Consumer loans increased by $215.3 million, or 12.7%, in 2022 and increased $30.0 million, or 1.8%, in 2021. The increase in consumer loans in each of 2022 and 2021 was primarily due to an increase in automobile lending in Ohio.

Residential real estate loans increased by $58.2 million, or 3.3%, in 2022 and decreased by $74.3 million, or 4.1%, in 2021. The increase in 2022 was due to an increase in mortgage loans secured by residential real estate of $41.8 million, an increase in commercial loans secured by residential real estate of $16.4 million, and an increase in home equity loans secured by residential real estate of $1.5 million, partially offset by a decrease in installment loans secured by residential real estate of $1.6 million.

Leases decreased by $895,000 to $19.6 million in 2022, and decreased $3.9 million to $20.5 million in 2021.

The table below summarizes the distribution of maturities for loan segments as of December 31, 2022:

(1) Nonaccrual loans of $79.7 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, 2022 that are contractually due after December 31, 2023:

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

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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, 2022 of $516.5 million. Management closely monitors the credit status of these securities. At December 31, 2022 the market value over collateralization was greater than 119% for each CLO. The market value over collateralization is a measure of the overall CLO instrument and does not take into account tranche position, and our AAA or AA rated tranche is supported by subordinate tranches.

Average taxable debt investment securities were $1,475 million in 2022, compared to $1,060 million in 2021 and $858 million in 2020. The average yield on taxable debt investment securities was 2.44% in 2022, compared to 1.84% in 2021 and 2.31% in 2020. Average tax-exempt debt investment securities were $405 million in 2022, compared to $288 million in 2021 and $289 million in 2020. The average tax-equivalent yield on tax-exempt debt investment securities was 3.43% in 2022, compared to 3.65% in 2021 and 3.69% in 2020.

Total debt securities (at amortized cost) were $1,855 million at December 31, 2022, compared to $1,727 million at December 31, 2021 and compared to $1,008 million at December 31, 2020. Management purchased debt securities totaling $317 million in 2022, $954 million in 2021 and $354 million in 2020. Proceeds from repayments, redemptions and maturities of debt securities were $186 million in 2022, compared to $232 million in 2021 and $224 million in 2020.

There were no sales of AFS debt securities in 2022 or 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.

For the years ended December 31, 2022, 2021, and 2020, the average tax-equivalent yield on the total investment portfolio was 2.66%, 2.22% and 2.66%, respectively.  The weighted average remaining maturity of the total investment portfolio was 5.0 years at December 31, 2022, 4.8 years at December 31, 2021 and 3.5 years at December 31, 2020. Obligations of U.S. Government sponsored entities and U.S. Government sponsored entities' asset-backed securities were approximately 43.6% of the total investment portfolio at year-end 2022, 47.1% of the total investment portfolio at year-end 2021 and 66.9% of the total investment portfolio at year-end 2020.

Other investment securities (as shown on Park's Consolidated Balance Sheets) consist of restricted stock investments in the FHLB and the FRB and equity securities which include equity investments in limited partnerships which provide mezzanine funding.  Total other investment securities were $87 million at December 31, 2022, compared to $61 million at December 31, 2021 and $65 million at December 31, 2020. Management purchased equity securities totaling $3.6 million in 2020. There were no equity security purchases in 2022 or 2021. There were no FRB stock purchases in 2022, 2021 or 2020. Proceeds from the redemption/repurchase of FHLB stock were $2.2 million in 2022, compared to $8.7 million in 2021 and $8.0 million in 2020.

"Gain on equity securities, net" on Park's Consolidated Statements of Income were $3.0 million, $5.0 million and $2.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. These gains on equity securities were made up of gains (losses) on equity investments carried at fair value as well as gains on equity investments carried at NAV.

For the years ended December 31, 2022, 2021 and 2020, $601,000, $552,000 and $(239,000), 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, 2022, 2021 and 2020, $2.4 million, $4.5 million and $2.4 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 2022, management estimated that the average maturity of the investment portfolio would lengthen to 5.1 years with a 100 basis point increase in long-term interest rates and would lengthen to 5.7 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 2022, management estimated that the average maturity of the investment portfolio would decrease to 4.6 years with a 100 basis point decrease in long-term interest rates and to 4.4 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 2022, 2021 and 2020:

The carrying value of investments in debt securities at December 31, 2022, 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.

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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(1)Loan income includes net loan-related fee (expense) income, purchase accounting accretion and origination expense in the aggregate amount of $(5.5) million in 2022, $11.1 million in 2021 and $12.9 million in 2020.  Loan income also includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate in 2022, 2021 and 2020. The taxable equivalent adjustments were $627,000 in 2022, $704,000 in 2021 and $623,000 in 2020.

(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 2022, 2021 and 2020. The taxable equivalent adjustments were $2.9 million in 2022, $2.2 million in 2021 and $2.2 million in 2020.

(4)Includes subordinated notes.

Average interest earning assets for 2022 increased by $199 million, or 2.2% to $9,227 million, compared to $9,028 million for 2021. Average interest earning assets for 2021 increased by $610 million, or 7.2%, to $9,028 million, compared to $8,419 million for 2020. The average yield on interest earning assets increased by 28 basis points to 4.14% for 2022, compared to 3.86% for 2021, and was 4.28% for 2020.

Interest income for 2022, 2021, and 2020 included $3.7 million, $8.0 million and $453,000, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB as well as $1.8 million, $3.3 million and $4.4 million of purchase accounting accretion for 2022, 2021 and 2020, respectively. Interest income for 2022, 2021 and 2020 included $3.1 million, $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 4.55%, 4.27% and 4.63%, for the years ended December 31, 2022, 2021 and 2020, respectively, the average yield on earning assets was 4.06%, 3.64% and 4.20%, for the years ended December 31, 2022, 2021 and 2020, respectively, and the net interest margin was 3.72%, 3.46% and 3.82%, for the years ended December 31, 2022, 2021 and 2020, respectively.

Average interest bearing liabilities for 2022 increased by $10 million, or 0.2%, to $5,752 million, compared to $5,742 million for 2021. Average interest bearing liabilities for 2021 increased by $10 million, or 0.2%, to $5,742 million, compared to $5,733 million for 2020. The average cost of interest bearing liabilities increased by 26 basis points to 0.54% for 2022, compared to 0.28% for 2021, and was 0.52% for 2020.

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The table below shows for the years ended December 31, 2022, 2021, and 2020, the average balance and tax equivalent yield by type of loan.

(1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate in 2022, 2021 and 2020. The taxable equivalent adjustments were $627,000 in 2022, $704,000 in 2021 and $623,000 in 2020.

Loan interest income for 2022, 2021, and 2020 included $3.7 million, $8.0 million and $453,000, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB, as well as $1.8 million, $3.3 million and $4.4 million of purchase accounting accretion for 2022, 2021 and 2020, respectively. Interest income for 2022, 2021 and 2020 included $3.1 million, $18.0 million and $16.7 million, respectively, of income related to PPP loans. 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 2022, 2021 and 2020 was $173,000, $479,000 and $395,000, respectively. Excluding the impact of these items, the average tax equivalent yield on home equity loans was 4.93%, 3.41% and 3.83%, respectively.

•The amount of interest related to SEPH nonaccrual loan relationships and purchase accounting accretion included in real estate loan interest income for 2022, 2021 and 2020 was $170,000, $243,000 and $391,000, respectively. Excluding the impact of these items, the average tax equivalent yield on real estate loans was 3.80%, 3.71% and 4.08%, respectively.

•The amount of interest related to PPP income, SEPH nonaccrual loan relationships and purchase accounting accretion included in commercial loan interest income for 2022, 2021, and 2020 was $8.2 million, $28.5 million and $19.9 million, respectively. Excluding the impact of these items, the average tax equivalent yield on commercial loans was 4.66%, 4.24% and 4.66%, for 2022, 2021, and 2020, 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 4.55%, 4.27% and 4.63%, for 2022, 2021, and 2020, respectively.

The table below shows for the years ended December 31, 2022, 2021, and 2020, the average balance and cost of funds by type of deposit.

(1) Time deposit interest expense for 2022, 2021 and 2020 benefited from $7,000, $46,000 and $226,000, respectively, of purchase accounting accretion related to the acquisitions of NewDominion and Carolina Alliance. Excluding the impact of this accretion, the average cost of funds on time deposits for 2022, 2021 and 2020 was 0.51%, 0.61% and 1.25%, respectively, and the average cost of funds on total interest bearing deposits for 2022, 2021 and 2020 was 0.39%, 0.12% and 0.41%, respectively.

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The following table displays (for each quarter of 2022) the average balance of interest earning assets, the net interest income and the tax equivalent net interest income and net interest margin.

(1) Net interest income for the first, second, third and fourth quarters of 2022 included $42,000, $2.3 million, $649,000 and $707,000, 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 2022 included $480,000, $547,000, $495,000 and $258,000, respectively, of purchase accounting accretion related to the acquisitions of NewDominion and Carolina Alliance. Net interest income for the first, second, third, and fourth quarters of 2022 included $1.6 million, $1.0 million, $361,000 and $78,000, respectively, related to PPP loans. Excluding the impact of these loan payments and accretion, the tax equivalent net interest margin was 3.48%, 3.68%, 3.75%, and 3.94%, for the first, second, third, and fourth quarters of 2022, respectively, and 3.72% for the year ended December 31, 2022.

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.

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Other Income:  Other income was $135.9 million for 2022, compared to $129.9 million for 2021 and $125.7 million for 2020.

The following table displays total other income for Park in 2022, 2021 and 2020.

Income from fiduciary activities decreased by $358,000, or 1.0%, to $34.1 million in 2022, compared to $34.4 million in 2021. The $34.4 million was an increase of $5.6 million, or 19.3%, compared to $28.9 million in 2020. The majority of fiduciary fees are calculated on a lag, based on the market value of the assets under management. The average market value of the trust assets managed by PNB was $7.22 billion in 2022, compared to $7.45 billion in 2021, compared to $6.17 billion in 2020. The decrease in fiduciary fee income in 2022 was primarily related to the decline in equity market values during the year. The increase in fiduciary fee income in 2021 was 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.

Service charges on deposit accounts increased $1.3 million, or 14.3%, to $10.1 million in 2022, compared to $8.8 million in 2021 and increased by $387,000, or 4.6%, in 2021, compared to $8.4 million in 2020. The increases in 2022 and 2021 were related to increases in non-sufficient funds (NSF) fee income and service charges on demand deposit accounts. Total NSF charges increased $851,000, or 16.2%, from $5.2 million in 2021 to $6.1 million in 2022, and increased by $245,000, or 4.9%, in 2021, compared to $5.0 million in 2020. Service charges on demand deposit accounts increased $365,000, or 11.9%, to $3.4 million in 2022, compared to $3.1 million in 2021 and increased by $154,000, or 5.3%, compared to $2.9 million in 2020.

Other service income decreased $14.5 million, or 48.7%, to $15.3 million in 2022, compared to $29.8 million in 2021, and decreased $7.8 million, or 20.7%, in 2021 compared to $37.6 million in 2020. The decrease in 2022 compared to 2021 was primarily related to a decrease in other service income related to mortgage loan originations, including a $13.8 million decrease in fee income related to a $395.2 million decrease in mortgage loan originations to be sold in the secondary market and a $2.6 million decrease in mortgage servicing rights income, partially offset by a $1.4 million increase in income related to investor rate locks and loans held for sale. 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.

Debit card fee income,which is generated from debit card transactions, increased $181,000, or 0.7%, to $26.0 million in 2022, compared to $25.9 million in 2021, and increased by $3.7 million, or 16.7%, in 2021, compared to $22.2 million in 2020. The increase in 2021 was attributable to continued increases in the volume of debit card transactions, which increased 10.0% in 2021 from 2020, and increases in total sale dollars of debit card transactions, which increased 17.1% in 2021 from 2020. Park continues to focus on deposit offerings that provide incentives for our customers to use their debit card.

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Bank owned life insurance income increased $1.2 million, or 24.6%, to $6.1 million in 2022, compared to $4.9 million in 2021, and increased by $108,000, or 2.3%, in 2021, compared to $4.8 million in 2020. The increase in 2022 related to an increase in death benefit income of $1.4 million recognized in 2022, compared to $440,000 in 2021, and $65,000 in 2020.

Gain (loss) on the sale of OREO, net, reflected a gain of $5.6 million in 2022, an increase of $5.6 million, compared to net loss of $4,000 in 2021, and the net loss of $4,000 in 2021 reflected a decrease of $1.2 million, compared to a net gain of $1.2 million in 2020. A $5.6 million gain on the sale of OREO, net, was recognized during 2022 and related to former Vision Bank relationships. A $1.2 million gain on the sale of two OREO properties was recognized during 2020, one of which was participated to PNB from SEPH.

OREO valuation markup income increased by $12.0 million to $12.0 million in 2022, compared to $64,000 in 2021, and decreased by $41,000 in 2021, compared to $105,000 in 2020. The $12.0 million OREO valuation markup during 2022 related to the foreclosure of a property collateralizing a former Vision Bank relationship. This property was subsequently sold during 2022.

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. No debt securities were sold in 2022 or 2021.

During the years ended December 31, 2022, 2021 and 2020, $601,000, $552,000 and $(239,000), 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, 2022, 2021 and 2020, $2.4 million, $4.5 million and $2.4 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 $3.9 million, or 48.5%, to $12.1 million in 2022, compared to $8.2 million in 2021, and increased $200,000, or 2.5%, to $8.2 million in 2021, compared to $8.0 million in 2020. The increases in 2022 and 2021 were largely due to an increase in the expected return on plan assets as a result of the increased value of plan assets as well as a decrease in the amortization of unrecognized net actuarial losses in 2022.

Miscellaneous income decreased by $1.2 million, or 11.1%, to $9.3 million in 2022, compared to $10.5 million in 2021, and increased $3.2 million, or 44.0%, to $10.5 million in 2021, compared to $7.3 million in 2020. The decrease in 2022 was primarily the result of decreases in brokerage income, operating lease rental income, wire transfer fees, and an increase in OREO devaluations, partially offset by gains on the sale of loans and assets, a decrease in repossessed asset devaluations, and an increase in fees earned on off-balance sheet deposit accounts. 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 the sale of assets.

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Other Expense: Other expense was $298.0 million in 2022, compared to $283.5 million in 2021 and $286.6 million in 2020. Other expense increased by $14.5 million, or 5.1%, in 2022 and decreased by $3.1 million, or 1.1% in 2021. The following table displays total other expense for Park for 2022, 2021 and 2020.

Salaries expense increased by $7.7 million, or 6.1%, to $133.3 million in 2022, compared to $125.6 million in 2021, and decreased by $2.5 million, or 1.9%, in 2021 compared to $128.0 million in 2020. The increase in 2022 was due to an increase in salaries expense of $7.6 million, a $297,000 increase in expense related to the vacation accrual, and a $565,000 reduction in deferred salary costs, partially offset by a $466,000 decrease in share-based compensation expenses related to PBRSU and TBRSU awards granted under the 2017 Employee LTIP. The decrease in 2021 was due to a $4.2 million decrease in salary expense, primarily related to a $3.2 million decrease in severance and restructuring related expense, a $1.1 million decrease in expense related to the vacation accrual 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 Incentive Plan ("the 2013 Incentive Plan") (prior to 2017) and both PBRSU and TBRSU awards granted under the 2017 Employee LTIP.

Park had 1,725 full-time equivalent employees at year-end 2022, compared to 1,685 full-time equivalent employees at year-end 2021 and 1,755 full-time equivalent employees at year-end 2020.

Employee benefits expense decreased $1.1 million, or 2.7%, to $40.5 million in 2022, compared to $41.6 million in 2021, and increased $4.5 million, or 12.1%, in 2021 compared to $37.1 million in 2020. The decrease in 2022 was due to a $2.2 million decrease in group insurance costs, partially offset by an $826,000 increase in payroll tax expense and a $358,000 increase in the KSOP match. 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.

Occupancy expense increased $827,000, or 6.3%, to $13.9 million in 2022, compared to $13.0 million in 2021, and decreased by $763,000, or 5.5%, in 2021 compared to $13.8 million in 2020. The $827,000 increase in 2022 was primarily the result of a $760,000 write-down in the right-of-use lease asset related to an office relocation and an increase in utilities expense, partially offset by a decrease in maintenance and repair expenses and a decline in real estate tax expense. 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.

Furniture and equipment expense increased $1.0 million, or 9.3%, to $11.9 million in 2022, compared to $10.9 million in 2021, and decreased $7.9 million, or 42.1%, in 2021 compared to $18.8 million in 2020. The increase in 2022 was primarily related to

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increased depreciation expense and increased expenses related to repairs and maintenance on equipment. 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.

Data processing fees increased by $2.1 million, or 6.8%, to $32.6 million in 2022, compared to $30.5 million in 2021, and increased $18.9 million, or 161.9%, in 2021 compared to $11.7 million in 2020. The increase in 2022 primarily related to an increase in software expenses of $2.4 million, partially offset by a decrease in debit card processing costs of $277,000. 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 in 2021.

Professional fees and services increased $3.4 million, or 12.3%, to $30.8 million, compared to $27.5 million for 2021, and decreased by $3.9 million, or 12.3%, in 2021 compared to $31.3 million in 2020. 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 $3.4 million increase in 2022 related to an increase in management consulting fees, as well as increases in recruiting fees, vendor single interest insurance costs and fees related to off balance sheet deposit accounts. 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 monitoring costs and title and appraisal costs, partially offset an increase in legal fees.

Marketing expense decreased by $738,000, or 12.2%, to $5.3 million, compared to $6.1 million in 2021, and increased by $245,000, or 4.2%, in 2021 compared to $5.8 million in 2020. The $738,000 decrease in 2022 was primarily due to a decline in advertising expense. The $245,000 increase in 2021 primarily related to increased community donations expense, partially offset by a decline in advertising expense.

Insurance expense decreased by $504,000, or 8.5%, to $5.4 million, compared to $5.9 million in 2021, and decreased by $506,000, or 7.9%, in 2021 compared to $6.4 million in 2020. The decreases in 2022 and 2021 related to a decrease in FDIC assessments.

On February 18, 2020, Park prepaid $50 million of FHLB advances, incurring a $1.8 million prepayment penalty. 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. These advances had an interest rate of 3.40% and a maturity date of December 1, 2023. There were no FHLB prepayment penalties paid in 2021 or 2022.

The subcategory "Miscellaneous" other expense includes expenses for supplies, travel, and other miscellaneous expense. The subcategory Miscellaneous other expense increased by $1.4 million, or 16.0%, to $10.2 million in 2022, compared to $8.8 million in 2021. The $8.8 million in 2021 was a decrease of $920,000, or 9.4%, compared to $9.8 million in 2020. The increase in 2022 related to increases in training and travel related expenses and an increase in the provision for unfunded credit losses, partially offset by a decrease in operating lease depreciation. The decrease in 2021 was primarily related to a decrease in supply expense, operating lease depreciation, OREO expense and training and travel related expenses, partially offset by an increase in non-loan related losses.

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Efficiency Ratio: The following table details the calculation of the efficiency ratio for the years ended December 31, 2022, 2021, and 2020.

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 relate to merger and acquisition activities and revenue and expenses related to former Vision Bank loan relationships. In other cases, they may result from management's decisions associated with significant corporate actions outside of the ordinary course of business.

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

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Income Taxes:

Income tax expense was $32.1 million in 2022 and consisted of federal income tax expense of $30.8 million and state income tax expense of $1.3 million. This compares to income tax expense of $34.3 million for 2021, which consisted of federal income tax expense of $33.2 million and state income tax expense of $1.1 million, and income tax expense of $26.7 million in 2020, which consisted of federal income tax expense of $25.6 million and state income tax expense of $1.1 million. The effective income tax rate was 17.8% in 2022, 18.2% in 2021 and 17.3% in 2020.

The difference between the statutory federal corporate income tax rate of 21% 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 were approximately $7.1 million in 2022, compared to $6.3 million for 2021. Park expects permanent federal tax differences for 2023 will be approximately $6.5 million.

CREDIT METRICS AND PROVISION FOR (RECOVERY OF) CREDIT LOSSES

The provision for (recovery of) 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 (recovery of) credit losses is determined by management based on relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets.

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.

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The table below provides additional information on the provision for (recovery of) credits losses and the ACL for 2022, 2021 and 2020.

For the year ended December 31, 2022, gross income of $4.8 million would have been recognized on loans that were nonaccrual as of December 31, 2022 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 income only when Park expects to receive the entire recorded investment of the loan. Of the $4.8 million that would have been recognized, approximately $3.3 million was included in interest income for the year ended December 31, 2022 as a result of payments made.

Charge-offs for 2022 included the charge-off of $416,000 in specific reserves for which provision expense had been recognized in a prior year, compared to $15,000 for 2021 and $283,000 for 2020. Net charge-offs (recoveries) adjusted for changes in specific reserves as a percentage of average loans for the years ended December 31, 2022, 2021 and 2020 were 0.06%, (0.10)%, and (0.24)%, 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.

At year-end 2022, the allowance for credit losses was $85.4 million, or 1.20%, of total loans outstanding, compared to $83.2 million, or 1.21%, of total loans outstanding at year-end 2021, and $85.7 million, or 1.19% of total loans outstanding at year-end 2020.

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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, 2022, December 31, 2021 and December 31, 2020. Also included is the January 1, 2021 allowance for credit losses calculated under the CECL methodology prescribed in ASU 2016-13.

(1) Excludes $4.2 million of PPP loans and $4,000 in related allowance at December 31, 2022; $5.7 million of PPP loans and $6,000 in related allowance at September 30, 2022; $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 $85.4 million at December 31, 2022 represented an $2.2 million, or 2.6%, increase compared to $83.2 million at December 31, 2021. The increase was largely due to a $2.0 million increase in specific reserves and a $232,000 increase in general reserves, taking into consideration changing economic forecasts while balancing the risks associated with inflation and other economic risks.

The allowance for credit losses of $85.4 million at December 31, 2022 represented a $1.4 million, or 1.7%, increase compared to $84.0 million at September 30, 2022. The increase was largely due to a $1.8 million increase in specific reserves, partially offset by a $398,000 decrease in general reserves, taking into consideration changing economic forecasts while balancing the ongoing risks associated with inflation and other economic risks. Individually evaluated loans were $78.3 million at December 31, 2022, a $34.7 million, or a 79.4%, increase compared to $43.7 million at September 30, 2022. The increase in individually evaluated loans was largely due to a $23.0 million loan to a non-bank consumer finance company which was placed on nonaccrual status as of December 31, 2022. This credit did not have a specific reserve associated with it as of December 31, 2022.

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.

Management believes that the allowance for credit losses at year-end 2022 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:

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

The following table summarizes Park's allocation of the allowance for credit losses for the past three years:

As of December 31, 2022, 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. There were no other nonperforming assets as of December 31, 2022. As of December 31, 2021 and 2020, 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 the last three years:

Included in OREO totals above were $1.4 million of SEPH OREO at December 31, 2022 and $594,000 of SEPH OREO at both December 31, 2021 and December 31, 2020.

Park classifies loans as nonaccrual when 1) a loan 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, 2022, 2021, and 2020.