The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that Park uses to measure fair value are as follows:

•Level 2: Level 1 inputs for assets or liabilities that are not actively traded. Also consists of an observable market price for a similar asset or liability. This includes the use of “matrix pricing” to value debt securities absent the exclusive use of quoted prices.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the balance sheet date. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and Park must use other valuation methods to develop a fair value. The fair value of individually evaluated collateral dependent loans is typically based on the fair value of the underlying collateral, which is estimated through third-party appraisals in accordance with Park's valuation requirements under its commercial and real estate loan policies.


Fair Value Measurements at March 31, 2023 using:
(In thousands)	Level 1		Level 2		Level 3		Balance at March 31, 2023
Assets
Investment securities:
Obligations of U.S. Government sponsored entities	$	—	$	37,344	$	—	$	37,344
Obligations of states and political subdivisions	—		412,006		—		412,006
U.S. Government sponsored entities’ asset-backed securities	—		730,261		—		730,261
Collateralized loan obligations	—		519,428		—		519,428
Corporate debt securities	—		8,546		6,855		15,401
Equity securities	2,383		—		449		2,832
Mortgage loans held for sale	—		2,076		—		2,076
Mortgage IRLCs	—		77		—		77
Loan interest rate swaps	—		1,119		—		1,119

Liabilities
Fair value swap	$	—	$	—	$	121	$	121
Loan interest rate swaps	—		1,119		—		1,119


Fair Value Measurements at December 31, 2022 using:
(In thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2022
Assets
Investment securities:
Obligations of U.S. Government sponsored entities	$	—	$	37,213	$	—	$	37,213
Obligations of states and political subdivisions	—		406,711		—		406,711
U.S. Government sponsored entities’ asset-backed securities	—		756,761		—		756,761
Collateralized loan obligations	—		516,539		—		516,539
Corporate debt securities	—		9,472		7,000		16,472
Equity securities	1,420		—		439		1,859
Mortgage loans held for sale	—		2,149		—		2,149
Mortgage IRLCs	—		46		—		46
Loan interest rate swaps	—		1,508		—		1,508

Liabilities
Fair value swap	$	—	$	—	$	243	$	243
Loan interest rate swaps	—		1,508		—		1,508

Investment securities: Fair values for investment securities are based on quoted market prices, where available (Level 1). If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows (Level 3).

Fair value swap: The fair value of the swap agreement entered into with the purchaser of the Visa Class B shares represents an internally developed estimate of the exposure based upon probability-weighted potential Visa litigation losses and is classified as Level 3.

The following tables present a reconciliation of the beginning and ending balances of the Level 3 inputs for the three-month periods ended March 31, 2023 and 2022, for financial instruments measured on a recurring basis and classified as Level 3:


Level 3 Fair Value Measurements
Three months ended March 31, 2023 and 2022
(In thousands)	Corporate Debt Securities		Equity securities		Fair value swap
Balance at January 1, 2023	$	7,000	$	439	$	(243)
Transfers into level 3	622		—		—
Total (losses) / gains
Included in other income	—		10		—
Included in other comprehensive income	(767)		—		—
Purchases, sales, issuances and settlements, other, net	—		—		122
Balance at March 31, 2023	$	6,855	$	449	$	(121)

Balance at January 1, 2022	$	—	$	499	$	(226)
Total losses
Included in other income	—		(8)		—
Balance at March 31, 2022	$	—	$	491	$	(226)

Individually evaluated collateral dependent loans: When a loan is individually evaluated, it is valued at the lower of cost or fair value. Collateral dependent loans which are individually evaluated and carried at fair value have been partially charged off or receive specific allocations of the allowance for credit losses. For collateral dependent loans, fair value is generally based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value. Collateral is then adjusted or discounted based on

management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’s business, resulting in a Level 3 fair value classification. Individually evaluated loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Additionally, valuations for all collateral dependent loans are updated annually, either through independent valuations by a licensed appraiser or a verification of value ("VOV") performed by an internal licensed appraiser, in accordance with Company policy. A VOV can only be used in select circumstances and verifies that the original appraised value has not deteriorated through property inspection, consideration of market conditions, and performance of all valuation methods utilized in a prior valuation.

After the adoption of ASU 2022-02 on January 1, 2023, loans individually evaluated for impairment include all internally classified commercial nonaccrual loans. Prior to the adoption of ASU 2022-02, loans individually evaluated for impairment included all internally classified commercial nonaccrual loans and accruing TDRs.

OREO: Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs. Fair value is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both individually evaluated collateral dependent loans and OREO are performed by licensed appraisers. Appraisals are generally obtained to support the fair value of collateral. In general, there are three types of appraisals received by the Company: real estate appraisals, income approach appraisals, and lot development loan appraisals. These are discussed below:

•Real estate appraisals typically incorporate measures such as recent sales prices for comparable properties. Appraisers may make adjustments to the sales prices of the comparable properties as deemed appropriate based on the age, condition or general characteristics of the subject property. Management generally applies a 15% discount to real estate appraised values which management expects will cover all disposition costs (including selling costs). This 15% discount is based on historical discounts to appraised values on sold OREO properties.

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

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

MSRs: MSRs are carried at the lower of cost or fair value. MSRs do not trade in active, open markets with readily observable prices. For example, sales of MSRs do occur, but precise terms and conditions typically are not readily available. As such, management, with the assistance of a third-party specialist, determines fair value based on the discounted value of the future cash flows estimated to be received. Significant inputs include the discount rate and assumed prepayment speeds. The calculated fair value is then compared to market values where possible to ascertain the reasonableness of the valuation in relation to current market expectations for similar products. Accordingly, MSRs are classified as Level 2.

The following tables present assets and liabilities measured at fair value on a nonrecurring basis. Individually evaluated collateral dependent loans secured by real estate are carried at fair value if they have been charged down to fair value or if a specific valuation allowance has been established. At March 31, 2023 and December 31, 2022, there were no PCD loans carried at fair value. A new cost basis is established at the time a property is initially recorded in OREO. OREO properties are carried at fair value if a devaluation has been taken with respect to the property's value subsequent to the initial measurement.


Fair Value Measurements at March 31, 2023 using:
(In thousands)	Level 1		Level 2		Level 3		Balance at March 31, 2023
Individually evaluated collateral dependent loans recorded at fair value:
Commercial real estate	$	—	$	—	$	2,873	$	2,873
Residential real estate	—		—		195		195
Total individually evaluated collateral dependent loans recorded at fair value	$	—	$	—	$	3,068	$	3,068

MSRs	$	—	$	1,793	$	—	$	1,793


Fair Value Measurements at December 31, 2022 using:
(In thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2022
Individually evaluated collateral dependent loans recorded at fair value:
Commercial real estate	$	—	$	—	$	5,573	$	5,573
Residential real estate	—		—		200		200
Total individually evaluated collateral dependent loans recorded at fair value	$	—	$	—	$	5,773	$	5,773

MSRs	$	—	$	1,717	$	—	$	1,717

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


	March 31, 2023
(In thousands)	Loan Balance		Prior Charge-Offs		Specific Valuation Allowance		Carrying Balance
Total individually evaluated collateral dependent loans recorded at fair value	$	3,284	$	1,293	$	216	$	3,068
Remaining individually evaluated loans	56,100		245		4,102		51,998
Total individually evaluated loans	$	59,384	$	1,538	$	4,318	$	55,066


	December 31, 2022
(In thousands)	Loan Balance		Prior Charge-Offs		Specific Valuation Allowance		Carrying Balance
Total individually evaluated collateral dependent loans recorded at fair value	$	5,903	$	1,523	$	130	$	5,773
Remaining individually evaluated loans	72,438		252		3,436		69,002
Total individually evaluated loans	$	78,341	$	1,775	$	3,566	$	74,775

MSRs totaled $15.5 million at March 31, 2023. Of this $15.5 million MSR carrying balance, $1.8 million were recorded at fair value and included a valuation allowance of $0.2 million. The remaining $13.7 million were recorded at cost, as the fair value exceeded cost at March 31, 2023. At December 31, 2022, MSRs totaled $15.8 million. Of this $15.8 million MSR carrying balance, $1.7 million were recorded at fair value and included a valuation allowance of $0.2 million. The remaining $14.1 million were recorded at cost, as the fair value exceeded cost at December 31, 2022. The income related to MSRs carried at fair value during the three-month periods ended March 31, 2023 and 2022 was $14,000 and $442,000, respectively.

March 31, 2023

(In thousands)

Fair Value

Valuation Technique

Unobservable Input(s)

Range
(Weighted Average)

Individually evaluated collateral dependent loans:

Commercial real estate

2,873

Sales comparison approach

Adj to comparables

3.9% - 202.0% (25.3%)

Income approach

Capitalization rate

7.5% - 8.5% (8.0%)

Residential real estate

195

Sales comparison approach

Adj to comparables

1.2% - 78.6% (7.9%)

December 31, 2022

(In thousands)

Fair Value

Valuation Technique

Unobservable Input(s)

Range
(Weighted Average)

Individually evaluated collateral dependent loans:

Commercial real estate

5,573

Sales comparison approach

Adj to comparables

0.0% - 202.0% (19.4%)

Income approach

Capitalization rate

7.0% - 10.0% (7.9%)

Cost approach

Entrepreneurial profit

10.0% - 12.0% (11.4%)

Cost approach

Accumulated depreciation

38.8% (38.8%)

Residential real estate

200

Sales comparison approach

Adj to comparables

1.9% - 119.8% (17.4%)

At March 31, 2023 and December 31, 2022, Park had Partnership Investments with a NAV of $24.9 million and $24.4 million, respectively. At March 31, 2023 and December 31, 2022, Park had $19.6 million and $20.3 million, respectively, in unfunded commitments related to these Partnership Investments. For the three-month periods ended March 31, 2023 and 2022, Park recognized (expense) income of $(0.4) million and $2.4 million respectively, related to these Partnership Investments.


	March 31, 2023
			Fair Value Measurements
(In thousands)	Carrying value		Level 1		Level 2		Level 3		Total fair value
Financial assets:
Cash and money market instruments	$	261,919	$	261,919	$	—	$	—	$	261,919
Investment securities (1)	1,714,440		—		1,707,585		6,855		1,714,440
Other investment securities (2)	2,832		2,383		—		449		2,832

Mortgage IRLCs	77		—		77		—		77
Mortgage loans held for sale	2,076		—		2,076		—		2,076
Individually evaluated loans carried at fair value	3,068		—		—		3,068		3,068
Other loans, net	7,002,690		—		—		6,887,490		6,887,490
Loans receivable, net	$	7,007,911	$	—	$	2,153	$	6,890,558	$	6,892,711

Financial liabilities:
Time deposits	$	531,850	$	—	$	531,277	$	—	$	531,277
Other	2,630		2,630		—		—		2,630
Deposits (excluding demand deposits)	$	534,480	$	2,630	$	531,277	$	—	$	533,907

Short-term borrowings	$	172,058	$	—	$	172,058	$	—	$	172,058
Subordinated notes	188,785		—		179,251		—		179,251

Derivative financial instruments - assets:
Loan interest rate swaps	$	1,119	$	—	$	1,119	$	—	$	1,119

Derivative financial instruments - liabilities:
Fair value swap	$	121	$	—	$	—	$	121	$	121
Loan interest rate swaps	1,119		—		1,119		—		1,119

(2) Excludes FHLB stock and FRB stock which are carried at their respective redemption values, investment securities accounted for at modified cost as these investments do not have a readily determinable fair value, and Partnership Investments valued using the NAV practical expedient.


	December 31, 2022
			Fair Value Measurements
(In thousands)	Carrying value		Level 1		Level 2		Level 3		Total fair value
Financial assets:
Cash and money market instruments	$	189,728	$	189,728	$	—	$	—	$	189,728
Investment securities (1)	1,733,696		—		1,726,696		7,000		1,733,696
Other investment securities (2)	1,859		1,420		—		439		1,859

Mortgage loans held for sale	2,149		—		2,149		—		2,149
Mortgage IRLCs	46		—		46		—		46
Individually evaluated loans carried at fair value	5,773		—		—		5,773		5,773
Other loans, net	7,048,544		—		—		6,918,326		6,918,326
Loans receivable, net	$	7,056,512	$	—	$	2,195	$	6,924,099	$	6,926,294

Financial liabilities:
Time deposits	$	554,445	$	—	$	552,443	—		$	552,443
Other	1,325		1,325		—		—		1,325
Deposits (excluding demand deposits)	$	555,770	$	1,325	$	552,443	$	—	$	553,768

Short-term borrowings	$	227,342	$	—	$	227,342	$	—	$	227,342
Subordinated notes	188,667		—		177,928		—		177,928

Derivative financial instruments - assets:
Loan interest rate swaps	$	1,508	$	—	$	1,508	$	—	$	1,508

Derivative financial instruments - liabilities:
Fair value swap	$	243	$	—	$	—	$	243	$	243
Loan interest rate swaps	1,508		—		1,508		—		1,508