# PARK NATIONAL CORP /OH/ (PRK) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from PARK NATIONAL CORP /OH/'s 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/805676/000080567624000037/prk-20231231.htm Accession: 0000805676-24-000037 Filing date: 2024-02-23 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/PRK/ All MD&A years: /company/PRK/mda/ Previous year: /company/PRK/mda/fy2022/ (FY 2022) Next year: /company/PRK/mda/fy2024/ (FY 2024) 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, that may reflect deterioration in business and economic conditions, including the effects of higher unemployment rates or labor shortages, the impact of persistent inflation, the impact of continued elevated interest rates, 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 as well as the Israel-Hamas conflict), and any slowdown in global economic growth, 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; •the effect of monetary and other fiscal policies (including the impact of money supply, ongoing increasing 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; •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, government shutdown, infrastructure spending and social programs; -38- •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 and continued elevated interest rates; •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; •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 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 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; •Park's ability to anticipate and respond to technological changes and Park's reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Park's primary core banking system provider, which can impact 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; •Park's ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Park's third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Park and/or result in Park incurring a financial loss; •a failure in or breach of Park's operational or security systems or infrastructure, or those of our third-party vendors and other service providers, resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems, including as a result of cyber attacks; •the impact on Park's business and operating results of any costs associated with obtaining rights in intellectual property claimed by others and of 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, 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; -39- •the impact of widespread natural and other disasters, pandemics (including the COVID-19 pandemic), dislocations, regional or national protests and civil unrest (including any resulting branch closures or damages), military or terrorist activities or international hostilities (especially in light of the Russia-Ukraine conflict and the Israel-Hamas conflict) on the economy and financial markets generally and on us or our counterparties specifically; •the potential further deterioration 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; •the impact of larger or similar-sized financial institutions encountering problems which may adversely affect the banking industry and/or Park's business generation and retention, funding and liquidity, including potential increased regulatory requirements and increased reputational risk and potential impacts to macroeconomic conditions; •Park's continued ability to grow deposits or maintain adequate deposit levels due to changing customer behaviors; •unexpected outflows of deposits which may require Park to sell assets at a loss; •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. 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 ("PTPP"). 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, 2023 and December 31, 2022. For the purpose of calculating the return on average tangible equity, a non-GAAP financial measure, net income for each period is -40- 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 from average shareholders' equity, average tangible assets from average assets, tangible equity from total shareholders' equity, tangible assets from total assets, and pre-tax, pre-provision net income from 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. -41- OVERVIEW The table below reflects Park's net income for the years ended December 31, 2023, 2022 and 2021. [[GREPCENT_TABLE]] [["Table 1 - Summary Income Statement"],["(In thousands)","2023","2022","2021"],["Net interest income","$","373,113","","$","347,059","","$","329,893"],["Provision for (recovery of) credit losses","2,904","","4,557","","(11,916)"],["Other income","92,634","","135,935","","129,944"],["Other expense","309,239","","297,978","","283,518"],["Income before income taxes","$","153,604","","$","180,459","","$","188,235"],["Income tax expense","26,870","","32,108","","34,290"],["Net income","$","126,734","","$","148,351","","$","153,945"],["Pre-tax, pre-provision net income (1)","$","156,508","","$","185,016","","$","176,319"]] [[/GREPCENT_TABLE]] (1) PTPP net income is calculated as net income, plus income taxes, plus the provision for (recovery of) credit losses, in each case during the applicable period. Net income for the year ended December 31, 2023 of $126.7 million represented a $21.6 million, or 14.6%, decrease compared to $148.4 million for the year ended December 31, 2022. 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 (non-U.S. GAAP) for the year ended December 31, 2023 of $156.5 million represented a $28.5 million, or 15.4%, decrease compared to $185.0 million for the year ended December 31, 2022. 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. Highlights from the years ended December 31, 2023, 2022, and 2021 included: •Park completed a series of debt security sale trades in November 2023, selling an aggregate of $291.0 million in available-for-sale ("AFS") debt securities with a net pre-tax loss of $7.9 million for the year ended December 31, 2023. Among the various objectives of the trade, the liquidity generated from the sale was used to reduce borrowing needs and improve the overall net interest margin. No gain or loss on the sale of debt securities was recorded in the years ended December 31, 2022 or December 31, 2021. •Net interest income for the year ended December 31, 2023 of $373.1 million represented a $26.1 million, or 7.5%, increase compared to $347.1 million for the year ended December 31, 2022. Net interest income for the year ended December 31, 2022 of $347.1 million represented a $17.2 million, or 5.2%, increase compared to $329.9 million for the year ended December 31, 2021. ◦During the year ended December 31, 2023, Park recorded interest income of $69,000 related to PPP loans, compared to $3.1 million for the year ended December 31, 2022 and $18.0 million for 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 years ended December 31, 2023 or 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 compared to $46,000 for the year ended December 31, 2023. There was no OREO valuation markup related to former Vision Bank relationships during the year ended December 31, 2021. •During the years ended December 31, 2023, 2022, and 2021, Park incurred $100,000, $1.8 million, and $1.4 million, respectively, in direct expenses related to the collection of payments on former Vision Bank loan relationships. •During the year ended December 31, 2023, Park contributed $1.0 million to its charitable foundation, compared to $4.0 million for each of the years ended December 31, 2022 and December 31, 2021. •Park's loans outstanding at December 31, 2023 increased 4.7% compared to December 31, 2022. Park's loans outstanding at December 31, 2022 increased 3.9% compared to December 31, 2021. •Park's loan portfolio had net loan charge-offs as a percentage of average loans of 0.07% for the year ended December 31, 2023, compared to net loan charge-offs as a percentage of average loans of 0.03% for the year ended December 31, 2022 and net loan recoveries as a percentage of average loans of 0.05% for the year ended December 31, 2021. -42- Net income for each of the years ended December 31, 2023, 2022 and 2021, included several items of income and expense that impacted 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. DIVIDENDS ON COMMON SHARES Cash dividends declared on Park's common shares were $4.20 in 2023, $4.66 in 2022 and $4.52 in 2021. Dividends declared as a percentage of net income was 54%, 51% and 48% for 2023, 2022, and 2021, respectively. Management targets a dividend payout ratio of 50% each year. The quarterly cash dividend on Park's common shares was $1.05 per share for each of the quarters of 2023. 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. 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. 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. 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 significant judgments impacting the ACL estimate is the economic forecasts for Ohio unemployment, Ohio GDP, and Ohio HPI. These economic forecasts inform the regression model used to calculate cash flows during the reasonable and supportable forecast period. Additionally, multiple economic forecast scenarios are weighted to arrive at the quantitative reserve. Changes in the economic forecast or weighting could significantly affect the estimated credit losses which could potentially lead to materially different allowance levels from one reporting period to the next. As noted above, in calculating the ACL, management weighs different scenarios, including a baseline (most likely) scenario and an adverse scenario. At December 31, 2023, management applied a 50% weighting to the baseline scenario and applied a 50% weighting to the 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) Tensions with China and Taiwan increase and China briefly interrupts trade through the Taiwan Strait and that the Russian invasion lasts longer than expected. Worries grow that the Hamas-Israel conflict will lead to a wider conflict. (2) Due to continuing concerns about inflation, the Fed keeps the fed funds rate at the terminal range of 5.25-5.50% through the first quarter of 2024 and, as downturn persist, the Fed begins to lower rates. (3) Europe goes into a recession. Populism in Europe rises, raising uncertainties about the longevity of the Euro and causes financial stress to highly indebted nations, especially Italy. (4) Risk of an extended government shutdown increases, -43- causing consumer and business confidence to fall. (5) Concerns about bank failures raise fears of further collapse in the banking industry, reducing consumer confidence and causing banks to tighten lending standards. (6) Recession occurs in the first quarter of 2024 and lasts through the third quarter of 2024. Real GDP declines by 2.6%. Unemployment rate rises to a peak of 7.7% in the first quarter of 2025. The stock market falls 35% from the first quarter of 2024 to the third quarter of 2024. The adverse scenario forecasts Ohio unemployment for the next twelve months to range from 6.2% to 8.8%. Excluding consideration of qualitative adjustments, this sensitivity analysis would result in a hypothetical increase in Park's ACL of $23.6 million as of December 31, 2023 if only the adverse scenario was used. Excluding consideration of qualitative adjustments, a corresponding $23.6 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. 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 is the discount rate and the expected return on assets. The discount rate utilized for the December 31, 2023 calculation was 5.14% and the expected return on plan assets was 6.92%. This compares to the discount rate utilized for the December 31, 2022 calculation of 5.32% and the expected return on plan assets of 6.92%. Presented below is the estimated impact on Park's projected benefit obligation ("PBO") and 2024 pension expense assuming changes in the significant assumptions. [[GREPCENT_TABLE]] [["Table 2 - Pension Sensitivity"],["","","Discount Rate","","Expected Return on Plan Assets"],["(In thousands)","","- 25 BPS","","+25 BPS","","- 50 BPS","","+50 BPS"],["Change in PBO","","$","3,580","","","$","(3,420)","","","N.A.","","N.A."],["Change in Pension Expense","","80","","","(70)","","","$","1,140","","","$","(1,140)"]] [[/GREPCENT_TABLE]] 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, 2023, 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. -44- 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 $8,360 million in 2023, compared to $8,450 million in 2022 and $8,187 million in 2021. The average interest rate paid on interest bearing deposits was 1.52% in 2023, compared to 0.39% in 2022 and 0.12% in 2021. The average cost of interest bearing deposits for each quarter of 2023 was 1.84% for the fourth quarter, 1.63% for the third quarter, 1.46% for the second quarter and 1.15% for the first quarter.  The table below provides a summary of deposit balances as of December 31, 2023 and 2022, along with the change over the past year. [[GREPCENT_TABLE]] [["Table 3 - Year-End Deposits"],["December 31 (In thousands)","","2023","","2022","","Change"],["Non-interest bearing checking","","$","2,628,234","","","$","3,074,276","","","$","(446,042)"],["Interest bearing transaction accounts","","2,064,512","","","1,988,106","","","76,406"],["Savings","","2,541,959","","","2,616,563","","","(74,604)"],["Time deposits","","641,615","","","554,445","","","87,170"],["Brokered deposits and Bid Ohio CDs","","164,985","","","\u2014","","","164,985"],["Other","","1,261","","","1,325","","","(64)"],["Total","","$","8,042,566","","","$","8,234,715","","","$","(192,149)"],["Off balance sheet deposits","","1,185","","","195,937","","","(194,752)"],["Total deposits including off balance sheet deposits","","$","8,043,751","","","$","8,430,652","","","$","(386,901)"]] [[/GREPCENT_TABLE]] During the years ended December 31, 2023 and 2022, Park decided to continue participation in a program to transfer deposits off-balance sheet in order to manage growth of the balance sheet, as deposits increased significantly throughout the COVID-19 pandemic. Park is able to increase or decrease the amount of deposit balances transferred off balance sheet based on its balance sheet management strategies and liquidity needs. The balance of deposits transferred off balance sheet has declined as deposit balances have returned to pre-pandemic levels. At December 31, 2023 and December 31, 2022, Park had $1.2 million and $195.9 million, respectively, in off balance sheet deposits. The table below breaks out the change in deposit balances, by deposit type, for Park. [[GREPCENT_TABLE]] [["Table 4 - Retail and Commercial Deposits"],["December 31 (In thousands)","2023","2022","2021","2020","2019"],["Retail deposits","$","4,080,372","","$","4,388,394","","$","4,416,228","","$","4,025,852","","$","3,748,039"],["Commercial deposits","3,962,194","","3,846,321","","3,488,300","","3,546,506","","3,304,573"],["Total deposits","$","8,042,566","","$","8,234,715","","$","7,904,528","","$","7,572,358","","$","7,052,612"],["Off balance sheet deposits","1,185","","195,937","","983,053","","710,101","","\u2014"],["Total deposits including off balance sheet deposits","$","8,043,751","","$","8,430,652","","$","8,887,581","","$","8,282,459","","$","7,052,612"],["$ change from prior period end","$","(386,901)","","$","(456,929)","","$","605,122","","$","1,229,847"],["% change from prior period end","(4.6)","%","(5.1)","%","7.3","%","17.4","%"]] [[/GREPCENT_TABLE]] . During the year ended December 31, 2023, total deposits, including off balance sheet deposits, decreased by $386.9 million, or 4.6%. This decrease consisted of a $308.0 million decrease in total retail deposits and a $194.8 million decrease in off balance sheet deposits, partially offset by a $115.9 million increase in total commercial deposits. The majority of off balance sheet deposits are commercial and thus impact the increase in commercial deposits as the deposits are moved back onto the balance sheet. Included in the total commercial deposits and off balance sheet deposits shown in the previous table are public fund deposits. These balances fluctuate based on seasonality and the cycle of collection and remittance of tax funds. The following table -45- details the change in public fund deposits. [[GREPCENT_TABLE]] [["Table 5 - Public Fund Deposits"],["December 31 (In thousands)","2023","2022","2021","2020","2019"],["Total public fund deposits","$","1,213,418","","$","1,335,400","","$","1,548,217","","$","1,406,101","","$","1,293,090"],["$ change from prior period end","$","(121,982)","","$","(212,817)","","$","142,116","","$","113,011"],["% change from prior period end","(9.1)","%","(13.7)","%","10.1","%","8.7","%"]] [[/GREPCENT_TABLE]] As of December 31, 2023, Park had approximately $1.3 billion of uninsured deposits, which was 16.2% of total deposits. Uninsured deposits of $1.3 billion included $288.2 million of deposits which were over $250,000 but were fully collateralized by Park's investment securities portfolio. As of December 31, 2022, Park had approximately $1.7 billion of uninsured deposits, which was 21.2% of total deposits. Uninsured deposits of $1.7 billion included $254.2 million of deposits which were over $250,000 but were fully collateralized by Park's investment securities portfolio. 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 $250,000, by remaining time until maturity, as of December 31, 2023: [[GREPCENT_TABLE]] [["Table 6 - Maturities of Time Deposits in Excess of FDIC Insurance Limit"],["December 31 (In thousands)","","2023"],["3 months or less","","$","45,932"],["Over 3 months through 6 months","","24,937"],["Over 6 months through 12 months","","45,936"],["Over 12 months","","9,710"],["Total","","$","126,515"]] [[/GREPCENT_TABLE]] 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 2.58% in 2023, compared to 0.67% in 2022 and 0.27% in 2021. The year-end balance for short-term borrowings was $328 million at December 31, 2023, compared to $227 million at December 31, 2022 and $239 million at December 31, 2021.  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 2023, the average balance of long-term debt was $189 million, compared to $188 million in 2022 and $206 million in 2021. The average interest rate paid on long-term debt was 4.97% in 2023, compared to 4.69% in 2022 and 4.32% in 2021. Average total debt (long-term and short-term) was $372 million in 2023, compared to $396 million in 2022 and $493 million in 2021. Average total debt decreased by $23.6 million, or 6.0% in 2023 compared to 2022, and decreased by $97.4 million, or 19.8%, in 2022 compared to 2021. Average long-term debt was 51% of average total debt in 2023, compared to 48% of average total debt in 2022 and 42% of average total debt in 2021. 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 174 basis points above the three-month CME Term SOFR.  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. -46- 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 Corporation 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 11.64% at December 31, 2023, compared to 10.85% at December 31, 2022 and 11.62% at December 31, 2021. The non-gaap ratio of tangible shareholders’ equity [shareholders' equity ($1,145.3 million) less goodwill ($159.6 million) and other intangible assets ($4.7 million)] to tangible assets [total assets ($9,836.5 million) less goodwill ($159.6 million) and other intangible assets ($4.7 million)] was 10.14% at December 31, 2023, compared to 9.33% at December 31, 2022 and 10.05% at December 31, 2021. 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 $67.9 million at year-end 2023, compared to an unrealized net holding loss, net of income taxes, of $95.7 million at year-end 2022 and compared to an unrealized net holding gain, net of income taxes, of $21.2 million at year-end 2021. The unrealized net holding loss on AFS debt securities at December 31, 2023 was impacted by the realization of $6.2 million in losses, net of income taxes, during the year ended December 31, 2023 as the result of the sale of $291.0 million in AFS debt securities. The unrealized net holding loss, net of income taxes, on cash flow hedging derivatives was zero at year-end 2023 and year-end 2022, compared to $206,000 at year-end 2021. 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 income of $8.4 million in 2023, compared to net other comprehensive loss of $888,000 in 2022 and compared to net other comprehensive income of $28.6 million in 2021. The net other comprehensive income in 2023 was largely due to a $10.5 million net actuarial gain. The gain was due to asset returns greater than expected, partially offset by the impact of demographic losses driven by salary increases greater than assumed and a decrease in the discount rate. The net other comprehensive loss in 2022 was largely due to $558,000 in prior service cost, as a result of plan amendments, and a $551,000 net actuarial loss. 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. At year-end 2023, the balance in accumulated other comprehensive income pertaining to the pension plan was unrealized income of $1.7 million, compared to an unrealized loss of $6.7 million at December 31, 2022 and compared to an unrealized loss of $5.8 million at December 31, 2021. -47- INVESTMENT OF FUNDS Loans:  Average loans were $7,222 million in 2023, compared to $6,956 million in 2022 and $7,015 million in 2021. The average yield on average loan balances was 5.55% in 2023, compared to 4.65% in 2022 and 4.53% in 2021. Approximately 47% of Park’s loan balances mature or reprice within one year (see Table 31).  The average yield on average loan balances for each quarter of 2023 was 5.84% for the fourth quarter, 5.65% for the third quarter, 5.43% for the second quarter and 5.24% for the first quarter.   Loan interest income for 2023, 2022, and 2021 included $631,000, $3.7 million and $8.0 million, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB. In addition, loan interest income included $633,000, $1.8 million and $3.3 million, respectively, of the accretion of loan purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Loan interest income for 2023, 2022 and 2021 included interest and fee income related to PPP loans of $69,000, $3.1 million and $18.0 million, respectively. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 5.53%, 4.55% and 4.27%, for the years ended December 31, 2023, 2022, and 2021. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 5.83% for the fourth quarter of 2023, 5.64% for the third quarter of 2023, 5.42% for the second quarter of 2023, and 5.20% for the first quarter of 2023. At December 31, 2023, loan balances were $7,476 million, compared to $7,142 million at year-end 2022, an increase of $334 million, or 4.7%. At December 31, 2022, loan balances were $7,142 million, compared to $6,871 million at year-end 2021, an increase of $271 million, or 3.9%. The table below reports year-end loan balances by type of loan for the past three years. [[GREPCENT_TABLE]] [["Table 7 - Loans by Type"],["December 31 (In thousands)","","2023","","2022","","2021"],["Commercial, financial and agricultural","","$","1,295,640","","","$","1,300,933","","","$","1,298,626"],["Construction real estate","","305,099","","","325,415","","","321,786"],["Residential real estate","","2,029,524","","","1,796,871","","","1,738,707"],["Commercial real estate","","1,875,993","","","1,794,054","","","1,801,792"],["Consumer","","1,945,936","","","1,904,981","","","1,689,679"],["Leases","","24,029","","","19,637","","","20,532"],["Total loans","","$","7,476,221","","","$","7,141,891","","","$","6,871,122"]] [[/GREPCENT_TABLE]] On a combined basis, year-end commercial, financial and agricultural loans, construction real estate loans and commercial real estate loans increased $56.3 million, or 1.6%, in 2023. The increase in 2023 was due to an increase in commercial real estate of $81.9 million, partially offset by a decrease of $20.3 million in construction real estate and a $5.3 million decrease in commercial, financial and agricultural loans. 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. Consumer loans increased by $41.0 million, or 2.1%, in 2023 and increased by $215.3 million, or 12.7%, in 2022. The increase in consumer loans in each of 2023 and 2022 was primarily due to an increase in automobile lending in Ohio. Residential real estate loans increased by $232.7 million, or 12.9%, in 2023 and increased by $58.2 million, or 3.3%, in 2022. The increase in 2023 was due to an increase in mortgage loans secured by residential real estate of $164.4 million, an increase in commercial loans secured by residential real estate of $59.2 million, an increase in home equity loans secured by residential real estate of $7.2 million and an increase in installment loans secured by residential real estate of $1.8 million.  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 increased by $4.4 million to $24.0 million in 2023 and decreased by $895,000 to $19.6 million in 2022. -48- The table below summarizes the distribution of maturities for loan segments as of December 31, 2023: [[GREPCENT_TABLE]] [["Table 8 - Loan Maturity Distribution"],["","","One Year or Less (1)","","Over One Through Five Years","","Over Five Through Fifteen Years","Over Fifteen Years","","Total"],["December 31, 2023"],["(In thousands)"],["Commercial, financial and agricultural","","$","373,508","","","$","693,293","","","$","130,650","","$","98,189","","","$","1,295,640"],["Construction real estate","","61,279","","","80,606","","","82,596","","80,618","","","305,099"],["Residential real estate","","62,098","","","189,334","","","789,824","","988,268","","","2,029,524"],["Commercial real estate","","95,091","","","364,939","","","728,255","","687,708","","","1,875,993"],["Consumer","","23,131","","","871,136","","","1,024,969","","26,700","","","1,945,936"],["Leases","","2,446","","","21,405","","","178","","\u2014","","","24,029"],["Total loans and leases","","$","617,553","","","$","2,220,713","","","$","2,756,472","","$","1,881,483","","","$","7,476,221"]] [[/GREPCENT_TABLE]] (1) Nonaccrual loans of $60.3 million are included within the one year or less classification above. The table below summarizes the composition of the loan portfolio by fixed and adjustable rate as of December 31, 2023 that are contractually due after December 31, 2024: [[GREPCENT_TABLE]] [["Table 9 - Amounts Due After One Year"],["(In thousands)","","Fixed","","Adjustable","","Total"],["Commercial, financial and agricultural","","$","469,483","","","$","452,649","","","$","922,132"],["Construction real estate","","58,679","","","185,141","","","243,820"],["Residential real estate","","653,446","","","1,313,980","","","1,967,426"],["Commercial real estate","","444,820","","","1,336,082","","","1,780,902"],["Consumer","","1,901,979","","","20,826","","","1,922,805"],["Leases","","21,583","","","\u2014","","","21,583"],["Total loans and leases","","$","3,549,990","","","$","3,308,678","","","$","6,858,668"]] [[/GREPCENT_TABLE]] 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 net interest margin. 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. 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, 2023 of $438.3 million. Management closely monitors the credit status of these securities. At December 31, 2023, the market value of overcollateralization was greater than 122% for each CLO. The market value of overcollateralization is a measure of the underlying collateral value of the instrument relative to our specific tranche position, and our AAA or AA rated senior tranches are supported by subordinate tranches. Average taxable debt investment securities were $1,387 million in 2023, compared to $1,475 million in 2022 and $1,060 million in 2021. The average yield on taxable debt investment securities was 3.81% in 2023, compared to 2.44% in 2022 and 1.84% in 2021. Average tax-exempt debt investment securities were $400 million in 2023, compared to $405 million in 2022 and $288 million in 2021. The average tax-equivalent yield on tax-exempt debt investment securities was 3.47% in 2023, compared to 3.43% in 2022 and 3.65% in 2021. Total debt securities (at amortized cost) were $1,419 million at December 31, 2023, compared to $1,855 million at December 31, 2022 and $1,727 million at December 31, 2021. Management purchased debt securities totaling $4 million in 2023, $317 million in 2022 and $954 million in 2021. Proceeds from repayments, redemptions and maturities of debt securities were $145 million in 2023, $186 million in 2022 and $232 million in 2021.   -49- During 2023, Park sold certain AFS debt securities with a book value of $291.0 million at a gross loss of $7.9 million. There were no sales of AFS debt securities in 2022 or 2021. For the years ended December 31, 2023, 2022, and 2021, the average tax-equivalent yield on the total investment portfolio was 3.73%, 2.66% and 2.22%, respectively.  The weighted average remaining maturity of the total investment portfolio was 4.8 years at December 31, 2023, 5.0 years at December 31, 2022 and 4.8 years at December 31, 2021. Obligations of U.S. Government sponsored entities and U.S. Government sponsored entities' asset-backed securities were approximately 44.4% of the total investment portfolio at year-end 2023, 43.6% of the total investment portfolio at year-end 2022 and 47.1% of the total investment portfolio at year-end 2021.  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 other financial institutions and equity investments in limited partnerships which provide mezzanine funding.  Total other investment securities were $96 million at December 31, 2023, $87 million at December 31, 2022 and $61 million at December 31, 2021. There were $18.2 million in FHLB stock purchases in 2023 and no FHLB stock purchases in 2022 or 2021. Proceeds from the redemption/repurchase of FHLB stock were $11.7 million in 2023, compared to $2.2 million in 2022 and compared to $8.7 million in 2021. No shares of FRB stock were purchased or sold in any of the years ended December 31, 2023, 2022, or 2021. Management purchased equity securities totaling $2.2 million in 2023 and $9.2 million in 2022. There were no equity security purchases in 2021. During the years ended December 31, 2023, 2022, and 2021, Park entered into partnership agreements with commitments totaling $2.7 million, $16.3 million and $3.0 million, respectively. Funding of limited partnerships totaled $5.6 million, $4.8 million and $1.1 million during the years ended December 31, 2023, 2022, and 2021, respectively. "Gain on equity securities, net" on Park's Consolidated Statements of Income were $971,000, $3.0 million and $5.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. These gains on equity securities were made up of gains (losses) on equity investments carried at fair value as well as gains (losses) on equity investments carried at modified cost and gains (losses) on partnership investments carried at NAV. For the years ended December 31, 2023, 2022 and 2021, $600,000, $601,000 and $552,000, respectively, of gains on equity investments carried at fair value were recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income. For the years ended December 31, 2023, 2022 and 2021, $371,000, $2.4 million and $4.5 million, respectively, of gains on equity investments carried at NAV were recorded within "Gain on equity securities, net" on Park's Consolidated Statements of Income. The average maturity of the investment portfolio would lengthen if long-term interest rates were to increase as principal repayments from mortgage-backed securities and CMOs would decrease and callable securities would price to their maturity dates.  At year-end 2023, management estimated that the average maturity of the investment portfolio would lengthen to 5.0 years with a 100 basis point increase in long-term interest rates and would lengthen to 5.4 years with a 200 basis point increase in long-term interest rates. Likewise, the average maturity of the investment portfolio would shorten if long-term interest rates were to decrease as the principal repayments from mortgage-backed securities and CMOs would increase and callable securities would price to their call dates. At year-end 2023, management estimated that the average maturity of the investment portfolio would decrease to 4.4 years with a 100 basis point decrease in long-term interest rates and to 4.3 years with a 200 basis point decrease in long-term interest rates. -50- The table below sets forth the carrying value of investment securities, as well as the percentage held within each category at year-end 2023, 2022 and 2021: [[GREPCENT_TABLE]] [["Table 10 - Investment Securities"],["December 31 (In thousands)","","2023","","2022","","2021"],["Obligations of U.S. Government sponsored entities","","$","\u2014","","","$","37,213","","","$","\u2014"],["Obligations of states and political subdivisions","","241,184","","","406,711","","","389,591"],["U.S. Government sponsored entities' asset-backed securities","","635,475","","","756,761","","","854,463"],["Collateralized loan obligations","","438,286","","","516,539","","","498,674"],["Corporate debt securities","","17,897","","","16,472","","","11,412"],["FHLB stock","","17,754","","","11,197","","","13,413"],["FRB stock","","14,653","","","14,653","","","14,653"],["Equities","","63,895","","","61,241","","","33,202"],["Total","","$","1,429,144","","","$","1,820,787","","","$","1,815,408"],["Investments by category as a percentage of total investment securities"],["Obligations of U.S. Government sponsored entities","","\u2014","%","","2.0","%","","\u2014","%"],["Obligations of states and political subdivisions","","16.9","%","","22.3","%","","21.5","%"],["U.S. Government sponsored entities' asset-backed securities","","44.4","%","","41.6","%","","47.1","%"],["Collateralized loan obligations","","30.7","%","","28.4","%","","27.5","%"],["Corporate debt securities","","1.3","%","","0.9","%","","0.6","%"],["FHLB stock","","1.2","%","","0.6","%","","0.7","%"],["FRB stock","","1.0","%","","0.8","%","","0.8","%"],["Equities","","4.5","%","","3.4","%","","1.8","%"],["Total","","100.0","%","","100.0","%","","100.0","%"]] [[/GREPCENT_TABLE]] The carrying value of investments in debt securities at December 31, 2023, is shown in the following table by contractual maturity, except for asset-backed securities and collateralized loan obligations, which are shown as a single total, due to the unpredictability of the timing in principal repayments. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. [[GREPCENT_TABLE]] [["Table 11 - Investment Maturity Distribution"],["","","Over One Through Five Years","Over Five Through Ten Years","Over Ten Years","","Total"],["December 31, 2023"],["(In thousands)"],["Corporate debt securities","","$","2,801","","$","15,096","","$","\u2014","","","$","17,897"],["Obligations of states and political subdivisions","","1,511","","110,449","","129,224","","","241,184"],["Total","","$","4,312","","$","125,545","","$","129,224","","","$","259,081"],["U.S. Government sponsored entities' asset-backed securities","","","","","","$","635,475"],["Collateralized loan obligations","","","","","","438,286"]] [[/GREPCENT_TABLE]] 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.) -51- [[GREPCENT_TABLE]] [["Table 12 - Distribution of Assets, Liabilities and Shareholders' Equity"],["December 31,","2023","2022","2021"],["(In thousands)","Daily Average","Interest","Average Rate","Daily Average","Interest","Average Rate","Daily Average","Interest","Average Rate"],["ASSETS"],["Loans (1)(2)","$","7,222,479","","$","400,606","","5.55","%","$","6,955,674","","$","323,734","","4.65","%","$","7,014,517","","$","317,912","","4.53","%"],["Taxable investment securities","1,386,670","","52,786","","3.81","%","1,474,659","","36,047","","2.44","%","1,059,809","","19,458","","1.84","%"],["Tax-exempt investment securities (3)","400,028","","13,881","","3.47","%","404,788","","13,878","","3.43","%","288,300","","10,514","","3.65","%"],["Money market instruments","162,544","","8,123","","5.00","%","392,256","","8,129","","2.07","%","665,714","","880","","0.13","%"],["Total interest earning assets","9,171,721","","475,396","","5.18","%","9,227,377","","381,788","","4.14","%","9,028,340","","348,764","","3.86","%"],["Non-interest earning assets:"],["Allowance for credit losses","(87,002)","","","","(81,736)","","","","(87,233)"],["Cash and due from banks","147,414","","","","157,295","","","","139,678"],["Premises and equipment, net","79,443","","","","86,322","","","","89,758"],["Other assets","645,978","","","","654,950","","","","676,915"],["TOTAL","$","9,957,554","","","","$","10,044,208","","","","$","9,847,458"],["LIABILITIES AND SHAREHOLDERS' EQUITY"],["Interest bearing liabilities:"],["Transaction accounts","$","2,209,846","","$","32,633","","1.48","%","$","1,932,752","","$","6,880","","0.36","%","$","1,550,138","","$","357","","0.02","%"],["Savings deposits","2,727,299","","39,143","","1.44","%","2,771,016","","10,766","","0.39","%","2,924,504","","1,238","","0.04","%"],["Time deposits","608,870","","12,677","","2.08","%","653,041","","3,314","","0.51","%","774,825","","4,711","","0.61","%"],["Total interest bearing deposits","5,546,015","","84,453","","1.52","%","5,356,809","","20,960","","0.39","%","5,249,467","","6,306","","0.12","%"],["Federal funds purchased","26","","1","","5.66","%","68","","1","","0.95","%","68","","\u2014","","0.10","%"],["Repurchase agreements","146,388","","2,583","","1.76","%","199,813","","1,134","","0.57","%","261,967","","95","","0.04","%"],["Short-term borrowings","36,633","","2,137","","5.83","%","7,195","","260","","3.62","%","25,025","","672","","2.69","%"],["Long-term debt (4)","188,908","","9,383","","4.97","%","188,439","","8,833","","4.69","%","205,883","","8,887","","4.32","%"],["Total interest bearing liabilities","5,917,970","","98,557","","1.67","%","5,752,324","","31,188","","0.54","%","5,742,410","","15,960","","0.28","%"],["Non-interest bearing liabilities:"],["Demand deposits","2,814,259","","","","3,093,019","","","","2,937,035"],["Other","128,182","","","","121,986","","","","102,553"],["Total non-interest bearing liabilities","2,942,441","","","","3,215,005","","","","3,039,588"],["Shareholders' equity","1,097,143","","","","1,076,879","","","","1,065,460"],["TOTAL","$","9,957,554","","","","$","10,044,208","","","","$","9,847,458"],["Tax equivalent net interest income","","$","376,839","","","","$","350,600","","","","$","332,804"],["Net interest spread","","","3.51","%","","","3.60","%","","","3.58","%"],["Net yield on interest earning assets (net interest margin)","","","4.11","%","","","3.80","%","","","3.69","%"]] [[/GREPCENT_TABLE]] (1)Loan income includes net loan-related fee (expense) income, purchase accounting accretion and origination expense in the aggregate amount of $(12.1) million in 2023, $(5.5) million in 2022 and $11.1 million in 2021.  Loan income also includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate in 2023, 2022 and 2021. The taxable equivalent adjustments were $811,000 in 2023, $627,000 in 2022 and $704,000 in 2021. -52- (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 2023, 2022 and 2021. The taxable equivalent adjustments were $2.9 million in 2023, $2.9 million in 2022 and $2.2 million in 2021. (4)Includes subordinated notes. Average interest earning assets for 2023 decreased by $55 million, or 0.6%, to $9,172 million, compared to $9,227 million for 2022. The decrease was largely due to a $230 million decrease in average money market instruments and a $93 million decrease in average investment securities, partially offset by a $267 increase in average loans. Average interest earning assets for 2022 increased by $199 million, or 2.2% to $9,227 million, compared to $9,028 million for 2021. The average yield on interest earning assets increased by 104 basis points to 5.18% for 2023, compared to 4.14% for 2022 and compared to 3.86% for 2021. Loan interest income for 2023, 2022, and 2021 included $631,000, $3.7 million and $8.0 million, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB. In addition, loan interest income included $633,000, $1.8 million and $3.3 million, respectively, of the accretion of loan purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Loan interest income for 2023, 2022 and 2021 included interest and fee income related to PPP loans of $69,000, $3.1 million and $18.0 million, respectively. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on loans was 5.53%, 4.55% and 4.27%, for the years ended December 31, 2023, 2022, and 2021. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the average yield on earning assets was 5.17%, 4.06% and 3.64%, for the years ended December 31, 2023, 2022 and 2021, respectively, and the net interest margin was 4.09%, 3.72% and 3.46%, for the years ended December 31, 2023, 2022 and 2021, respectively. Average interest bearing liabilities for 2023 increased by $166 million, or 2.9%, to $5,918 million, compared to $5,752 million for 2022. Average interest bearing liabilities for 2022 increased by $10 million, or 0.2%, to $5,752 million, compared to $5,742 million for 2021. The average cost of interest bearing liabilities increased by 113 basis points to 1.67% for 2023, compared to 0.54% for 2022 and compared to 0.28% for 2021. As of December 31, 2023, through-the-cycle beta on interest bearing deposits (measured as the change from December 31, 2021 to December 31, 2023 compared to the change in the Fed Funds target rate) totaled 33%, while the through-the-cycle betas on total deposits and total cost of funds were 22% and 23%, respectively. During this same time period, betas on loans and total interest earning assets were 24% and 31%, respectively. The table below shows for the years ended December 31, 2023, 2022, and 2021, the average balance and tax equivalent yield by type of loan. [[GREPCENT_TABLE]] [["Table 13 - Average Loans and Tax Equivalent Yield"],["Year Ended December 31,","","2023","","2022","","2021"],["(Dollars in thousands)","","Average balance","","Tax equivalent yield","","Average balance","","Tax equivalent yield","","Average balance","","Tax equivalent yield"],["Home equity","","$","169,570","","","8.17","%","","$","163,388","","","5.03","%","","$","168,708","","","3.71","%"],["Installment loans","","1,942,428","","","5.49","%","","1,818,778","","","4.74","%","","1,688,966","","","4.80","%"],["Real estate loans","","1,253,919","","","4.38","%","","1,145,989","","","3.81","%","","1,176,885","","","3.73","%"],["Commercial loans (1)","","3,852,174","","","5.83","%","","3,823,481","","","4.85","%","","3,977,165","","","4.69","%"],["Other","","4,388","","","8.07","%","","4,038","","","8.47","%","","2,793","","","12.07","%"],["Total loans and leases before allowance for credit losses","","$","7,222,479","","","5.55","%","","$","6,955,674","","","4.65","%","","$","7,014,517","","","4.53","%"]] [[/GREPCENT_TABLE]] (1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate in 2023, 2022 and 2021. The taxable equivalent adjustments were $811,000 in 2023, $627,000 in 2022 and $704,000 in 2021. Loan interest income for 2023, 2022, and 2021 included $631,000, $3.7 million and $8.0 million, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB, as well as $633,000, $1.8 million and $3.3 million of purchase accounting accretion for 2023, 2022 and 2021, respectively. Interest income for 2023, 2022 and 2021 included interest and fee income related to PPP loans of $69,000, $3.1 million and $18.0 million, respectively. Below is a summary of the impact of these items on the tax equivalent yield of loans. •The amount of interest related to SEPH nonaccrual loan relationships and purchase accounting accretion included in home equity loan interest income for 2023, 2022 and 2021 was $79,000, $173,000 and $479,000, respectively. -53- Excluding the impact of these items, the average tax equivalent yield on home equity loans was 8.11%, 4.93% and 3.41%, respectively. •The amount of interest related to SEPH nonaccrual loan relationships and purchase accounting accretion included in real estate loan interest income for 2023, 2022 and 2021 was $4,000, $170,000 and $243,000, respectively. Excluding the impact of these items, the average tax equivalent yield on real estate loans was 4.38%, 3.80% and 3.71%, respectively. •The amount of interest related to PPP income, SEPH nonaccrual loan relationships and purchase accounting accretion included in commercial loan interest income for 2023, 2022 and 2021 was $1.2 million, $8.2 million and $28.5 million, respectively. Excluding the impact of these items, the average tax equivalent yield on commercial loans was 5.80%, 4.66% and 4.24%, for 2023, 2022 and 2021, respectively. •Excluding the impact of interest related to PPP income, SEPH nonaccrual loan relationships and purchase accounting accretion, the average tax equivalent yield on total loans and leases was 5.53%, 4.55% and 4.27%, for 2023, 2022, and 2021, respectively. The table below shows for the years ended December 31, 2023, 2022, and 2021, the average balance and cost of funds by type of deposit. [[GREPCENT_TABLE]] [["Table 14 - Average Deposits and Cost of Funds"],["Year Ended December 31,","","2023","","2022","","2021"],["(Dollars in thousands)","","Average balance","","Cost of funds","","Average balance","","Cost of funds","","Average balance","","Cost of funds"],["Transaction accounts","","$","2,209,846","","","1.48","%","","$","1,932,752","","","0.36","%","","$","1,550,138","","","0.02","%"],["Savings deposits and clubs","","2,727,299","","","1.44","%","","2,771,016","","","0.39","%","","2,924,504","","","0.04","%"],["Time deposits","","608,870","","","2.08","%","","653,041","","","0.51","%","","774,825","","","0.61","%"],["Total interest bearing deposits","","$","5,546,015","","","1.52","%","","$","5,356,809","","","0.39","%","","$","5,249,467","","","0.12","%"]] [[/GREPCENT_TABLE]] The following table displays (for each quarter of 2023) the average balance of interest earning assets, the net interest income and the tax equivalent net interest income and net interest margin. [[GREPCENT_TABLE]] [["Table 15 - Quarterly Net Interest Margin"],["(In thousands)","","Average Interest Earning Assets","","Net Interest Income","","Tax Equivalent Net Interest Income","","Tax Equivalent Net Interest Margin"],["First Quarter","","$","9,267,418","","","$","92,198","","","$","93,124","","","4.08","%"],["Second Quarter","","9,122,323","","","91,572","","","92,492","","","4.07","%"],["Third Quarter","","9,178,281","","","94,269","","","95,311","","","4.12","%"],["Fourth Quarter","","9,120,407","","","95,074","","","95,912","","","4.17","%"],["2023","","$","9,171,721","","","$","373,113","","","$","376,839","","","4.11","%"]] [[/GREPCENT_TABLE]] -54- In the following table, the change in tax equivalent interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. [[GREPCENT_TABLE]] [["Table 16 - Volume/Rate Variance Analysis"],["","","Change from 2022 to 2023","","Change from 2021 to 2022"],["(In thousands)","","Volume","","Rate","","Total","","Volume","","Rate","","Total"],["Increase (decrease) in:"],["Interest income:"],["Total loans","","$","12,426","","","$","64,446","","","$","76,872","","","$","(2,666)","","","$","8,488","","","$","5,822"],["Taxable investments","","(2,151)","","","18,890","","","16,739","","","7,617","","","8,972","","","16,589"],["Tax-exempt investments","","(164)","","","167","","","3","","","4,248","","","(884)","","","3,364"],["Money market instruments","","(4,760)","","","4,754","","","(6)","","","(361)","","","7,610","","","7,249"],["Total interest income","","5,351","","","88,257","","","93,608","","","8,838","","","24,186","","","33,024"],["Interest expense:"],["Transaction accounts","","$","986","","","$","24,767","","","$","25,753","","","$","88","","","$","6,435","","","$","6,523"],["Savings accounts","","(170)","","","28,547","","","28,377","","","(65)","","","9,593","","","9,528"],["Time deposits","","(224)","","","9,587","","","9,363","","","(741)","","","(656)","","","(1,397)"],["Short-term borrowings","","(162)","","","3,488","","","3,326","","","(214)","","","842","","","628"],["Long-term debt","","22","","","528","","","550","","","(753)","","","699","","","(54)"],["Total interest expense","","452","","","66,917","","","67,369","","","(1,685)","","","16,913","","","15,228"],["Net variance","","$","4,899","","","$","21,340","","","$","26,239","","","$","10,523","","","$","7,273","","","$","17,796"]] [[/GREPCENT_TABLE]] Other Income:  Other income was $92.6 million for 2023, compared to $135.9 million for 2022 and $129.9 million for 2021. The following table displays total other income for Park in 2023, 2022 and 2021. [[GREPCENT_TABLE]] [["Table 17 - Other Income"],["Year Ended December 31,"],["(In thousands)","","2023","","2022","","2021"],["Income from fiduciary activities","","$","35,474","","","$","34,091","","","$","34,449"],["Service charges on deposit accounts","","8,445","","","10,091","","","8,832"],["Other service income","","10,300","","","15,295","","","29,812"],["Debit card fee income","","26,522","","","26,046","","","25,865"],["Bank owned life insurance income","","5,338","","","6,100","","","4,897"],["ATM fees","","2,178","","","2,273","","","2,379"],["(Loss) gain on the sale of OREO, net","","(3)","","","5,611","","","(4)"],["OREO valuation markup","","60","","","12,039","","","64"],["Loss on sale of debt securities, net","","(7,875)","","","\u2014","","","\u2014"],["Gain on equity securities, net","","971","","","2,955","","","5,011"],["Other components of net periodic benefit income","","7,572","","","12,108","","","8,152"],["Miscellaneous","","3,652","","","9,326","","","10,487"],["Total other income","","$","92,634","","","$","135,935","","","$","129,944"]] [[/GREPCENT_TABLE]] Income from fiduciary activities increased by $1.4 million, or 4.1%, to $35.5 million, compared to $34.1 million in 2022. The $34.1 million in 2022 was a decrease of $358,000, or 1.0%, compared to $34.4 million in 2021. 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 $7.69 billion in 2023, compared to $7.22 billion in 2022 and $7.45 billion in 2021. The increase in fiduciary fee income in 2023 was primarily related to an increase in trust assets due to improvements in equity market values -55- and new trust accounts.  The decrease in fiduciary fee income in 2022 was primarily related to the decline in equity market values during the year. Service charges on deposit accounts decreased $1.6 million, or 16.3%, to $8.4 million in 2023 compared to $10.1 million in 2022. The $10.1 million in 2022 was an increase of $1.3 million, or 14.3%, compared to $8.8 million in 2021. The decrease in 2023 was related to decreases in non-sufficient funds (NSF) fee income. The increase in 2022 was related to increases in non-sufficient funds (NSF) fee income and service charges on demand deposit accounts. Other service income decreased $5.0 million, or 32.7%, to $10.3 million in 2023, compared to $15.3 million in 2022. The $15.3 million in 2022 was a decrease of $14.5 million, or 48.7%, compared to $29.8 million in 2021. The decrease in 2023 compared to 2022 was primarily related to a decrease in other service income related to mortgage loan originations, including a $2.6 million decrease in fee income related to mortgage loan originations to be sold in the secondary market and a $1.7 million decrease in mortgage servicing rights income, partially offset by a $465,000 increase in income related to investor rate locks and loans held for sale. 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 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 $1.4 million increase in income related to investor rate locks and loans held for sale. As noted, Park has experienced a decline in mortgage loan origination volume resulting in a decrease in other service income. A summary of mortgage loan originations for the years ended December 31, 2023, 2022 and 2021 follows. [[GREPCENT_TABLE]] [["Table 18 - Mortgage Loan Origination Volume"],["Year Ended December 31,"],["(In thousands)","2023","2022","2021"],["Sold","$","59,386","$","159,142","$","555,278"],["Portfolio","249,151","263,287","284,686"],["Construction","92,612","120,794","119,555"],["Service released","5,825","14,738","13,802"],["Total mortgage loan originations","$","406,974","$","557,961","$","973,321"],["Refinances as a % of Total Mortgage Loan Originations","17.4","%","29.4","%","54.2","%"]] [[/GREPCENT_TABLE]] Debit card fee income, which is generated from debit card transactions, increased $476,000, or 1.8%, to $26.5 million in 2023, compared to $26.0 million in 2022. The $26.0 million in 2022 was an increase of $181,000, or 0.7%, compared to $25.9 million in 2021. The increases in 2023 and 2022 were attributable to continued increases in both the volume of debit card transactions and increases in total sales dollars of debit card transactions. Debit card transaction volume increased 3.4% in 2023 from 2022 and increased 1.1% in 2022 from 2021. Total sales dollars of debit card transactions increased 2.5% in 2023 from 2022 and increased 3.7% in 2022 from 2021. Park continues to focus on deposit offerings that provide incentives for our customers to use their debit card. Bank owned life insurance income decreased $762,000, or 12.5%, to $5.3 million in 2023, compared to $6.1 million in 2022. The $6.1 million in 2022 was an increase of $1.2 million, or 24.6%, compared to $4.9 million in 2021. The decrease in 2023 and increase in 2022 was related to a decrease in death benefit income of $325,000 recognized in 2023, compared to $1.4 million recognized in 2022 and compared to $440,000 in 2021. (Loss) gain on the sale of OREO, net, reflected a net loss of $3,000 in 2023, compared to a net gain of $5.6 million in 2022, and a net loss of $4,000 in 2021. A $5.6 million gain on the sale of OREO, net, was recognized during 2022 and was related to former Vision Bank relationships. OREO valuation markup income was $60,000, $12.0 million and $64,000 for 2023, 2022, and 2021, respectively. 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 2023, Park sold certain AFS debt securities with a book value of $291.0 million at a gross loss of $7.9 million. No debt securities were sold in 2022 or 2021. -56- During the years ended December 31, 2023, 2022 and 2021, $600,000, $601,000 and $552,000, respectively, of gains on equity investments carried at fair value were recorded within "Gain on equity securities, net". For the years ended December 31, 2023, 2022 and 2021, $371,000, $2.4 million and $4.5 million, respectively, of gains on equity investments carried at NAV were recorded within "Gain on equity securities, net". Other components of net periodic pension benefit income decreased $4.5 million, or 37.5%, to $7.6 million in 2023, compared to $12.1 million in 2022. The $12.1 million in 2022 was an increase of $3.9 million, or 48.5%, compared to $8.2 million in 2021. The decrease in 2023 was largely due a decrease in the expected return on plan assets as well as an increase in interest cost. The increase in 2022 was largely due to an increase in the expected return on plan assets as a result of the increased value of plan assets as well as a decrease in the amortization of unrecognized net actuarial losses in 2022. Miscellaneous income decreased by $5.7 million, or 60.8%, to $3.7 million in 2023, compared to $9.3 million in 2022. The $9.3 million in 2022 was a decreased of $1.2 million, or 11.1%, compared to $10.5 million in 2021. The decrease in 2023 was primarily due to a decrease in the net gain on the sale of loans and other assets, a decrease due to the write downs on strategic initiatives, and a decrease in fees earned on off-balance sheet deposit accounts. 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. Other Expense: Other expense was $309.2 million in 2023, compared to $298.0 million in 2022 and compared to $283.5 million in 2021. Other expense increased by $11.3 million, or 3.8%, in 2023 compared to 2022 and increased by $14.5 million, or 5.1%, in 2022 compared to 2021. The following table displays total other expense for Park for 2023, 2022 and 2021. [[GREPCENT_TABLE]] [["Table 19 - Other Expense"],["Year Ended December 31,"],["(In thousands)","2023","","2022","","2021"],["Salaries","$","139,237","","","$","133,299","","","$","125,585"],["Employee benefits","42,264","","","40,490","","","41,603"],["Occupancy expense","13,114","","","13,866","","","13,039"],["Furniture and equipment expense","12,233","","","11,901","","","10,887"],["Data processing fees","37,637","","","32,627","","","30,539"],["Professional fees and services","29,173","","","30,837","","","27,450"],["Marketing","5,471","","","5,335","","","6,073"],["Insurance","7,640","","","5,413","","","5,917"],["Communication","4,210","","","3,891","","","3,539"],["State tax expense","4,657","","","4,585","","","4,255"],["Amortization of intangible assets","1,323","","","1,487","","","1,798"],["Foundation contributions","1,000","","","4,000","","","4,000"],["Miscellaneous","11,280","","","10,247","","","8,833"],["Total other expense","$","309,239","","","$","297,978","","","$","283,518"],["Full-time equivalent employees","1,782","","","1,725","","","1,685"]] [[/GREPCENT_TABLE]] Salaries expense increased by $5.9 million, or 4.5%, to $139.2 million in 2023, compared to $133.3 million in 2022, and increased $7.7 million, or 6.1%, to $133.3 million in 2022, compared to $125.6 million in 2021. The increase in 2023 was due to an increase in salaries expense of $11.1 million and a $909,000 increase in share-based compensation expenses related to PBRSU and TBRSU awards granted under the 2017 Employee LTIP, partially offset by a $4.4 million decrease in additional compensation expense and a $1.6 million decrease in officer incentive compensation expense. 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. Park had 1,782 full-time equivalent employees at year-end 2023, compared to 1,725 full-time equivalent employees at year-end 2022 and 1,685 full-time equivalent employees at year-end 2021. Park has increased full-time equivalent employees during the last two years as it has invested in people and technology to prepare for future growth and enhance the customer experience. -57- Employee benefits expense increased $1.8 million, or 4.4%, to $42.3 million in 2023, compared to $40.5 million in 2022, and decreased $1.1 million, or 2.7%, to $40.5 million in 2022 compared to $41.6 million in 2021. The increase in 2023 was due to a $3.5 million increase in group insurance costs, a $1.0 million increase in payroll tax expense and a $347,000 increase in the KSOP match, partially offset by a $3.5 million decrease in pension plan expense. 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. Occupancy expense decreased by $752,000, or 5.4%, to $13.1 million in 2023, compared to $13.9 million in 2022, and increased $827,000, or 6.3%, to $13.9 million in 2022 compared to $13.0 million in 2021. The $752,000 decrease in 2023 was primarily related to decreased lease expense and depreciation expense, partially offset by an increase in maintenance and repair expenses and an increase in utilities expense. 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. Furniture and equipment expense increased $332,000, or 2.8%, to $12.2 million in 2023, compared to $11.9 million in 2022, and increased $1.0 million, or 9.3%, to $11.9 million in 2022 compared to $10.9 million in 2021. The increases in 2023 and 2022 were primarily related to increased depreciation expense and increased expenses related to repairs and maintenance on equipment. Data processing fees increased by $5.0 million, or 15.4%, to $37.6 million in 2023, compared to $32.6 million in 2022, and increased $2.1 million, or 6.8%, to $32.6 million in 2022 compared to $30.5 million in 2021. The increase in 2023 primarily related to an increase in software expenses of $3.7 million and an increase in debit card processing costs of $1.4 million. 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. Professional fees and services decreased $1.7 million, or 5.4%, to $29.2 million in 2023, compared to $30.8 million in 2022, and increased $3.4 million, or 12.3%, to $30.8 million in 2022 compared to $27.5 million in 2021. 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 $1.7 million decrease in 2023 related to decreases in management consulting fees and recruiting fees, partially offset by increases in IntraFi insured deposit fees and temporary wages. The $3.4 million increase in 2022 related to a increases in management consulting fees, recruiting fees, and IntraFi insured deposit fees. Marketing expense increased by $136,000, or 2.5%, to $5.5 million in 2023, compared to $5.3 million in 2022 and decreased by $738,000, or 12.2%, to $5.3 million in 2022 compared to $6.1 million in 2021. The $738,000 decrease in 2022 was primarily due to a decline in advertising expense. Insurance expense increased by $2.2 million, or 41.1%, to $7.6 million in 2023 compared to $5.4 million in 2022 and decreased by $504,000, or 8.5%, to $5.4 million in 2022 compared to $5.9 million in 2021. The increase in 2023 and the decrease in 2022 were related to fluctuations in FDIC assessment expense. The subcategory "Miscellaneous" other expense includes expenses for supplies, travel, and other miscellaneous expense. The subcategory Miscellaneous other expense increased by $1.0 million, or 10.1%, to $11.3 million in 2023 compared to $10.2 million in 2022 and increased $1.4 million, or 16.0%, to $10.2 million in 2022 compared to $8.8 million in 2021. The increase in 2023 was related to increases in training and travel expenses and increased expense related to losses as a result of fraud and other non loan related losses and other miscellaneous expenses, partially offset by a decrease in operating lease depreciation expense and a decrease in the expense for the provision for unfunded credit losses. The increase in 2022 related to increases in training and travel related expenses and an increase in the provision for unfunded credit losses, partially offset by a decrease in operating lease depreciation. -58- Efficiency Ratio: The following table details the calculation of the efficiency ratio for the years ended December 31, 2023, 2022, and 2021. [[GREPCENT_TABLE]] [["Table 20 - Efficiency ratio(1)","","Year Ended December 31,"],["(In thousands)","","2023","2022","2021"],["Net interest income","","$","373,113","","$","347,059","","$","329,893"],["Add: Tax equivalent adjustment (2)","","3,726","","3,541","","2,911"],["Net interest income - Fully tax equivalent","","$","376,839","","$","350,600","","$","332,804"],["Total other income","","$","92,634","","$","135,935","","$","129,944"],["Total other expense","","$","309,239","","$","297,978","","$","283,518"],["Efficiency ratio","","65.87","%","61.24","%","61.27","%"],["(1) Calculated by dividing \"Total other expense\" by the sum of fully-tax equivalent net interest income and \"Total other income.\""],["(2) The tax equivalent adjustment to net interest income was calculated assuming a 21% corporate federal income tax rate for 2023, 2022 and 2021."]] [[/GREPCENT_TABLE]] Items Impacting Comparability (non-U.S. GAAP): From time to time, revenue, expenses, and/or taxes are impacted by items judged by management of Park to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by management of Park at that time to be infrequent or short-term in nature. Most often, these items impacting comparability of period results relate to merger and acquisition activities and revenue and expenses related to former Vision Bank loan relationships. In other cases, they may result from management's decisions associated with significant corporate actions outside of the ordinary course of business. The following table details those items which management believes impacts the comparability of current and prior period amounts. [[GREPCENT_TABLE]] [["Table 21 - Items impacting comparability","","Year Ended December 31,"],["(In thousands, except share and per share data)","","2023","2022","2021","","Affected Line Item"],["Net interest income","","$","373,113","","$","347,059","","$","329,893"],["less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions","","633","","1,773","","3,257","","","Interest and fees on loans"],["less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions","","\u2014","","7","","46","","","Interest on deposits"],["less interest income on former Vision Bank relationships","","631","","3,703","","7,985","","","Interest and fees on loans"],["Net interest income - adjusted","","$","371,849","","$","341,576","","$","318,605"],["Provision for (recovery of) credit losses","","$","2,904","","$","4,557","","$","(11,916)"],["less recoveries on former Vision Bank relationships","","(788)","","(1,319)","","(3,169)","","","Provision for (recovery of) credit losses"],["Provision for (recovery of) credit losses - adjusted","","$","3,692","","$","5,876","","$","(8,747)"],["Total other income","","$","92,634","","$","135,935","","$","129,944"],["less write-downs on strategic initiatives","","(1,038)","","\u2014","","\u2014","","","Miscellaneous income"],["less Vision related gain on the sale of OREO, net","","\u2014","","5,607","","\u2014","","","(Loss) gain on the sale of OREO, net"],["less other service income related to former Vision Bank relationships","","175","","788","","525","","","Other service income"],["less Vision related OREO valuation markup","","46","","12,009","","\u2014","","","OREO valuation markup"],["less net loss on the sale of debt securities","","(7,875)","","\u2014","","\u2014","","","Loss on the sale of debt securities, net"],["Total other income - adjusted","","$","101,326","","$","117,531","","$","129,419"]] [[/GREPCENT_TABLE]] -59- [[GREPCENT_TABLE]] [["Table 21 - Items impacting comparability (continued)","","Year Ended December 31,"],["(In thousands, except share and per share data)","","2023","2022","2021","","Affected Line Item"],["Total other expense","","$","309,239","","$","297,978","","$","283,518"],["less core deposit intangible amortization related to NewDominion and Carolina Alliance acquisitions","","1,323","","1,487","","1,798","","","Amortization of intangible assets"],["less Foundation contributions","","1,000","","4,000","","4,000","","","Foundation contributions"],["less direct expenses related to collection of payments on former Vision Bank loan relationships","","100","","1,761","","1,361","","","Professional fees and services"],["Total other expense - adjusted","","$","306,816","","$","290,730","","$","276,359"],["Tax effect of adjustments to net income identified above (9)","","$","1,903","","$","(3,771)","","$","(1,643)"],["Net income - reported","","$","126,734","","$","148,351","","$","153,945"],["Net income - adjusted (8)","","$","133,894","","$","134,164","","$","147,765"],["Diluted earnings per common share","","$","7.80","","$","9.06","","$","9.37"],["Diluted earnings per common share, adjusted (8)","","$","8.24","","$","8.20","","$","9.00"],["Return on average assets (1)(2)","","1.27","%","1.48","%","1.56","%"],["Return on average assets, adjusted (1)(2)(8)","","1.34","%","1.34","%","1.50","%"],["Return on average tangible assets (1)(2)(5)","","1.29","%","1.50","%","1.59","%"],["Return on average tangible assets, adjusted (1)(2)(5)(8)","","1.37","%","1.36","%","1.53","%"],["Return on average shareholders' equity (1)(2)","","11.55","%","13.78","%","14.45","%"],["Return on average shareholders' equity, adjusted (1)(2)(8)","","12.20","%","12.46","%","13.87","%"],["Return on average tangible equity (1)(2)(3)","","13.60","%","16.29","%","17.15","%"],["Return on average tangible equity, adjusted (1)(2)(3)(8)","","14.36","%","14.73","%","16.46","%"],["Efficiency ratio (7)","","65.87","%","61.24","%","61.27","%"],["Efficiency ratio, adjusted (7)(8)","","64.34","%","62.84","%","61.29","%"],["Net interest margin (7)","","4.11","%","3.80","%","3.69","%"],["Net interest margin, adjusted (7)(8)","","4.09","%","3.74","%","3.56","%"]] [[/GREPCENT_TABLE]] -60- [[GREPCENT_TABLE]] [["Table 21 - Items impacting comparability (continued)"],["Financial Reconciliations"],["(1) Reported measure uses net income."],["(2) Averages are for the years ended December 31, 2023, December 31, 2022 and December 31, 2021, as appropriate."],["(3) Net income for each period divided by average tangible equity during the period. Average tangible equity equals average shareholders' equity during the applicable period less average goodwill and other intangible assets during the applicable period."],["RECONCILIATION OF AVERAGE SHAREHOLDERS' EQUITY TO AVERAGE TANGIBLE EQUITY:"],["","","Year Ended December 31,"],["","","2023","2022","2021"],["AVERAGE SHAREHOLDERS' EQUITY","","$","1,097,143","","$","1,076,879","","$","1,065,460"],["Less: Average goodwill and other intangible assets","","164,960","","166,337","","167,993"],["AVERAGE TANGIBLE EQUITY","","$","932,183","","$","910,542","","$","897,467"],["(4) Tangible equity divided by common shares outstanding at period end. Tangible equity equals total shareholders' equity less goodwill and other intangible assets, in each case at the end of the period."],["RECONCILIATION OF TOTAL SHAREHOLDERS' EQUITY TO TANGIBLE EQUITY:"],["","","Year Ended December 31,"],["","","2023","2022","2021"],["TOTAL SHAREHOLDERS' EQUITY","","$","1,145,293","","$","1,069,226","","$","1,110,759"],["Less: Goodwill and other intangible assets","","164,247","","165,570","","167,057"],["TANGIBLE EQUITY","","$","981,046","","$","903,656","","$","943,702"],["(5) Net income for each period divided by average tangible assets during the period. Average tangible assets equal average assets less average goodwill and other intangible assets, in each case during the applicable period."],["RECONCILIATION OF AVERAGE ASSETS TO AVERAGE TANGIBLE ASSETS"],["","","Year Ended December 31,"],["","","2023","2022","2021"],["AVERAGE ASSETS","","$","9,957,554","","$","10,044,208","","$","9,847,458"],["Less: Average goodwill and other intangible assets","","164,960","","166,337","","167,993"],["AVERAGE TANGIBLE ASSETS","","$","9,792,594","","$","9,877,871","","$","9,679,465"],["(6) Tangible equity divided by tangible assets. Tangible assets equal total assets less goodwill and other intangible assets, in each case at the end of the period."],["RECONCILIATION OF TOTAL ASSETS TO TANGIBLE ASSETS:"],["","","Year Ended December 31,"],["","","2023","2022","2021"],["TOTAL ASSETS","","$","9,836,453","","$","9,854,993","","$","9,560,254"],["Less: Goodwill and other intangible assets","","164,247","","165,570","","167,057"],["TANGIBLE ASSETS","","$","9,672,206","","$","9,689,423","","$","9,393,197"],["(7) Efficiency ratio is calculated by dividing total other expense by the sum of FTE net interest income and other income. The reconciliation of FTE net interest income to net interest income is shown below assuming a 21% federal corporate income tax rate. Additionally, net interest margin is calculated on a fully taxable equivalent basis by dividing FTE net interest income by average interest earning assets, in each case during the applicable period."],["RECONCILIATION OF FULLY TAXABLE EQUIVALENT NET INTEREST INCOME TO NET INTEREST INCOME"],["","","Year Ended December 31,"],["","","2023","2022","2021"],["Interest income","","$","471,670","","$","378,247","","$","345,853"],["FTE adjustment","","3,726","","3,541","","2,911"],["FTE interest income","","$","475,396","","$","381,788","","$","348,764"],["Interest expense","","98,557","","31,188","","15,960"],["FTE net interest income","","$","376,839","","$","350,600","","$","332,804"]] [[/GREPCENT_TABLE]] -61- [[GREPCENT_TABLE]] [["(8) Adjustments to net income for each period presented are detailed in the non-GAAP reconciliations of net interest income, provision for (recovery of) credit losses, total other income, and total other expense as well as the disclosure of the \"Tax effect of adjustments to net income identified above.\""],["(9) The tax effect of adjustments to net income was calculated assuming a 21% federal corporate income tax rate."],["(10) Pre-tax, pre-provision (\"PTPP\") net income is calculated as net income, plus income taxes, plus the provision for (recovery of) credit losses, in each case during the applicable period. PTPP net income is a common industry metric utilized in capital analysis and review. PTPP is used to assess the operating performance of Park while excluding the impact of the provision for (recovery of) credit losses."],["RECONCILIATION OF PRE-TAX, PRE-PROVISION NET INCOME"],["","","Year Ended December 31,"],["","","2023","2022","2021"],["Net income","","$","126,734","","$","148,351","","$","153,945"],["Plus: Income taxes","","26,870","","32,108","","34,290"],["Plus: Provision for (recovery of) credit losses","","2,904","","4,557","","(11,916)"],["Pre-tax, pre-provision net income","","$","156,508","","$","185,016","","$","176,319"]] [[/GREPCENT_TABLE]] Income Taxes: Income tax expense was $26.9 million in 2023 and consisted of federal income tax expense of $25.7 million and state income tax expense of $1.2 million. This compares to income tax expense of $32.1 million in 2022, which 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. The effective income tax rate was 17.5% in 2023, 17.8% in 2022 and 18.2% in 2021.  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 $6.6 million in 2023, compared to $7.1 million in 2022 and $6.3 million for 2021. Park expects permanent federal tax differences for 2024 will be approximately $5.5 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. The adoption of ASU 2022-02 on January 1, 2023 resulted in a $383,000 increase to the allowance for credit losses. A cumulative effect adjustment resulting in a $303,000 decrease to retained earnings and an $80,000 increase to deferred tax assets was also recorded. Additionally, as a result of the adoption of this ASU and elimination of the concept of TDRs, total nonperforming loans decreased by $20.1 million effective January 1, 2023 and individually evaluated loans decreased by $11.5 million effective January 1, 2023. -62- The table below provides additional information on the provision for (recovery of) credits losses and the ACL for 2023, 2022 and 2021. [[GREPCENT_TABLE]] [["Table 22 - ACL Activity"],["(In thousands)","2023","2022","2021"],["ACL, beginning balance","$","85,379","","$","83,197","","$","85,675"],["Cumulative change in accounting principle; adoption of ASU 2016-13","\u2014","","\u2014","","6,090"],["Cumulative change in accounting principle; adoption of ASU 2022-02","383","","\u2014","","\u2014"],["Charge-offs","10,863","","9,133","","5,093"],["Recoveries","(5,942)","","(6,758)","","(8,441)"],["Net charge-offs (recoveries)","4,921","","2,375","","(3,348)"],["Provision for (recovery of) credit losses:","2,904","","4,557","","(11,916)"],["ACL, ending balance","$","83,745","","$","85,379","","$","83,197"],["Average loans","$","7,222,479","","$","6,955,674","","$","7,014,517"],["Net charge-offs (recoveries) as a percentage of average loans","0.07","%","0.03","%","(0.05)","%"]] [[/GREPCENT_TABLE]] For the year ended December 31, 2023, gross income of $5.7 million would have been recognized on loans that were nonaccrual as of December 31, 2023 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 $5.7 million that would have been recognized, approximately $3.9 million was included in interest income for the year ended December 31, 2023 as a result of payments made. At year-end 2023, the allowance for credit losses was $83.7 million, or 1.12%, of total loans outstanding, compared to $85.4 million, or 1.20%, of total loans outstanding at year-end 2022, and $83.2 million, or 1.21% of total loans outstanding at year-end 2021. The following table provides additional information related to the allowance for credit losses for Park including information related to individual reserves and collective reserves, at December 31, 2023, December 31, 2022 and December 31, 2021. [[GREPCENT_TABLE]] [["Table 23- Allowance for Credit Losses Summary"],["(Dollars in thousands)","12/31/2023","12/31/2022","12/31/2021"],["Total allowance for credit losses","$","83,745","","$","85,379","","$","83,197"],["Allowance on accruing PCD loans","\u2014","","\u2014","","\u2014"],["Reserves on individually evaluated loans","4,983","","3,566","","1,616"],["General reserves on collectively evaluated loans","$","78,762","","$","81,813","","$","81,581"],["Total loans","$","7,476,221","","$","7,141,891","","$","6,871,122"],["Accruing PCD loans","2,835","","4,653","","7,149"],["Individually evaluated loans","45,215","","78,341","","74,502"],["Collectively evaluated loans","$","7,428,171","","$","7,058,897","","$","6,789,471"],["Allowance for credit losses as a % of period end loans","1.12","%","1.20","%","1.21","%"],["General reserve as a % of collectively evaluated loans","1.06","%","1.16","%","1.20","%"]] [[/GREPCENT_TABLE]] The allowance for credit losses of $83.7 million at December 31, 2023 represented a $1.6 million, or 1.9%, decrease compared to $85.4 million at December 31, 2022. The decrease was largely due to a $3.1 million decrease in general reserves taking into account changing economic forecasts while balancing the risks associated with other economic factors and a $1.4 million increase in individual reserves. 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 individual reserves and a -63- $232,000 increase in general reserves, taking into consideration changing economic forecasts while balancing the risks associated with inflation and other economic factors. Management believes that the allowance for credit losses at year-end 2023 is adequate to absorb estimated life of loan credit losses in the loan portfolio. See "Note 1 - Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K, and the discussion under the heading “CRITICAL ACCOUNTING POLICIES” earlier in this Management's Discussion and Analysis of Financial Condition and Results of Operations, for additional information on management’s evaluation of the adequacy of the allowance for credit losses. ACL Detail by Loan Type: The following tables breakdown the allowance for credit losses and components by loan type. The table below provides a summary of Park's loan loss experience over the past three years: [[GREPCENT_TABLE]] [["Table 24 - Summary of Loan Credit Loss Experience"],["(In thousands)","","2023","","2022","","2021"],["Average loans","","$","7,222,479","","","$","6,955,674","","","$","7,014,157"],["Allowance for credit losses:"],["Beginning balance","","85,379","","","83,197","","","85,675"],["Adoption of ASU 2016-13","","\u2014","","","\u2014","","","6,090"],["Adoption of ASU 2022-02","","383","","\u2014","","","\u2014"],["Charge-offs:"],["Commercial, financial and agricultural","","1,226","","","2,056","","","957"],["Construction real estate","","546","","","33","","","\u2014"],["Residential real estate","","44","","","81","","","49"],["Commercial real estate","","754","","","1,578","","","35"],["Consumer","","8,293","","","5,343","","","4,052"],["Leases","","\u2014","","","42","","","\u2014"],["Total charge-offs","","$","10,863","","","$","9,133","","","$","5,093"],["Recoveries:"],["Commercial financial, and agricultural","","$","292","","","$","826","","","$","639"],["Construction real estate","","548","","","1,343","","","2,299"],["Residential real estate","","482","","","164","","","941"],["Commercial real estate","","240","","","627","","","802"],["Consumer","","4,379","","","3,767","","","3,759"],["Leases","","1","","","31","","","1"],["Total recoveries","","$","5,942","","","$","6,758","","","$","8,441"],["Net charge-offs (recoveries)","","$","4,921","","","$","2,375","","","$","(3,348)"],["Provision (recovery) included in net income","","2,904","","","4,557","","","(11,916)"],["Ending balance","","$","83,745","","","$","85,379","","","$","83,197"],["Ratio of net charge-offs (recoveries) to average loans","","0.07","%","","0.03","%","","(0.05)","%"],["Ratio of allowance for credit losses to end of year loans","","1.12","%","","1.20","%","","1.21","%"]] [[/GREPCENT_TABLE]] -64- The follow table presents net-charge offs (recoveries), average loans outstanding, and net charge-offs (recoveries) as a percentage of average loans, by type of loan over the past three years: [[GREPCENT_TABLE]] [["Table 25- Net Charge-Offs (Recoveries) to Average Loans"],["Year Ended December 31,"],["","2023","","2022","","2021"],["(Dollars in thousands)","Net Charge-offs (Recoveries)","","Average Loans","","Net Charge-offs (Recoveries) as a % of Average Loans","","Net Charge-offs (Recoveries)","","Average Loans","","Net Charge-offs (Recoveries) as a % of Average Loans","","Net Charge-offs (Recoveries)","","Average Loans","","Net Charge-offs (Recoveries) as a % of Average Loans"],["Commercial, financial, and agricultural","$","934","","","$","1,262,791","","","0.07","%","","$","1,230","","","$","1,282,431","","","0.10","%","","$","318","","","$","1,435,221","","","0.02","%"],["Construction real estate","(2)","","","292,920","","","\u2014","%","","(1,310)","","","316,805","","","(0.41)","%","","(2,299)","","","331,882","","","(0.69)","%"],["Residential real estate","(438)","","","1,894,891","","","(0.02)","%","","(83)","","","1,747,149","","","\u2014","%","","(892)","","","1,771,880","","","(0.05)","%"],["Commercial real estate","514","","","1,818,935","","","0.03","%","","951","","","1,778,622","","","0.05","%","","(767)","","","1,766,346","","","(0.04)","%"],["Consumer","3,914","","","1,933,669","","","0.20","%","","1,576","","","1,810,985","","","0.09","%","","293","","","1,686,849","","","0.02","%"],["Leases","(1)","","","19,273","","","(0.01)","%","","11","","","19,682","","","0.06","%","","(1)","","","22,339","","","\u2014","%"],["Total","$","4,921","","","$","7,222,479","","","0.07","%","","$","2,375","","","$","6,955,674","","","0.03","%","","$","(3,348)","","","$","7,014,517","","","(0.05)","%"]] [[/GREPCENT_TABLE]] The following table summarizes Park's allocation of the allowance for credit losses for the past three years: [[GREPCENT_TABLE]] [["Table 26- Allocation of Allowance for Credit Losses"],["December 31,","2023","2022","2021"],["(In thousands)","Allowance","Percent of Loans Per Category","Allowance","Percent of Loans Per Category","Allowance","Percent of Loans Per Category"],["Commercial, financial, and agricultural","$","15,496","","17.33","%","$","16,987","","18.22","%","$","14,025","","18.90","%"],["Construction real estate","5,227","","4.08","%","5,550","","4.56","%","5,758","","4.68","%"],["Residential real estate","18,818","","27.15","%","16,831","","25.16","%","11,424","","25.31","%"],["Commercial real estate","16,374","","25.09","%","17,829","","25.12","%","25,466","","26.22","%"],["Consumer","27,713","","26.03","%","28,021","","26.67","%","26,286","","24.59","%"],["Leases","117","","0.32","%","161","","0.27","%","238","","0.30","%"],["Total","$","83,745","","100.00","%","$","85,379","","100.00","%","$","83,197","","100.00","%"]] [[/GREPCENT_TABLE]] As of December 31, 2023, 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: After the adoption of ASU 2022-02 on January 1, 2023, which eliminated the TDR classification, non-performing assets include: 1) loans whose interest is accounted for on a nonaccrual basis; 2) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue; 3) OREO which results from taking possession of property that served as collateral for a defaulted loan; and 4) other nonperforming assets. Prior to the adoption of ASU 2022-02 on January 1, 2023, nonperforming assets included: 1) loans whose interest is accounted for on a nonaccrual basis; 2) TDRs on accrual status; 3) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue; and 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, 2023 and 2022. As of December 31, 2021 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 -65- 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. The following is a summary of Park’s nonperforming assets at the end of the last three years: [[GREPCENT_TABLE]] [["Table 27 - Nonperforming Assets"],["","","December 31,"],["(In thousands)","","2023","","2022","","2021"],["Nonaccrual loans","","$","60,259","","","$","79,696","","","$","72,722"],["Accruing TDRs (for years 2022 and prior) (1)","","N/A","","20,134","","","28,323"],["Loans past due 90 days or more and accruing","","859","","","1,281","","","1,607"],["Total nonperforming loans","","$","61,118","","","$","101,111","","","$","102,652"],["OREO","","983","","","1,354","","","775"],["Other nonperforming assets","","\u2014","","","\u2014","","","2,750"],["Total nonperforming assets","","$","62,101","","","$","102,465","","","$","106,177"],["Percentage of nonperforming loans to total loans (1)","","0.82","%","","1.42","%","","1.49","%"],["Percentage of nonperforming assets to total loans (1)","","0.83","%","","1.43","%","","1.55","%"],["Percentage of nonperforming assets to total assets (1)","","0.63","%","","1.04","%","","1.11","%"],["Percentage of nonaccrual loans to total loans","","0.81","%","","1.12","%","","1.06","%"],["Allowance for credit losses to nonaccrual loans","","138.98","%","","107.13","%","","114.40","%"]] [[/GREPCENT_TABLE]]   (1) Effective January 1, 2023, Park adopted ASU 2022-02. Among other things, this ASU eliminated the concept of TDRs. 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, 2023, 2022, and 2021. Loans are classified as current if they are less than 30 days past due. [[GREPCENT_TABLE]] [["Table 28 - Delinquency Status of Nonaccrual Loans"],["","","December 31, 2023","","December 31, 2022","","December 31, 2021"],["(Dollars in thousands)","","Balance","","Percent of Total Loans","","Balance","","Percent of Total Loans","","Balance","","Percent of Total Loans"],["Nonaccrual loans - current","","$","38,956","","","0.52","%","","$","58,893","","","0.83","%","","$","53,259","","","0.78","%"],["Nonaccrual loans - past due","","21,303","","","0.29","%","","20,803","","","0.29","%","","19,463","","","0.28","%"],["Total nonaccrual loans","","$","60,259","","","0.81","%","","$","79,696","","","1.12","%","","$","72,722","","","1.06","%"]] [[/GREPCENT_TABLE]] Credit Quality Indicators: When determining the quarterly credit loss provision, Park reviews the grades of commercial loans. These loans are graded from 1 to 8. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded an 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher PD is applied to these loans. Commercial loans graded a 6 (substandard), also considered to be watch list credits, represent higher credit risk than those rated special mention and, as a result, a higher PD is applied to these loans. Commercial loans that are graded a 7 (doubtful) are shown as nonperforming and Park charges these loans down to their fair value by taking a partial charge-off or recording an individual reserve. Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and included within the individually evaluated category. Any commercial loan graded an 8 (loss) is completely charged off. -66- The following table highlights the credit trends within the commercial loan portfolio. [[GREPCENT_TABLE]] [["Table 29- Commercial Credit Trends"],["Commercial loans * (In thousands)","December 31, 2023","December 31, 2022","December 31, 2021"],["Pass rated","$","3,905,673","","$","3,709,065","","$","3,712,784"],["Special Mention","57,236","","79,855","","75,397"],["Substandard","3,414","","1,965","","\u2014"],["Individually evaluated for impairment (1)","45,215","","78,341","","74,502"],["Accruing PCD","2,760","","4,563","","6,630"],["Total","$","4,014,298","","$","3,873,789","","$","3,869,313"]] [[/GREPCENT_TABLE]] (1) Prior to the adoption of ASU 2002-02 on January 1, 2023, accruing TDRs were also included in individually evaluated for impairment loans totals. *Commercial loans include: (1) commercial, financial and agricultural loans; (2) commercial real estate loans; (3) commercial related loans in the construction portfolio; (4) commercial related loans in the residential real estate portfolio; and (5) leases. Park’s watch list includes all criticized and classified commercial loans, defined by Park as loans rated special mention or worse. Park had $60.7 million of collectively evaluated commercial loans included on the watch list at December 31, 2023, compared to $81.8 million at December 31, 2022, and $75.4 million at December 31, 2021. The existing conditions of these loans do not warrant classification as nonaccrual. However, these loans have shown some weakness and management performs additional analysis regarding each borrower's ability to comply with payment terms. Delinquencies have remained low over the past 36 months. Delinquent and accruing loans were $23.5 million, or 0.31% of total loans at December 31, 2023, compared to $18.9 million, or 0.26% of total loans at December 31, 2022, and $15.1 million, or 0.22% of total loans at December 31, 2021. Individually Evaluated Loans: Loans that do not share risk characteristics are evaluated on an individual basis. Park has determined that any commercial loans which have been placed on nonaccrual status will be individually evaluated. Individual analysis will establish a reserve for loans in scope.  Reserves on individually evaluated commercial loans are typically based on management’s best estimate of the fair value of collateral securing these loans. The amount ultimately charged off for these loans may be different from the reserve as the ultimate liquidation of the collateral may be for an amount different from management’s estimate. Prior to the elimination of TDRs with the adoption of ASU 2022-02 on January 1, 2023, Park also included commercial accruing TDRs as individually evaluated loans. Individually evaluated commercial loans were $45.2 million at December 31, 2023, a decrease of $33.1 million, compared to $78.3 million at December 31, 2022 and a decrease of $29.3 million, compared to $74.5 million at December 31, 2021. The $78.3 million of individually evaluated commercial loans at December 31, 2022 included $11.5 million of loans modified in a TDR which were on accrual status and performing in accordance with the restructured terms, a decrease from $17.5 million at December 31, 2021. At December 31, 2023, Park had taken partial charge-offs of $2.3 million related to the $45.2 million of the individually evaluated commercial loans, compared to partial charge-offs of $1.8 million related to the $78.3 million of individually evaluated commercial loans at December 31, 2022 and compared to partial charge-offs of $624,000 related to the $74.5 million of individually evaluated commercial loans at December 31, 2021. The table below provides additional information related to Park's individually evaluated commercial loans at December 31, 2022, 2021, and 2020. [[GREPCENT_TABLE]] [["Table 30 - Individually Evaluated Commercial Loans"],["Years ended December 31,"],["(In thousands)","","2023","","2022","","2021"],["Unpaid principal balance","","$","47,564","","","$","80,116","","","$","75,126"],["Prior charge-offs","","2,349","","","1,775","","","624"],["Remaining principal balance","","45,215","","","78,341","","","74,502"],["Reserves","","4,983","","","3,566","","","1,616"],["Book value, after reserves","","$","40,232","","","$","74,775","","","$","72,886"]] [[/GREPCENT_TABLE]] -67- Loans Acquired with Deteriorated Credit Quality: PCD loans are individually evaluated on a quarterly basis to determine if a specific reserve is necessary. At December 31, 2023, December 31, 2022 and December 31, 2021, there was no allowance for credit losses on PCD loans. The carrying amount of accruing loans acquired with deteriorated credit quality at December 31, 2023, 2022, and 2021 was $2.8 million, $4.7 million, and $7.1 million, respectively. The carrying amount of nonaccrual loans acquired with deteriorated credit quality was $534,000 at December 31, 2023. There were no nonaccrual loans acquired with deteriorated quality at December 31, 2022 or December 31, 2021. CAPITAL RESOURCES Liquidity and Interest Rate Sensitivity Management: Park’s objective in managing its liquidity is to maintain the ability to continuously meet the cash flow needs of customers, such as borrowings or deposit withdrawals, while at the same time seeking higher yields from longer-term lending and investing activities. Cash and cash equivalents increased by $28.5 million during 2023 to $218.3 million at year end. Cash provided by operating activities was $150.5 million in 2023, $134.9 million in 2022 and $157.3 million in 2021. Net income was the primary source of cash provided by operating activities during each year. Cash provided by investing activities was $64.2 in 2023, cash used in investing activities was $403.7 million in 2022 and $412.1 million in 2021. Investment securities transactions and loan originations/repayments are the major uses or sources of cash in investing activities.  Proceeds from the sale, repayment or maturity of investment securities provide cash and purchases of investment securities use cash.  Net investment securities transactions provided cash of $418.9 million in 2023, used cash of $137.8 million in 2022 and used cash of $709.5 million in 2021. Cash used by the net increase in the loan portfolio was $329.8 million in 2023, $271.8 million in 2022 and cash provided by the net paydown in the loan portfolio was $312.2 million in 2021. Cash used in financing activities was $186.1 million in 2023, cash provided by financing activities was $239.4 million in 2022 and $103.5 million in 2021. A major source of cash provided by or used in financing activities is the net change in deposits.  Deposits decreased and used $192.1 million of cash in 2023, and increased and provided $330.2 million of cash in 2022 and $332.2 million of cash in 2021. These decreases and increases in deposits included a decrease in off-balance sheet deposits of $194.8 million in 2023, $787.1 million in 2022 and increases in off-balance sheet deposits of $273.0 million in 2021. Other major sources of cash from financing activities are short-term borrowings and long-term debt. In 2023, net short-term borrowings increased and provided $100.8 million in cash and net long-term borrowings was unchanged. In 2022, net short-term borrowings decreased and used $11.4 million in cash and net long-term debt was unchanged. In 2021, net short-term borrowings decreased and used $103.4 million in cash and net long-term debt decreased and used $32.5 million in cash. Cash used in the repurchase of common shares was $23.0 million in 2023 and $16.0 million in 2021. No common shares were repurchased in 2022. Finally, cash declined by $69.0 million in 2023, $76.6 million in 2022 and $74.3 million in 2021, from the payment of cash dividends. Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as the operating cash needs of the Corporation, are met. Funds are available from a number of sources, including the capital markets, the investment securities portfolio, the core deposit base, FHLB borrowings and the capability to securitize or package loans for sale. In the opinion of Park's management, the present funding sources provide more than adequate liquidity for Park to meet our cash flow needs. -68- The following table shows interest rate sensitivity data for five different time intervals as of December 31, 2023: [[GREPCENT_TABLE]] [["Table 31 - Interest Rate Sensitivity"],["","","0-3","","3-12","","1-3","","3-5","","Over 5"],["(In thousands)","","Months","","Months","","Years","","Years","","Years","","Total"],["Interest earning assets:"],["Investment securities (1)","","$","508,549","","","$","115,564","","","$","260,002","","","$","159,935","","","$","425,137","","","$","1,469,187"],["Money market instruments","","57,791","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","57,791"],["Loans (1)","","1,867,359","","","1,633,221","","","2,691,555","","","984,847","","","299,239","","","7,476,221"],["Total interest earning assets","","2,433,699","","","1,748,785","","","2,951,557","","","1,144,782","","","724,376","","","9,003,199"],["Interest bearing liabilities:"],["Interest bearing transaction accounts (2)","","$","1,237,876","","","$","\u2014","","","$","826,636","","","$","\u2014","","","$","\u2014","","","$","2,064,512"],["Savings accounts (2)","","1,128,503","","","\u2014","","","1,413,456","","","\u2014","","","\u2014","","","2,541,959"],["Time deposits","","425,419","","","263,320","","","82,153","","","32,244","","","3,464","","","806,600"],["Other","","\u2014","","","1,261","","","\u2014","","","\u2014","","","\u2014","","","1,261"],["Total deposits","","2,791,798","","","264,581","","","2,322,245","","","32,244","","","3,464","","","5,414,332"],["Short-term borrowings","","328,182","","","\u2014","","","\u2014","","","\u2014","","","","","328,182"],["Subordinated notes","","15,000","","","\u2014","","","174,147","","","\u2014","","","\u2014","","","189,147"],["Total interest bearing liabilities","","3,134,980","","","264,581","","","2,496,392","","","32,244","","","3,464","","","5,931,661"],["Interest rate sensitivity gap","","(701,281)","","","1,484,204","","","455,165","","","1,112,538","","","720,912","","","3,071,538"],["Cumulative rate sensitivity gap","","(701,281)","","","782,923","","","1,238,088","","","2,350,626","","","3,071,538"],["Cumulative gap as a"],["percentage of total"],["interest earning assets","","(7.79)","%","","8.70","%","","13.75","%","","26.11","%","","34.12","%"]] [[/GREPCENT_TABLE]] (1)Investment securities and loans that are subject to prepayment are shown in the table by the earlier of their re-pricing date or their expected repayment date and not by their contractual maturity date. Nonaccrual loans of $60.3 million are included within the over five year maturity category.  (2)Management considers interest bearing transaction accounts and savings accounts to be core deposits and, therefore, not as rate sensitive as other deposit accounts and borrowed money. Accordingly, only 60.0% of interest bearing transaction accounts and 44.4% of savings accounts are considered to re-price within one year. If all of the interest bearing transaction accounts and savings accounts were considered to re-price within one year, the one-year cumulative gap would change from a positive 8.70% to a negative 16.19%. The interest rate sensitivity gap analysis provides an overall picture of Park’s static interest rate risk position.  At December 31, 2023, the cumulative interest earning assets maturing or repricing within twelve months were $4,182 million compared to the cumulative interest bearing liabilities maturing or repricing within twelve months of $3,400 million.  For the twelve-month cumulative interest rate sensitivity gap position, rate sensitive assets exceeded rate sensitive liabilities by $783 million or 8.7% of interest earning assets. The cumulative twelve-month interest rate sensitivity gap position at year-end 2022 was a positive $1,087 million or 11.9% of total interest earning assets.  The percentage of interest earning assets maturing or repricing within one year was 46.5% at year-end 2023, compared to 40.3% at year-end 2022.  The percentage of interest bearing liabilities maturing or repricing within one year was 57.3% at year-end 2023, compared to 46.4% at year-end 2022. A positive twelve-month cumulative rate sensitivity gap (assets exceed liabilities) would suggest that Park’s net interest margin would increase if interest rates were to increase.  Conversely, a negative twelve-month cumulative rate sensitivity gap would suggest that Park’s net interest margin would decrease if interest rates were to increase. However, the usefulness of the interest rate sensitivity gap analysis as a forecasting tool in projecting net interest income is limited.  The gap analysis does not consider the magnitude, timing or frequency by which assets or liabilities will reprice during a period and also contains assumptions as to the repricing of interest bearing transaction accounts and savings accounts that may not prove to be correct. Management supplements the interest rate sensitivity gap analysis with periodic simulations of balance sheet sensitivity under various interest rate and what-if scenarios to better forecast and manage the net interest margin.  Park’s management uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates.  This model is based on actual cash flows and repricing characteristics for balance sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities.  This model also includes management’s projections for activity levels of various balance sheet instruments and non-interest fee income and operating -69- expense.  Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into this earnings simulation model.  These assumptions are inherently uncertain and, as a result, the model cannot precisely measure net interest income and net income.  Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies. Management uses a 50 basis point change in market interest rates per quarter for a total of 200 basis points per year in evaluating the impact of changing interest rates on net interest income and net income over a twelve-month horizon. At December 31, 2023, the earnings simulation model projected that net income would increase by 1.52% using a rising interest rate scenario and decrease by 1.92% using a declining interest rate scenario over the next year. At December 31, 2022, the earnings simulation model projected that net income would increase by 3.69% using a rising interest rate scenario and decrease by 5.38% using a declining interest rate scenario over the next year. At December 31, 2021, the earnings simulation model projected that net income would increase by 7.5% using a rising interest rate scenario and decrease by 15.1% using a declining interest rate scenario over the next year. Park’s net interest margin was 4.11% in 2023, 3.80% in 2022 and 3.69% in 2021.    CONTRACTUAL OBLIGATIONS In the ordinary course of operations, Park enters into certain contractual obligations. The following table summarizes Park’s significant and determinable obligations by payment date at December 31, 2023. Further discussion of the nature of each specified obligation is included in the referenced Note to the Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on Form 10-K. [[GREPCENT_TABLE]] [["Table 32 - Contractual Obligations (1)"],["December 31, 2023","","Payments Due In"],["","","","","0-1","","1-3","","3-5","","Over 5"],["(In thousands)","","Note","","Years","","Years","","Years","","Years","","Total"],["Deposits without stated maturity","","14","","$","7,235,965","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","7,235,965"],["Certificates of deposit","","14","","659,792","","","116,151","","","30,656","","","2","","","806,601"],["Short-term borrowings","","16","","328,182","","","\u2014","","","\u2014","","","\u2014","","","328,182"],["Subordinated notes","","18","","\u2014","","","\u2014","","","\u2014","","","189,147","","","189,147"],["Operating leases","","13","","2,495","","","4,276","","","4,041","","","9,435","","","20,247"],["Defined benefit pension plan (2)","","21","","10,966","","","23,410","","","22,141","","","54,844","","","111,361"],["Supplemental Executive Retirement Plan agreements","","21","","770","","","1,727","","","2,681","","","40,490","","","45,668"],["Total contractual obligations","","","","$","8,238,170","","","$","145,564","","","$","59,519","","","$","293,918","","","$","8,737,171"]] [[/GREPCENT_TABLE]] (1) Amounts do not include associated interest payments. (2) Pension payments reflect 10 years of payments, through 2033. As of December 31, 2023, Park had $28.8 million in unfunded commitments related to investments in qualified affordable housing projects which are not included in "Table 32 - Contractual Obligations" above. Commitments are funded when capital calls are made by the general partner. Park expects that the current commitments will be funded between 2024 and 2033. As of December 31, 2023, Park had $18.4 million in unfunded commitments related to certain equity investments which are not included in "Table 32 - Contractual Obligations" above. Commitments are funded when capital calls are made by the general partner. The Corporation’s operating lease obligations represent short-term and long-term lease and rental payments for facilities and equipment. Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements: In order to meet the financing needs of our customers, the Corporation issues loan commitments and standby letters of credit. At December 31, 2023, the Corporation had $1.5 billion of loan commitments and had $31.3 million of standby letters of credit. At December 31, 2022, the Corporation had $1.4 billion of loan commitments and had $30.5 million of standby letters of credit. -70- Commitments to extend credit under loan commitments and standby letters of credit do not necessarily represent future cash requirements.  These commitments often expire without being drawn upon.  However, all of the loan commitments and standby letters of credit were permitted to be drawn upon in 2023. See "Note 26 - Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk" of the Notes to Consolidated Financial Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" in this Annual Report on Form 10-K, for additional information on loan commitments and standby letters of credit. The Corporation did not have any unrecorded significant contingent liabilities at December 31, 2023. Capital: Park’s primary means of maintaining capital adequacy is through retained earnings.  At December 31, 2023, the Corporation’s total shareholders’ equity was $1,145.3 million, compared to $1,069.2 million at December 31, 2022.  Total shareholders’ equity at December 31, 2023 was 11.64% of total assets, compared to 10.85% of total assets at December 31, 2022.  Tangible equity (non-U.S. GAAP) was $981.0 million at December 31, 2023, and was $903.7 million at December 31, 2022. At December 31, 2023, tangible equity (non-U.S. GAAP) was 10.14% of tangible assets compared to 9.33% of tangible assets at December 31, 2022. A reconciliation of total shareholders' equity to tangible equity and total assets to tangible assets is included in Table 21. Net income was $126.7 million in 2023, $148.4 million in 2022 and $153.9 million in 2021. Cash dividends declared for Park's common shares were $68.7 million in 2023, $76.8 million in 2022 and $74.6 million in 2021. On a per share basis, the cash dividends declared were $4.20 per common share in 2023, $4.66 per common share in 2022 and $4.52 per common share in 2021. The table below shows the repurchases and issuances of common shares and treasury shares for 2021 through 2023. [[GREPCENT_TABLE]] [["Table 33"],["(In thousands, except share data)","Treasury Shares","Number of Common Shares"],["Balance at January 1, 2021","$","(130,766)","","16,314,197"],["Cash payment for fractional shares in dividend reinvestment plan","\u2014","","(45)"],["Treasury shares repurchased","(16,048)","","(137,659)"],["Treasury shares reissued for share-based compensation awards","2,964","","29,670"],["Treasury shares reissued for director grants","1,360","","13,400"],["Balance at December 31, 2021","$","(142,490)","","16,219,563"],["Cash payment for fractional shares in dividend reinvestment plan","\u2014","","(14)"],["Treasury shares reissued for share-based compensation awards","3,477","","34,245"],["Treasury shares reissued for director grants","994","","9,789"],["Balance at December 31, 2022","$","(138,019)","","16,263,583"],["Treasury shares repurchased","(23,017)","","(199,000)"],["Treasury shares reissued for share-based compensation awards","4,014","","38,842"],["Treasury shares reissued for director grants","1,349","","13,054"],["Balance at December 31, 2023","$","(155,673)","","16,116,479"]] [[/GREPCENT_TABLE]] Park did not issue any new common shares, which had not already been held as treasury shares, in 2023, 2022 or 2021. Common shares (including treasury shares) had a balance of $463.3 million, $462.4 million and $461.8 million at December 31, 2023, 2022, and 2021, respectively. Accumulated other comprehensive (loss) income, net reflected a loss of $66.2 million at December 31, 2023 and a loss of $102.4 million at December 31, 2022, and reflected income of $15.2 million at December 31, 2021. During 2023, the change in net unrealized holding (loss) gain on AFS debt securities, net of income tax, was a gain of $27.8 million, which included a $6.2 million, net of income taxes, realized loss on the sale of debt securities. During 2022, the change in net unrealized holding (loss) gain on AFS debt securities, net of income tax, was a loss of $116.9 million. During 2021, the change in net unrealized holding (loss) gain on AFS debt securities, net of income tax, was a loss of $19.5 million. -71- Additionally, Park recognized an other comprehensive gain of $8.4 million, net of tax, related to the change in pension plan assets and benefit obligations in 2023, compared to an other comprehensive loss of $888,000, net of tax, related to the change in pension plan assets and benefit obligations in 2022, compared to an other comprehensive gain of $28.6 million, net of tax, related to the change in pension plan assets and benefit obligations in 2021. Finally, during 2022, Park recognized an other comprehensive gain of $206,000, net of income tax, related to an unrealized net holding gain on cash flow hedging derivatives, compared to an other comprehensive gain of $492,000, net of income tax, related to an unrealized net holding gain on cash flow hedging derivatives in 2021. There was no unrealized holding gain or loss on cash flow hedging derivatives in 2023. Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies. Park has elected not to include the net unrealized gain or loss on debt securities AFS in computing regulatory capital. Park has adopted the Basel III regulatory capital framework as approved by the federal banking agencies. Under the Basel III regulatory capital framework, in order to avoid limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers, Park must hold a capital conservation buffer of 2.5% above the adequately capitalized risk-based capital ratios. The amounts shown below as the adequately capitalized ratio plus capital conservation buffer include the 2.50% buffer. The Federal Reserve Board has also adopted capital requirements Park must maintain to be deemed "well capitalized" and remain a financial holding company. Park and PNB met each of the well-capitalized ratio guidelines applicable to them at December 31, 2023. The following table indicates the capital ratios for PNB and Park at December 31, 2023 and December 31, 2022. [[GREPCENT_TABLE]] [["Table 34 - PNB and Park Capital Ratios"],["","As of December 31, 2023"],["","Leverage","","Tier 1 Risk-Based","","Common Equity Tier 1","","Total Risk-Based"],["PNB","9.11","%","","10.95","%","","10.95","%","","12.35","%"],["Park","10.74","%","","12.97","%","","12.79","%","","16.19","%"],["Adequately capitalized ratio","4.00","%","","6.00","%","","4.50","%","","8.00","%"],["Adequately capitalized ratio plus capital conservation buffer","4.00","%","","8.50","%","","7.00","%","","10.50","%"],["Well-capitalized ratio - PNB","5.00","%","","8.00","%","","6.50","%","","10.00","%"],["Well-capitalized ratio - Park","N/A","","6.00","%","","N/A","","10.00","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","As of December 31, 2022"],["","Leverage","","Tier 1 Risk-Based","","Common Equity Tier 1","","Total Risk-Based"],["PNB","8.34","%","","10.69","%","","10.69","%","","12.15","%"],["Park","9.90","%","","12.76","%","","12.57","%","","16.07","%"],["Adequately capitalized ratio","4.00","%","","6.00","%","","4.50","%","","8.00","%"],["Adequately capitalized ratio plus capital conservation buffer","4.00","%","","8.50","%","","7.00","%","","10.50","%"],["Well-capitalized ratio - PNB","5.00","%","","8.00","%","","6.50","%","","10.00","%"],["Well-capitalized ratio - Park","N/A","","6.00","%","","N/A","","10.00","%"]] [[/GREPCENT_TABLE]] Effects of Inflation: Balance sheets of financial institutions typically contain assets and liabilities that are monetary in nature and, therefore, differ greatly from most commercial and industrial companies which have significant investments in premises, equipment and inventory.  During periods of inflation, financial institutions that are in a net positive monetary position will experience a decline in purchasing power, which does have an impact on growth.  Another significant effect on internal equity growth is other expenses, which tend to rise during periods of inflation. Management believes the most significant impact on financial results is the Corporation's ability to align our asset/liability management program to react to changes in interest rates. -72-