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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to __________________________

Commission File Number | 1-13006

PARK NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

Ohio |  | 31-1179518
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

50 North Third Street, | P.O. Box 3500 | Newark, | Ohio | 43058-3500
(Address of principal executive offices) (Zip Code)

(740) | 349-8451
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common shares, without par value | PRK | NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”,
“smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ | Accelerated filer | ☐
Non-accelerated filer | ☐ | Smaller reporting company | ☐
| Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 16,116,479 Common Shares, no par value per share, outstanding at October 31, 2023.

PARK NATIONAL CORPORATION
CONTENTS

| Page
PART I. FINANCIAL INFORMATION |
Item 1. Financial Statements |
Consolidated Condensed Balance Sheets a t September 30, 2023 and December 31, 20 22 (unaudited) | 5
Consolidated Condensed Statements of Income for the three months and the nine months ended September 30, 2023 and 20 22 (unaudited) | 7
Consolidated Condensed Statements of Comprehensive Income (Loss) for the three months and the nine months ended September 30, 2023 and 20 22 (unaudited) | 9
Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three and the nine months ended September 30, 2023 and 20 22 (unaudited) | 10
Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2023 and 20 22 (unaudited) | 12
Notes to Unaudited Consolidated Condensed Financial Statements | 14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 70
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 105
Item 4. Controls and Procedures | 105
PART II. OTHER INFORMATION | 106
Item 1. Legal Proceedings | 106
Item 1A. Risk Factors | 106
Item 2. Unregistered Sales of Equity Securities, U se of Proceeds, and Issuer Purchases of Equity Securities | 107
Item 3. Defaults Upon Senior Securities | 108
Item 4. Mine Safety Disclosures | 108
Item 5. Other Information | 108
Item 6. Exhibits | 109
SIGNATURES | 112

3

Glossary of Abbreviations and Acronyms
Park has identified the following list of abbreviations and acronyms that are used in the Unaudited Consolidated Condensed Financial Statements, Notes to Unaudited Consolidated Condensed Financial Statements, and Management's Discussion and Analysis of Financial Condition and Results of Operations.

ACH | Automated clearing house |  | LDA | Loss driver analysis
ACL | Allowance for credit losses |  | LGD | Loss given default
AFS | Available-for-sale |  | LTIP | Long-Term Incentive Plan
Allowance | Allowance for credit losses |  | MSRs | Mortgage servicing rights
ASC | Accounting Standards Codification |  | NAV | Net asset value
ASU | Accounting Standards Update |  | NewDominion | NewDominion Bank
ATM | Automated teller machine |  | NSF | Non-sufficient funds
CARES Act | Coronavirus Aid, Relief, and Economic Security Act |  | OREO | Other real estate owned
Carolina Alliance | CAB Financial Corporation and its subsidiaries |  | OWS | One-way sell
CECL | Current expected credit loss |  | Park | Park National Corporation and its subsidiaries
Company | Park National Corporation and its subsidiaries |  | Park National Bank | The Park National Bank
Corporation | Park National Corporation and its subsidiaries |  | PBRSUs | Performance-based restricted stock units
COVID | Novel coronavirus |  | PCD | Purchased credit deteriorated
DCF | Discounted cash flow |  | PD | Probability of default
DDA | Demand deposit account |  | PNB | The Park National Bank
DOJ | U.S. Department of Justice |  | PPP | CARES Act Paycheck Protection Program
EPS | Earnings per common share |  | PTPP | Pre-tax, pre-provision
FASB | Financial Accounting Standards Board |  | Registrant | Park National Corporation
FDIC | Federal Deposit Insurance Corporation |  | ROU | Right-of-use
FFIEC | Federal Financial Institutions Examination Council |  | SARs | Stock appreciation rights
FHLB | Federal Home Loan Bank |  | SBA | U.S. Small Business Administration
FRB | Federal Reserve Bank |  | SEC | U.S. Securities and Exchange Commission
FTE | Fully taxable equivalent |  | SEPH | SE Property Holdings, LLC
GDP | Gross domestic product |  | SERP | Supplemental Executive Retirement Plan
GFSC | Guardian Financial Services Company |  | TBRSUs | Time-based restricted stock units
HELOC | Home equity line of credit |  | TDRs | Troubled debt restructurings
HPI | Home price index |  | U.S. | United States of America
ICS | Insured Cash Sweep |  | U.S. GAAP | United States Generally Accepted Accounting Principles
IRLC | Interest rate lock commitment |  | United States | United States of America
KSOP | Park's qualified retirement plan that combines an employee stock ownership plan (ESOP) with a 401(k) plan |  | VOV | Verification of value

4

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands, except common share and per common share data)

| September 30, 2023 |  | December 31, 2022
Assets: |  |  |
Cash and due from banks | $ | 140,252 |  |  | $ | 156,750 |
Money market instruments | 83,366 |  |  | 32,978 |
Cash and cash equivalents | 223,618 |  |  | 189,728 |
Investment securities: |  |  |
Debt securities available-for-sale, at fair value (amortized cost of $1,747,396 and $1,854,852 at September 30, 2023 and December 31, 2022, respectively, and no allowance for credit losses at September 30, 2023 or at December 31, 2022) | 1,609,156 |  |  | 1,733,696 |
Other investment securities | 99,671 |  |  | 87,091 |
Total investment securities | 1,708,827 |  |  | 1,820,787 |
Loans | 7,349,745 |  |  | 7,141,891 |
Allowance for credit losses | (84,602) |  |  | (85,379) |
Net loans | 7,265,143 |  |  | 7,056,512 |
Bank owned life insurance | 225,142 |  |  | 220,072 |
Prepaid assets | 158,124 |  |  | 153,579 |
Goodwill | 159,595 |  |  | 159,595 |
Other intangible assets | 4,986 |  |  | 5,975 |
Premises and equipment, net | 77,331 |  |  | 82,126 |
Affordable housing tax credit investments | 64,676 |  |  | 60,968 |
OREO | 1,354 |  |  | 1,354 |
Accrued interest receivable | 39,101 |  |  | 34,704 |
Operating lease ROU asset | 16,349 |  |  | 17,600 |
Mortgage loan servicing rights | 14,960 |  |  | 15,792 |
Other | 41,708 |  |  | 36,201 |
Total assets | $ | 10,000,914 |  |  | $ | 9,854,993 |

5

Table of Contents
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (Unaudited) (Continued)
(in thousands, except common share and per common share data)

| September 30, 2023 |  | December 31, 2022
Liabilities and Shareholders' Equity: |  |  |
Deposits: |  |  |
Non-interest bearing | $ | 2,732,504 |  |  | $ | 3,074,276 |
Interest bearing | 5,512,220 |  |  | 5,160,439 |
Total deposits | 8,244,724 |  |  | 8,234,715 |
Short-term borrowings | 352,786 |  |  | 227,342 |
Subordinated notes | 189,025 |  |  | 188,667 |
Unfunded commitments in affordable housing tax credit investments | 31,553 |  |  | 28,132 |
Operating lease liability | 17,426 |  |  | 19,291 |
Allowance for credit losses on off-balance sheet commitments | 5,201 |  |  | 5,214 |
Accrued interest payable | 3,277 |  |  | 3,486 |
Other | 71,358 |  |  | 78,920 |
Total liabilities | $ | 8,915,350 |  |  | $ | 8,785,767 |
Shareholders' equity: |  |  |
Preferred shares (No par value; 200,000 shares authorized; No shares issued) | $ | — |  |  | $ | — |
Common shares (No par value; 20,000,000 shares authorized; 17,623,104 common shares issued at September 30, 2023 and at December 31, 2022) | 461,849 |  |  | 462,404 |
Retained earnings | 896,627 |  |  | 847,235 |
Treasury shares (1,519,679 common shares at September 30, 2023 and 1,359,521 common shares at December 31, 2022) | (157,022) |  |  | (138,019) |
Accumulated other comprehensive loss, net of taxes | (115,890) |  |  | (102,394) |
Total shareholders' equity | 1,085,564 |  |  | 1,069,226 |
Total liabilities and shareholders’ equity | $ | 10,000,914 |  |  | $ | 9,854,993 |

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited)
(in thousands, except common share and per common share data)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Interest and dividend income: |  |  |  |  |  |  |
Interest and fees on loans | $ | 103,258 |  |  | $ | 83,522 |  |  | $ | 291,300 |  |  | $ | 233,725 |
Interest and dividends on: |  |  |  |  |  |  |
Debt securities - taxable | 13,321 |  |  | 10,319 |  |  | 39,731 |  |  | 24,073 |
Debt securities - tax-exempt | 2,900 |  |  | 2,923 |  |  | 8,718 |  |  | 8,046 |
Other interest income | 1,410 |  |  | 3,180 |  |  | 6,715 |  |  | 3,593 |
Total interest and dividend income | 120,889 |  |  | 99,944 |  |  | 346,464 |  |  | 269,437 |
Interest expense: |  |  |  |  |  |  |
Interest on deposits: |  |  |  |  |  |  |
Demand and savings deposits | 20,029 |  |  | 5,757 |  |  | 52,309 |  |  | 7,441 |
Time deposits | 3,097 |  |  | 825 |  |  | 6,410 |  |  | 2,253 |
Interest on borrowings: |  |  |  |  |  |  |
Short-term borrowings | 1,136 |  |  | 306 |  |  | 2,688 |  |  | 740 |
Subordinated notes and long-term debt | 2,358 |  |  | 2,228 |  |  | 7,018 |  |  | 6,550 |
Total interest expense | 26,620 |  |  | 9,116 |  |  | 68,425 |  |  | 16,984 |
Net interest income | 94,269 |  |  | 90,828 |  |  | 278,039 |  |  | 252,453 |
(Recovery of) provision for credit losses | (1,580) |  |  | 3,190 |  |  | 1,095 |  |  | 1,576 |
Net interest income after (recovery of) provision for credit losses | $ | 95,849 |  |  | $ | 87,638 |  |  | $ | 276,944 |  |  | $ | 250,877 |
Other income: |  |  |  |  |  |  |
Income from fiduciary activities | $ | 9,100 |  |  | $ | 8,216 |  |  | $ | 26,531 |  |  | $ | 25,872 |
Service charges on deposit accounts | 2,109 |  |  | 2,859 |  |  | 6,391 |  |  | 7,496 |
Other service income | 2,615 |  |  | 2,956 |  |  | 7,951 |  |  | 12,715 |
Debit card fee income | 6,652 |  |  | 6,514 |  |  | 19,939 |  |  | 19,371 |
Bank owned life insurance income | 1,448 |  |  | 1,185 |  |  | 3,965 |  |  | 4,734 |
ATM fees | 575 |  |  | 610 |  |  | 1,661 |  |  | 1,725 |
(Loss) gain on the sale of OREO, net | (6) |  |  | 5,607 |  |  | (3) |  |  | 5,611 |
OREO valuation markup | — |  |  | 12,009 |  |  | 15 |  |  | 12,039 |
Gain on equity securities, net | 998 |  |  | 58 |  |  | 618 |  |  | 3,120 |
Other components of net periodic pension benefit income | 1,893 |  |  | 3,027 |  |  | 5,679 |  |  | 9,081 |
Miscellaneous | 2,329 |  |  | 3,653 |  |  | 4,368 |  |  | 7,779 |
Total other income | $ | 27,713 |  |  | $ | 46,694 |  |  | $ | 77,115 |  |  | $ | 109,543 |

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited) (Continued)
(in thousands, except common share and per common share data)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Other expense: |  |  |  |  |  |  |
Salaries | $ | 34,525 |  |  | $ | 37,889 |  |  | $ | 103,045 |  |  | $ | 99,462 |
Employee benefits | 10,822 |  |  | 9,897 |  |  | 32,176 |  |  | 30,595 |
Occupancy expense | 3,203 |  |  | 3,455 |  |  | 9,770 |  |  | 9,709 |
Furniture and equipment expense | 3,060 |  |  | 2,912 |  |  | 9,409 |  |  | 8,783 |
Data processing fees | 9,700 |  |  | 8,170 |  |  | 28,032 |  |  | 24,090 |
Professional fees and services | 7,572 |  |  | 8,359 |  |  | 22,158 |  |  | 20,992 |
Marketing | 1,197 |  |  | 1,595 |  |  | 3,755 |  |  | 3,931 |
Insurance | 2,158 |  |  | 1,237 |  |  | 5,932 |  |  | 3,887 |
Communication | 1,135 |  |  | 1,098 |  |  | 3,217 |  |  | 2,923 |
State tax expense | 1,125 |  |  | 1,186 |  |  | 3,499 |  |  | 3,545 |
Amortization of intangible assets | 334 |  |  | 341 |  |  | 989 |  |  | 1,146 |
Foundation contribution | — |  |  | 4,000 |  |  | — |  |  | 4,000 |
Miscellaneous | 2,977 |  |  | 2,764 |  |  | 8,214 |  |  | 7,261 |
Total other expense | $ | 77,808 |  |  | $ | 82,903 |  |  | $ | 230,196 |  |  | $ | 220,324 |
Income before income taxes | $ | 45,754 |  |  | $ | 51,429 |  |  | 123,863 |  |  | 140,096 |
Income taxes | 8,837 |  |  | 9,361 |  |  | 21,629 |  |  | 24,829 |
Net income | $ | 36,917 |  |  | $ | 42,068 |  |  | $ | 102,234 |  |  | $ | 115,267 |
Earnings per common share: |  |  |  |  |  |  |
Basic | $ | 2.29 |  |  | $ | 2.59 |  |  | $ | 6.32 |  |  | $ | 7.10 |
Diluted | $ | 2.28 |  |  | $ | 2.57 |  |  | $ | 6.29 |  |  | $ | 7.05 |
Weighted average common shares outstanding: |  |  |  |  |  |  |
Basic | 16,133,310 |  |  | 16,253,704 |  |  | 16,180,261 |  |  | 16,240,966 |
Diluted | 16,217,880 |  |  | 16,374,982 |  |  | 16,261,109 |  |  | 16,355,790 |
Regular cash dividends declared per common share | $ | 1.05 |  |  | $ | 1.04 |  |  | $ | 3.15 |  |  | $ | 3.12 |

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited)
(in thousands)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Net income | $ | 36,917 |  |  | $ | 42,068 |  |  | $ | 102,234 |  |  | $ | 115,267 |
Other comprehensive loss, net of tax: |  |  |  |  |  |  |
Unrealized net holding loss on debt securities available-for-sale, net of income tax effect of $(5,078) and $(10,617) for the three months ended September 30, 2023 and 2022, respectively, and $(3,588) and $(37,403) for the nine months ended September 30, 2023 and 2022, respectively. | (19,104) |  |  | (39,939) |  |  | (13,496) |  |  | (140,704) |
Reclassification adjustment for losses included in net income on cash flow hedging derivatives, net of income tax effect of $14 for the nine months ended September 30, 2022. | — |  |  | — |  |  | — |  |  | 52 |
Unrealized gain on cash flow hedging derivatives, net of income tax effect of $41 for the nine months ended September 30, 2022. | — |  |  | — |  |  | — |  |  | 154 |
Other comprehensive loss | $ | (19,104) |  |  | $ | (39,939) |  |  | $ | (13,496) |  |  | $ | (140,498) |
Comprehensive income (loss) | $ | 17,813 |  |  | $ | 2,129 |  |  | $ | 88,738 |  |  | $ | (25,231) |

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited)
(in thousands, except common share and per common share data)

|  | Preferred Shares |  | Common Shares |  | Retained Earnings |  | Treasury Shares |  | Accumulated Other Comprehensive Loss
Balance at December 31, 2022 |  | $ | — |  |  | $ | 462,404 |  |  | $ | 847,235 |  |  | $ | (138,019) |  |  | $ | (102,394) |
Cumulative effect of a change in accounting principle |  |  |  |  |  | (303) |  |  |  |  |
Balance at January 1, 2023 |  | $ | — |  |  | $ | 462,404 |  |  | $ | 846,932 |  |  | $ | (138,019) |  |  | $ | (102,394) |
Net income |  |  |  |  |  | 33,733 |  |  |  |  |
Other comprehensive income, net of tax |  |  |  |  |  |  |  |  |  | 12,361 |
Dividends on common shares at $1.05 per common share |  |  |  |  |  | (17,285) |  |  |  |  |
Issuance of 34,484 common shares under share-based compensation awards, net of 21,981 common shares withheld to pay employee income taxes |  |  |  | (5,309) |  |  | (862) |  |  | 3,564 |  |  |
Share-based compensation expense |  |  |  | 2,336 |  |  |  |  |  |  |
Repurchase of 124,000 common shares to be held as treasury shares |  |  |  |  |  |  |  | (15,308) |  |  |
Balance at March 31, 2023 |  | $ | — |  |  | $ | 459,431 |  |  | $ | 862,518 |  |  | $ | (149,763) |  |  | $ | (90,033) |
Net income |  |  |  |  |  | 31,584 |  |  |  |  |
Other comprehensive loss, net of tax |  |  |  |  |  |  |  |  |  | (6,753) |
Dividends on common shares at $1.05 per common share |  |  |  |  |  | (17,187) |  |  |  |  |
Issuance of 4,358 common shares under share-based compensation awards, net of 1,992 common shares withheld to pay employee income taxes |  |  |  | (602) |  |  | (85) |  |  | $ | 450 |  |  |
Share-based compensation expense |  |  |  | 1,749 |  |  |  |  |  |  |
Repurchase of 25,000 common shares to be held as treasury shares |  |  |  |  |  |  |  | (2,552) |  |  |
Balance at June 30, 2023 |  | $ | — |  |  | $ | 460,578 |  |  | $ | 876,830 |  |  | $ | (151,865) |  |  | $ | (96,786) |
Net income |  |  |  |  |  | 36,917 |  |  |  |  |
Other comprehensive loss, net of tax |  |  |  |  |  |  |  |  |  | (19,104) |
Dividends on common shares at $1.05 per common share |  |  |  |  |  | (17,120) |  |  |  |  |
Share-based compensation expense |  |  |  | 1,271 |  |  |  |  |  |  |
Repurchase of 50,000 common shares to be held as treasury shares |  |  |  |  |  |  |  | (5,157) |  |  |
Balance at September 30, 2023 |  | $ | — |  |  | $ | 461,849 |  |  | $ | 896,627 |  |  | $ | (157,022) |  |  | $ | (115,890) |

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited) (Continued)
(in thousands, except common share and per common share data)

|  | Preferred Shares |  | Common Shares |  | Retained Earnings |  | Treasury Shares |  | Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2021 |  | $ | — |  |  | $ | 461,800 |  |  | $ | 776,294 |  |  | $ | (142,490) |  |  | $ | 15,155 |
Net income |  |  |  |  |  | 38,875 |  |  |  |  |
Other comprehensive loss, net of tax |  |  |  |  |  |  |  |  |  | (55,624) |
Dividends on common shares at $1.04 per common share |  |  |  |  |  | (17,172) |  |  |  |  |
Cash payment for fractional common shares in dividend reinvestment plan |  |  |  | (2) |  |  |  |  |  |  |
Issuance of 29,757 common shares under share-based compensation awards, net of 18,658 common shares withheld to pay employee income taxes |  |  |  | (4,508) |  |  | (964) |  |  | 3,021 |  |  |
Share-based compensation expense |  |  |  | 1,981 |  |  |  |  |  |  |
Balance at March 31, 2022 |  | $ | — |  |  | $ | 459,271 |  |  | $ | 797,033 |  |  | $ | (139,469) |  |  | $ | (40,469) |
Net income |  |  |  |  |  | 34,324 |  |  |  |  |
Other comprehensive loss, net of tax |  |  |  |  |  |  |  |  |  | (44,935) |
Dividends on common shares at $1.04 per common share |  |  |  |  |  | (17,116) |  |  |  |  |
Share-based compensation expense |  |  |  | 1,374 |  |  |  |  |  |  |
Balance at June 30, 2022 |  | $ | — |  |  | $ | 460,645 |  |  | $ | 814,241 |  |  | $ | (139,469) |  |  | $ | (85,404) |
Net income |  |  |  |  |  | 42,068 |  |  |  |  |
Other comprehensive loss, net of tax |  |  |  |  |  |  |  |  |  | (39,939) |
Dividends on common shares at $1.04 per common share |  |  |  |  |  | (17,101) |  |  |  |  |
Issuance of 4,490 common shares under share-based compensation awards, net of 2,559 common shares withheld to pay employee income taxes |  |  |  | (765) |  |  | (1) |  |  | 456 |  |  |
Share-based compensation expense |  |  |  | 1,441 |  |  |  |  |  |  |
Balance at September 30, 2022 |  | $ | — |  |  | $ | 461,321 |  |  | $ | 839,207 |  |  | $ | (139,013) |  |  | $ | (125,343) |

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
(in thousands)

| Nine Months Ended September 30,
| 2023 |  | 2022
Operating activities: |  |  |
Net income | $ | 102,234 |  |  | $ | 115,267 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Provision for credit losses | 1,095 |  |  | 1,576 |
Accretion of loan fees and costs, net | (6,621) |  |  | (9,869) |
Depreciation of premises and equipment | 10,635 |  |  | 10,341 |
Amortization of investment securities, net | 3,156 |  |  | 2,596 |
Net amortization (accretion) of purchase accounting adjustments | 451 |  |  | (402) |
Gain on equity securities, net | (618) |  |  | (3,120) |
Loan originations to be sold in secondary market | (53,432) |  |  | (157,868) |
Proceeds from sale of loans in secondary market | 53,711 |  |  | 169,212 |
Gain on sale of loans in secondary market | (996) |  |  | (3,885) |
Share-based compensation expense | 5,356 |  |  | 4,796 |
Loss (gain) on sale of OREO, net | 3 |  |  | (5,611) |
OREO valuation markup | (15) |  |  | (12,039) |
Gain on sale of non-mortgage loans | — |  |  | (495) |
Bank owned life insurance income | (3,965) |  |  | (4,734) |
Investment in qualified affordable housing tax credits amortization | 6,292 |  |  | 5,940 |
Changes in assets and liabilities: |  |  |
Increase in prepaid dealer premiums | (1,339) |  |  | (10,827) |
Increase in other assets | (7,000) |  |  | (2,302) |
Decrease in other liabilities | (12,092) |  |  | (8,963) |
Net cash provided by operating activities | $ | 96,855 |  |  | $ | 89,613 |
Investing activities: |  |  |
Proceeds from the redemption/repurchase of FHLB stock | $ | 4,605 |  |  | $ | 2,216 |
Proceeds from calls and maturities of: |  |  |
Debt securities AFS | 108,281 |  |  | 148,192 |
Purchases of: |  |  |
Debt securities AFS | (3,981) |  |  | (316,878) |
Equity securities | (2,195) |  |  | (9,165) |
FHLB stock | (13,636) |  |  | — |
Net decrease in other investments | 2,009 |  |  | 392 |
Net loan originations, portfolio loans | (203,298) |  |  | (234,239) |
Proceeds from the sale of non-mortgage loans | — |  |  | 4,345 |
Investment in qualified affordable housing tax credits | (6,579) |  |  | (10,004) |
Proceeds from the sale of OREO | 965 |  |  | 17,684 |
Bank owned life insurance death benefits | 1,658 |  |  | 8,380 |
Purchases of bank owned life insurance | (2,500) |  |  | (7,500) |
Purchases of premises and equipment | (5,858) |  |  | (6,576) |
Net cash used in investing activities | $ | (120,529) |  |  | $ | (403,153) |

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PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued) (in thousands)
| Nine Months Ended September 30,
| 2023 |  | 2022
Financing activities: |  |  |
Net (decrease) increase in deposits | $ | (185,164) |  |  | $ | 188,536 |
Net decrease in off-balance sheet deposits | 195,173 |  |  | 216,869 |
Net increase (decrease) in short-term borrowings | 125,444 |  |  | (49,293) |
Value of common shares withheld to pay employee income taxes | (2,844) |  |  | (2,761) |
Repurchase of common shares to be held as treasury shares | (23,017) |  |  | — |
Cash dividends paid | (52,028) |  |  | (51,558) |
Net cash provided by financing activities | $ | 57,564 |  |  | $ | 301,793 |
Increase (decrease) in cash and cash equivalents | 33,890 |  |  | (11,747) |
Cash and cash equivalents at beginning of year | 189,728 |  |  | 219,180 |
Cash and cash equivalents at end of period | $ | 223,618 |  |  | $ | 207,433 |
Supplemental disclosures of cash flow information: |  |  |
Cash paid for: |  |  |
Interest | $ | 68,634 |  |  | $ | 18,805 |
Federal income tax | 12,200 |  | 16,070
Non-cash items: |  |  |
Loans transferred to OREO | $ | 1,051 |  |  | $ | 13,418 |
ROU assets obtained in exchange for lease obligations | 499 |  |  | 4,270 |
New commitments in affordable housing tax credits | 10,000 |  |  | 10,000 |
New commitments in other investment securities | 2,745 |  |  | 15,000 |

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PARK NATIONAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation
The accompanying unaudited consolidated condensed financial statements included in this report have been prepared for Park National Corporation (sometimes also referred to as the “Registrant”) and its subsidiaries. Unless the context otherwise requires, references to "Park", the "Corporation" or the "Company" and similar terms mean Park National Corporation and its subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the interim periods included herein have been made. The results of operations for the three-month and the nine-month periods ended September 30, 2023 are not necessarily indicative of the operating results to be anticipated for the year ending December 31, 2023.
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Quarterly Reports on Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of the consolidated condensed balance sheets, consolidated condensed statements of income, consolidated condensed statements of comprehensive income (loss), consolidated condensed statements of changes in shareholders’ equity and consolidated condensed statements of cash flows in conformity with U.S. GAAP. These financial statements should be read in conjunction with the consolidated financial statements included in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA in the Annual Report on Form 10-K of Park National Corporation for the fiscal year ended December 31, 2022 ("Park's 2022 Form 10-K"). Certain prior period amounts have been reclassified to conform to the current period presentation.
Park’s significant accounting policies are described in Note 1. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 2022 Form 10-K. For interim reporting purposes, Park follows the same basic accounting policies, as updated by the information contained in this report, and considers each interim period an integral part of an annual period.
Note 2 - Adoption of New Accounting Pronouncements and Issued But Not Yet Effective Accounting Standards
The following is a summary of new accounting pronouncements impacting Park's consolidated financial statements:
Adoption of New Accounting Pronouncements
ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures: In March 2022, FASB issued ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminated the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when borrowers are experiencing financial difficulty. Additionally, the amendments in this ASU require that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost.
Park adopted ASU 2022-02 using the modified retrospective transition method on January 1, 2023. Park recorded a $383,000 increase to the ACL, a $303,000 decrease to retained earnings and an $80,000 increase to deferred tax assets as of January 1, 2023 for the cumulative effect of adopting ASU 2022-02. Additionally, as a result of the adoption of this ASU and elimination of the concept of TDRs, total nonperforming loans decreased by $20.1 million effective January 1, 2023 and individually evaluated loans decreased by $11.5 million.
The adoption of ASU 2022-02 impacted disclosures in Note 5 - Loans and Note 6 - Allowance for Credit Losses.
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Issued But Not Yet Effective Accounting Standards
SEC Cybersecurity Disclosures: In July 2023, the SEC voted to standardize disclosures about cybersecurity risk management, strategy, governance, and material cybersecurity incidents by public companies subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Current Report on Form 8-K has a new item, Item 1.05, and registrants will be required to disclose under this Item 1.05 any cybersecurity incident that is deemed to be material and describe the material aspects of the incident's nature, scope, and timing, as well as its material impact, or reasonably likely material impact on a registrant, including its financial condition and results of operations. The Form 8-K filing will generally be due four business days after a registrant determines that the cybersecurity incident is material.
Also, SEC Regulation S-K has a new item, Item 106, which will require registrants to describe, on an annual basis, the processes for assessing, identifying, and managing material risks from cybersecurity threats as well as the material effects, or reasonably likely material effects, of risk from cybersecurity threats and previous cybersecurity incidents. Item 106 will also require registrants to describe the board of directors' oversight of risks from cybersecurity threats and management's role and expertise in assessing and managing material risks from cybersecurity threats. These disclosures will be required in the annual report on Form 10-K. Compliance with the material incident disclosure requirements in Item 1.05 of Form 8-K is to begin on December 18, 2023 and the annual disclosures are to be provided beginning with annual reports for fiscal years ending on or after December 15, 2023.
Management intends to adopt the SEC cybersecurity rules effective December 18, 2023 and will include annual disclosures in the Annual Report on Form 10-K of Park National Corporation for the fiscal year ending December 31, 2023.
ASU 2023-06 - Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative: In October 2023, FASB issued ASU 2023-06 - Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative. ASU 2023-06 amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. ASU 2023-06 was issued in response to the SEC's August 2018 final rule that updated and simplified disclosure requirements. In the final rule, the SEC identified 27 disclosure requirements that were incremental to those in the ASC and referred them to the FASB for potential incorporation into US GAAP. To avoid duplication, the SEC intended to eliminate those disclosure requirements from existing SEC regulations if the FASB incorporated them into the relevant ASC subtopics. The disclosure requirements are currently included in either SEC Regulation S-X or SEC Regulation S-K. ASU 2023-06 adds 14 of the 27 identified disclosure or presentation requirements to the ASC.
For entities, like Park, that are subject to the SEC's existing disclosure requirements, the effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments are to be applied prospectively and if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or S-K, the pending content of the related amendment will be removed from the ASC and will not become effective for any entity. Management intends to adopt the provisions of ASU 2023-06 on their respective effective dates. The adoption of the provisions of ASU 2023-06 is not expected to have a material impact on Park's consolidated financial statements.
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Note 3 – Investment Securities
Investment securities at September 30, 2023 and at December 31, 2022, were as follows:

Debt securities AFS (In thousands) |  | Amortized Cost |  | Gross Unrealized Holding Gains |  | Gross Unrealized Holding Losses |  | Fair Value
September 30, 2023: |  |  |  |  |  |  |  |
Obligations of U.S. Government sponsored entities |  | $ | 39,000 |  |  | $ | — |  |  | $ | 1,700 |  |  | $ | 37,300 |
Obligations of states and political subdivisions |  | 420,590 |  |  | 17 |  |  | 31,510 |  |  | 389,097 |
U.S. Government sponsored entities' asset-backed securities |  | 735,317 |  |  | — |  |  | 95,035 |  |  | 640,282 |
Collateralized loan obligations |  | 532,030 |  |  | — |  |  | 7,139 |  |  | 524,891 |
Corporate debt securities |  | 20,459 |  |  | — |  |  | 2,873 |  |  | 17,586 |
Total |  | $ | 1,747,396 |  |  | $ | 17 |  |  | $ | 138,257 |  |  | $ | 1,609,156 |

Debt securities AFS (In thousands) |  | Amortized Cost |  | Gross Unrealized Holding Gains |  | Gross Unrealized Holding Losses |  | Fair Value
December 31, 2022: |  |  |  |  |  |  |  |
Obligations of U.S. Government sponsored entities |  | $ | 39,000 |  |  | $ | — |  |  | $ | 1,787 |  |  | $ | 37,213 |
Obligations of states and political subdivisions |  | 423,285 |  |  | 1,620 |  |  | 18,194 |  |  | 406,711 |
U.S. Government sponsored entities' asset-backed securities |  | 839,399 |  |  | — |  |  | 82,638 |  |  | 756,761 |
Collateralized loan obligations |  | 535,518 |  |  | — |  |  | 18,979 |  |  | 516,539 |
Corporate debt securities |  | 17,650 |  |  | — |  |  | 1,178 |  |  | 16,472 |
Total |  | $ | 1,854,852 |  |  | $ | 1,620 |  |  | $ | 122,776 |  |  | $ | 1,733,696 |

Investment securities in an unrealized loss position at September 30, 2023, were as follows:

|  | Unrealized loss position for less than 12 months |  | Unrealized loss position for 12 months or longer |  | Total
(In thousands) |  | Fair value |  | Unrealized losses |  | Fair value |  | Unrealized losses |  | Fair value |  | Unrealized losses
Debt securities AFS: |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. Government sponsored entities |  | $ | — |  |  | $ | — |  |  | $ | 37,300 |  |  | $ | 1,700 |  |  | $ | 37,300 |  |  | $ | 1,700 |
Obligations of states and political subdivisions |  | 277,975 |  |  | 8,626 |  |  | 93,969 |  |  | 22,884 |  |  | 371,944 |  |  | 31,510 |
U.S. Government sponsored entities' asset-backed securities |  | 1,171 |  |  | 22 |  |  | 639,111 |  |  | 95,013 |  |  | 640,282 |  |  | 95,035 |
Collateralized loan obligations |  | — |  |  | — |  |  | 524,891 |  |  | 7,139 |  |  | 524,891 |  |  | 7,139 |
Corporate debt securities |  | 9,299 |  |  | 910 |  |  | 8,287 |  |  | 1,963 |  |  | 17,586 |  |  | 2,873 |
Total |  | $ | 288,445 |  |  | $ | 9,558 |  |  | $ | 1,303,558 |  |  | $ | 128,699 |  |  | $ | 1,592,003 |  |  | $ | 138,257 |

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Investment securities in an unrealized loss position at December 31, 2022, were as follows:

|  | Unrealized loss position for less than 12 months |  | Unrealized loss position for 12 months or longer |  | Total
(In thousands) |  | Fair value |  | Unrealized losses |  | Fair value |  | Unrealized losses |  | Fair value |  | Unrealized losses
Debt securities AFS: |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. Government sponsored entities |  | $ | 37,213 |  |  | $ | 1,787 |  |  | $ | — |  |  | $ | — |  |  | $ | 37,213 |  |  | $ | 1,787 |
Obligations of states and political subdivisions |  | 270,905 |  |  | 18,194 |  |  | — |  |  | — |  |  | 270,905 |  |  | 18,194 |
U.S. Government sponsored entities' asset-backed securities |  | 446,423 |  |  | 27,507 |  |  | 310,338 |  |  | 55,131 |  |  | 756,761 |  |  | 82,638 |
Collateralized loan obligations |  | 415,491 |  |  | 15,446 |  |  | 101,048 |  |  | 3,533 |  |  | 516,539 |  |  | 18,979 |
Corporate debt securities |  | 7,388 |  |  | 862 |  |  | 1,684 |  |  | 316 |  |  | 9,072 |  |  | 1,178 |
Total |  | $ | 1,177,420 |  |  | $ | 63,796 |  |  | $ | 413,070 |  |  | $ | 58,980 |  |  | $ | 1,590,490 |  |  | $ | 122,776 |

At September 30, 2023, Park’s debt securities portfolio consisted of $1.6 billion of securities, $1.6 billion of which were in an unrealized loss position with aggregate unrealized losses of $138.3 million. Of the $1.6 billion of securities in an unrealized loss position, $1.3 billion were in an unrealized loss position for 12 months or longer. Of the $138.3 million in unrealized losses, an aggregate of $96.7 million were related to Park's "Obligations of U.S. Government sponsored entities" portfolio and Park's "U.S. Government sponsored entities' asset-backed securities" portfolio. For non-agency debt securities, Park verified that the current credit ratings remain above investment grade. Quarterly, management reviews the credit profile of each non-agency debt security and assesses whether any impairment to the contractually obligated cash flow is likely to occur. Based on these reviews, management has concluded that the underlying creditworthiness for each security remains sufficient to maintain required payment obligations and, therefore, unrealized losses have not been recognized into net income. Management does not intend to sell, and it is not more likely than not that management would be required to sell, the securities prior to their anticipated recovery in respect of the unrealized losses. Management believes the value will recover as the securities approach maturity or market interest rates change.
There was no allowance for credit losses recorded for debt securities AFS at either September 30, 2023 or December 31, 2022. Additionally, for the three months and the nine months ended September 30, 2023 and 2022, there were no credit-related investment impairment losses recognized.
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The amortized cost and estimated fair value of investments in debt securities AFS at September 30, 2023, are shown in the following table by contractual maturity, except for asset-backed securities and collateral loan obligations, which are shown as a single total due to the unpredictability of the timing of principal repayments. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

(In thousands) |  | Amortized cost |  | Fair value |  | Tax equivalent yield (1)
Debt Securities AFS |  |  |  |  |  |
Obligations of U.S. Treasury and other U.S. Government sponsored entities |  |  |  |  |  |
Due one through five years |  | $ | 39,000 |  |  | $ | 37,300 |  |  | 2.37 | %
Obligations of state and political subdivisions: |  |  |  |  |  |
Due one through five years |  | $ | 2,262 |  |  | $ | 2,231 |  |  | 2.97 | %
Due five through ten years |  | 276,900 |  |  | 269,945 |  |  | 3.69 | %
Due over ten years |  | 141,428 |  |  | 116,921 |  |  | 3.10 | %
Total (1) |  | $ | 420,590 |  |  | $ | 389,097 |  |  | 3.49 | %
U.S. Government sponsored entities' asset-backed securities |  | $ | 735,317 |  |  | $ | 640,282 |  |  | 1.89 | %
Collateralized loan obligations |  | $ | 532,030 |  |  | $ | 524,891 |  |  | 7.31 | %
Corporate debt securities |  |  |  |  |  |
Due one through five years |  | $ | 2,809 |  |  | $ | 2,794 |  |  | 10.41 | %
Due five through ten years |  | 17,650 |  |  | 14,792 |  |  | 3.89 | %
Total |  | $ | 20,459 |  |  | $ | 17,586 |  |  | 4.79 | %

(1) The tax equivalent yield for certain obligations of state and political subdivisions includes the effect of a taxable equivalent adjustment using a 21% federal corporate income tax rate.
There were no sales of debt securities AFS during the three-month or the nine-month periods ended September 30, 2023 or 2022.
Investment securities having a fair value of $606.2 million and $753.6 million at September 30, 2023 and December 31, 2022, respectively, were pledged to collateralize government and public fund deposits, to secure repurchase agreements sold and as collateral for FHLB advance borrowings.
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Note 4 – Other Investment Securities
Other investment securities consist of restricted stock investments in the FHLB and the FRB, and equity securities. The restricted FHLB and FRB stock investments are carried at their redemption value. Equity securities with a readily determinable fair value are carried at fair value. Equity securities without a readily determinable fair value are recorded at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions ("modified cost"). Park's portfolio of equity investments in limited partnerships which provide mezzanine funding ("Partnership Investments") are valued using the NAV practical expedient in accordance with ASC 820.
The carrying amounts of other investment securities at September 30, 2023 and December 31, 2022 were as follows:

(In thousands) |  | September 30, 2023 |  | December 31, 2022
FHLB stock |  | $ | 20,229 |  |  | $ | 11,197 |
FRB stock |  | 14,653 |  |  | 14,653 |
Equity investments carried at fair value |  | 2,794 |  |  | 1,859 |
Equity investments carried at modified cost (1) |  | 15,921 |  |  | 14,725 |
Equity investments carried at NAV |  | 46,074 |  |  | 44,657 |
Total other investment securities |  | $ | 99,671 |  |  | $ | 87,091 |

(1) There have been no impairments or downward adjustments made to equity investments carried at modified cost. An upward adjustment of $871,000 was recorded during the nine months ended September 30, 2022 as a result of observable price changes. There were no adjustments recorded during the three months ended September 30, 2022. There were no adjustments recorded during the three months or the nine months ended September 30, 2023 as a result of observable price changes.
During the three months ended September 30, 2023, Park purchased 122,296 shares of FHLB stock with a book value of $12.2 million. During the nine months ended September 30, 2023, Park purchased 136,371 shares of FHLB stock with a book value of $13.6 million. During the three months ended September 30, 2023, the FHLB repurchased 10,002 shares of FHLB stock with a book value of $1.0 million. During the nine months ended September 30, 2023, the FHLB repurchased 46,054 shares of FHLB stock with a book value of $4.6 million. During the three months and the nine months ended September 30, 2022, the FHLB repurchased 22,160 shares of FHLB stock with a book value of $2.2 million. No shares of FRB stock were purchased or sold during the three months or the nine months ended September 30, 2023 or 2022.
During the three months ended September 30, 2023 and 2022, $74,000 and $(39,000), respectively, of gains (losses) on equity investments carried at fair value were recorded within "Gain on equity securities, net" on the Consolidated Condensed Statements of Income. During the nine months ended September 30, 2023 and 2022, $(65,000) and $488,000, respectively, of (losses) gains on equity investments carried at fair value were recorded within "Gain on equity securities, net" on the Consolidated Condensed Statements of Income.
During the three months ended September 30, 2023 and 2022, $924,000 and $97,000, respectively, of gains on equity investments carried at NAV were recorded within “Gain on equity securities, net” on the Consolidated Condensed Statements of Income. During the nine months ended September 30, 2023 and 2022, $683,000 and $2.6 million, respectively, of gains on equity investments carried at NAV were recorded within “Gain on equity securities, net” on the Consolidated Condensed Statements of Income.
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Note 5 – Loans
The composition of the loan portfolio at September 30, 2023 and at December 31, 2022 was as follows:

| September 30, 2023 |  |  | December 31, 2022
(In thousands) | Amortized Cost |  |  | Amortized Cost
Commercial, financial and agricultural: (1) |  |  |  |
Commercial, financial and agricultural (1) | $ | 1,283,485 |  |  |  | $ | 1,295,238 |
PPP loans | 2,427 |  |  |  | 4,206 |
Overdrafts | 3,109 |  |  |  | 1,489 |
Commercial real estate (1) | 1,833,400 |  |  |  | 1,794,054 |
Construction real estate: |  |  |  |
Commercial | 182,992 |  |  |  | 208,982 |
Retail | 105,934 |  |  |  | 116,433 |
Residential real estate: |  |  |  |
Commercial | 583,251 |  |  |  | 550,183 |
Mortgage | 1,185,544 |  |  |  | 1,075,446 |
HELOC | 173,256 |  |  |  | 167,151 |
Installment | 5,295 |  |  |  | 4,091 |
Consumer: |  |  |  |
Consumer | 1,970,570 |  |  |  | 1,902,831 |
Check loans | 2,053 |  |  |  | 2,150 |
Leases | 18,429 |  |  |  | 19,637 |
Total | $ | 7,349,745 |  |  |  | $ | 7,141,891 |
Allowance for credit losses | (84,602) |  |  |  | (85,379) |
Net loans | $ | 7,265,143 |  |  |  | $ | 7,056,512 |

(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that were not broken out by class.
In order to support customers, Park participated in the CARES Act Paycheck Protection Program ("PPP"). For its assistance in making and retaining these loans, Park received an aggregate of $33.1 million in fees from the SBA. During the three months ended September 30, 2023 and September 30, 2022, $9,000 and $361,000, respectively, of PPP fee income was recognized within loan interest income. During the nine months ended September 30, 2023 and September 30, 2022, $34,000 and $2.9 million, respectively, of PPP fee income was recognized within loan interest income.
Loans are shown net of deferred origination fees, costs and unearned income of $18.9 million at September 30, 2023, and of $18.2 million at December 31, 2022, which represented a net deferred income position at both dates. At September 30, 2023 and December 31, 2022, loans included purchase accounting adjustments of $1.9 million and $2.5 million, respectively, which represented a net deferred income position at each date. This fair market value purchase accounting adjustment is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.
Overdrawn deposit accounts of $3.1 million and $1.5 million were reclassified to loans at September 30, 2023 and at December 31, 2022, respectively.
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Credit Quality
Among other things, the adoption of ASU 2022-02 on January 1, 2023 eliminated the concept of TDRs. After the adoption of ASU 2022-02 on January 1, 2023, nonperforming loans consisted of nonaccrual loans and loans past due 90 days or more and still accruing. Prior to the adoption of ASU 2022-02, nonperforming loans consisted of nonaccrual loans, accruing TDRs and loans past due 90 days or more and still accruing.
The following table presents the amortized cost of nonaccrual loans and loans past due 90 days or more and still accruing, by class of loan, at September 30, 2023.

|  | September 30, 2023
(In thousands) |  | Nonaccrual Loans |  |  | Loans Past Due 90 Days or More and Accruing |  | Total Nonperforming Loans
Commercial, financial and agricultural: |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 17,336 |  |  |  | $ | — |  |  | $ | 17,336 |
PPP loans |  | — |  |  |  | — |  |  | — |
Overdrafts |  | — |  |  |  | — |  |  | — |
Commercial real estate |  | 19,899 |  |  |  | — |  |  | 19,899 |
Construction real estate: |  |  |  |  |  |  |
Commercial |  | 1,124 |  |  |  | — |  |  | 1,124 |
Retail |  | — |  |  |  | — |  |  | — |
Residential real estate: |  |  |  |  |  |  |
Commercial |  | 2,237 |  |  |  | — |  |  | 2,237 |
Mortgage |  | 10,935 |  |  |  | 139 |  |  | 11,074 |
HELOC |  | 957 |  |  |  | — |  |  | 957 |
Installment |  | 35 |  |  |  | — |  |  | 35 |
Consumer: |  |  |  |  |  |  |
Consumer |  | 2,133 |  |  |  | 488 |  |  | 2,621 |
Check loans |  | — |  |  |  | — |  |  | — |
Leases |  | 352 |  |  |  | — |  |  | 352 |
Total loans |  | $ | 55,008 |  |  |  | $ | 627 |  |  | $ | 55,635 |

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The following table presents the amortized cost of nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing, by class of loan, at December 31, 2022:

|  | December 31, 2022
(In thousands) |  | Nonaccrual Loans |  | Accruing TDRs |  | Loans Past Due 90 Days or More and Accruing |  | Total Nonperforming Loans
Commercial, financial and agricultural |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 38,158 |  |  | $ | 3,261 |  |  | $ | — |  |  | $ | 41,419 |
PPP loans |  | — |  |  | — |  |  | 389 |  |  | 389 |
Overdrafts |  | — |  |  | — |  |  | — |  |  | — |
Commercial real estate |  | 24,504 |  |  | 7,919 |  |  | — |  |  | 32,423 |
Construction real estate: |  |  |  |  |  |  |  |
Commercial |  | 1,712 |  |  | — |  |  | — |  |  | 1,712 |
Retail |  | 1,254 |  |  | 12 |  |  | — |  |  | 1,266 |
Residential real estate: |  |  |  |  |  |  |  |
Commercial |  | 1,894 |  |  | 298 |  |  | — |  |  | 2,192 |
Mortgage |  | 9,260 |  |  | 6,750 |  |  | 182 |  |  | 16,192 |
HELOC |  | 1,133 |  |  | 187 |  |  | 7 |  |  | 1,327 |
Installment |  | 51 |  |  | 1,037 |  |  | — |  |  | 1,088 |
Consumer |  |  |  |  |  |  |  |
Consumer |  | 1,022 |  |  | 670 |  |  | 703 |  |  | 2,395 |
Check loans |  | — |  |  | — |  |  | — |  |  | — |
Leases |  | 708 |  |  | — |  |  | — |  |  | 708 |
Total loans |  | $ | 79,696 |  |  | $ | 20,134 |  |  | $ | 1,281 |  |  | $ | 101,111 |

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The following tables provide additional detail on nonaccrual loans and the related ACL, by class of loan, at September 30, 2023 and December 31, 2022:

|  | September 30, 2023
(In thousands) |  | Nonaccrual Loans With No ACL |  | Nonaccrual Loans With an ACL |  | Related ACL
Commercial, financial and agricultural: |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 8,121 |  |  | $ | 9,215 |  |  | $ | 3,132 |
PPP loans |  | — |  |  | — |  |  | — |
Overdrafts |  | — |  |  | — |  |  | — |
Commercial real estate |  | 18,411 |  |  | 1,488 |  |  | 205 |
Construction real estate: |  |  |  |  |  |
Commercial |  | 575 |  |  | 549 |  |  | 94 |
Retail |  | — |  |  | — |  |  | — |
Residential real estate: |  |  |  |  |  |
Commercial |  | 2,237 |  |  | — |  |  | — |
Mortgage |  | — |  |  | 10,935 |  |  | 96 |
HELOC |  | — |  |  | 957 |  |  | 25 |
Installment |  | — |  |  | 35 |  |  | 18 |
Consumer |  |  |  |  |  |
Consumer |  | — |  |  | 2,133 |  |  | 615 |
Check loans |  | — |  |  | — |  |  | — |
Leases |  | 352 |  |  | — |  |  | — |
Total loans |  | $ | 29,696 |  |  | $ | 25,312 |  |  | $ | 4,185 |

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|  | December 31, 2022
(In thousands) |  | Nonaccrual Loans With No ACL |  | Nonaccrual Loans With an ACL |  | Related ACL
Commercial, financial and agricultural: |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 28,291 |  |  | $ | 9,867 |  |  | $ | 3,440 |
PPP loans |  | — |  |  | — |  |  | — |
Overdrafts |  | — |  |  | — |  |  | — |
Commercial real estate |  | 22,965 |  |  | 1,539 |  |  | 130 |
Construction real estate: |  |  |  |  |  |
Commercial |  | 1,712 |  |  | — |  |  | — |
Retail |  | — |  |  | 1,254 |  |  | 19 |
Residential real estate: |  |  |  |  |  |
Commercial |  | 1,894 |  |  | — |  |  | — |
Mortgage |  | — |  |  | 9,260 |  |  | 85 |
HELOC |  | — |  |  | 1,133 |  |  | 191 |
Installment |  | — |  |  | 51 |  |  | 17 |
Consumer |  |  |  |  |  |
Consumer |  | — |  |  | 1,022 |  |  | 284 |
Check loans |  | — |  |  | — |  |  | — |
Leases |  | 680 |  |  | 28 |  |  | 9 |
Total |  | $ | 55,542 |  |  | $ | 24,154 |  |  | $ | 4,175 |

Nonaccrual commercial loans are evaluated on an individual basis and are excluded from the collective evaluation. Management’s general practice is to proactively charge down loans individually evaluated to the fair value of the underlying collateral. Nonaccrual consumer loans are collectively evaluated based on similar risk characteristics.
The following tables provide the amortized cost basis of collateral-dependent loans by class of loan, at September 30, 2023 and at December 31, 2022:

|  | September 30, 2023
(In thousands) |  | Real Estate |  | Business Assets |  | Other | Total
Commercial, financial and agricultural |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 8,110 |  |  | $ | 4,719 |  |  | $ | 4,470 |  | $ | 17,299 |
Commercial real estate |  | 22,643 |  |  | 21 |  |  | — |  | 22,664 |
Construction real estate: |  |  |  |  |  |  |
Commercial |  | 1,761 |  |  | — |  |  | — |  | 1,761 |
Residential real estate: |  |  |  |  |  |  |
Commercial |  | 2,491 |  |  | — |  |  | — |  | 2,491 |
Mortgage |  | 79 |  |  | — |  |  | — |  | 79 |
Leases |  | — |  |  | 352 |  |  | — |  | 352 |
Total loans |  | $ | 35,084 |  |  | $ | 5,092 |  |  | $ | 4,470 |  | $ | 44,646 |

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|  | December 31, 2022
(In thousands) |  | Real Estate |  | Business Assets |  | Other | Total
Commercial, financial and agricultural |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 8,242 |  |  | $ | 7,788 |  |  | $ | 23,125 |  | $ | 39,155 |
Commercial real estate |  | 35,908 |  |  | 28 |  |  | — |  | 35,936 |
Construction real estate: |  |  |  |  |  |  |
Commercial |  | 2,372 |  |  | — |  |  | — |  | 2,372 |
Residential real estate: |  |  |  |  |  |  |
Commercial |  | 2,479 |  |  | — |  |  | — |  | 2,479 |
Mortgage |  | 90 |  |  | — |  |  | — |  | 90 |
Leases |  | — |  |  | 708 |  |  | — |  | 708 |
Total loans |  | $ | 49,091 |  |  | $ | 8,524 |  |  | $ | 23,125 |  | $ | 80,740 |

Interest income on nonaccrual loans individually evaluated for impairment is recognized on a cash basis only when Park expects to receive the entire recorded investment in the loans. The following table presents interest income recognized on nonaccrual loans for the three-month and the nine-month periods ended September 30, 2023 and 2022:

|  | Interest Income Recognized
(In thousands) |  | Three Months Ended September 30, 2023 |  | Three Months Ended September 30, 2022 |  | Nine Months Ended September 30, 2023 |  | Nine Months Ended September 30, 2022
Commercial, financial and agricultural: |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 253 |  |  | $ | 15 |  |  | $ | 1,580 |  |  | $ | 45 |
PPP loans |  | — |  |  | — |  |  | — |  |  | — |
Overdrafts |  | — |  |  | — |  |  | — |  |  | — |
Commercial real estate |  | 177 |  |  | 237 |  |  | 537 |  |  | 751 |
Construction real estate: |  |  |  |  |  |  |  |
Commercial |  | 5 |  |  | 6 |  |  | 59 |  |  | 10 |
Retail |  | — |  |  | — |  |  | — |  |  | 4 |
Residential real estate: |  |  |  |  |  |  |  |
Commercial |  | 37 |  |  | 24 |  |  | 100 |  |  | 64 |
Mortgage |  | 58 |  |  | 43 |  |  | 160 |  |  | 112 |
HELOC |  | 1 |  |  | 5 |  |  | 16 |  |  | 11 |
Installment |  | 1 |  |  | 1 |  |  | 3 |  |  | 3 |
Consumer: |  |  |  |  |  |  |  |
Consumer |  | 25 |  |  | 15 |  |  | 65 |  |  | 46 |
Check loans |  | — |  |  | — |  |  | — |  |  | — |
Leases |  | — |  |  | 9 |  |  | — |  |  | 33
Total loans |  | $ | 557 |  |  | $ | 355 |  |  | $ | 2,520 |  |  | $ | 1,079 |

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The following tables present the aging of the amortized cost in past due loans at September 30, 2023 and at December 31, 2022 by class of loan:

| September 30, 2023
(In thousands) | Accruing Loans Past Due 30-89 Days |  | Past Due Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing (1) |  | Total Past Due |  | Total Current (2) |  | Total Amortized Cost
Commercial, financial and agricultural: |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural | $ | 324 |  |  | $ | 12,151 |  |  | $ | 12,475 |  |  | $ | 1,271,010 |  |  | $ | 1,283,485 |
PPP loans | — |  |  | — |  |  | — |  |  | 2,427 |  |  | 2,427 |
Overdrafts | — |  |  | — |  |  | — |  |  | 3,109 |  |  | 3,109 |
Commercial real estate | 206 |  |  | 2,322 |  |  | 2,528 |  |  | 1,830,872 |  |  | 1,833,400 |
Construction real estate: |  |  |  |  |  |  |  |  |
Commercial | — |  |  | 549 |  |  | 549 |  |  | 182,443 |  |  | 182,992 |
Retail | 8 |  |  | — |  |  | 8 |  |  | 105,926 |  |  | 105,934 |
Residential real estate: |  |  |  |  |  |  |  |  |
Commercial | 54 |  |  | 219 |  |  | 273 |  |  | 582,978 |  |  | 583,251 |
Mortgage | 7,584 |  |  | 5,386 |  |  | 12,970 |  |  | 1,172,574 |  |  | 1,185,544 |
HELOC | 655 |  |  | 699 |  |  | 1,354 |  |  | 171,902 |  |  | 173,256 |
Installment | 19 |  |  | — |  |  | 19 |  |  | 5,276 |  |  | 5,295 |
Consumer: |  |  |  |  |  |  |  |  |
Consumer | 6,732 |  |  | 838 |  |  | 7,570 |  |  | 1,963,000 |  |  | 1,970,570 |
Check loans | 4 |  |  | — |  |  | 4 |  |  | 2,049 |  |  | 2,053 |
Leases | — |  |  | — |  |  | — |  |  | 18,429 |  |  | 18,429 |
Total loans | $ | 15,586 |  |  | $ | 22,164 |  |  | $ | 37,750 |  |  | $ | 7,311,995 |  |  | $ | 7,349,745 |

(1) Includes an aggregate of $0.6 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes an aggregate of $33.5 million of nonaccrual loans which were current with respect to contractual principal and interest payments.
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| December 31, 2022
(in thousands) | Accruing Loans Past Due 30-89 Days |  | Past Due Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing (1) |  | Total Past Due |  | Total Current (2) |  | Total Amortized Cost
Commercial, financial and agricultural |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural | $ | 378 |  |  | $ | 9,246 |  |  | $ | 9,624 |  |  | $ | 1,285,614 |  |  | $ | 1,295,238 |
PPP loans | 155 |  |  | 389 |  |  | 544 |  |  | 3,662 |  |  | 4,206 |
Overdrafts | — |  |  | — |  |  | — |  |  | 1,489 |  |  | 1,489 |
Commercial real estate | 737 |  |  | 4,738 |  |  | 5,475 |  |  | 1,788,579 |  |  | 1,794,054 |
Construction real estate: |  |  |  |  |  |  |  |  |
Commercial | 751 |  |  | — |  |  | 751 |  |  | 208,231 |  |  | 208,982 |
Retail | 1,035 |  |  | 523 |  |  | 1,558 |  |  | 114,875 |  |  | 116,433 |
Residential real estate: |  |  |  |  |  |  |  |  |
Commercial | 519 |  |  | 477 |  |  | 996 |  |  | 549,187 |  |  | 550,183 |
Mortgage | 7,630 |  |  | 5,157 |  |  | 12,787 |  |  | 1,062,659 |  |  | 1,075,446 |
HELOC | 832 |  |  | 587 |  |  | 1,419 |  |  | 165,732 |  |  | 167,151 |
Installment | 57 |  |  | 4 |  |  | 61 |  |  | 4,030 |  |  | 4,091 |
Consumer |  |  |  |  |  |  |  |  |
Consumer | 5,499 |  |  | 964 |  |  | 6,463 |  |  | 1,896,368 |  |  | 1,902,831 |
Check loans | 2 |  |  | — |  |  | 2 |  |  | 2,148 |  |  | 2,150 |
Leases | — |  |  | — |  |  | — |  |  | 19,637 |  |  | 19,637 |
Total loans | $ | 17,595 |  |  | $ | 22,085 |  |  | $ | 39,680 |  |  | $ | 7,102,211 |  |  | $ | 7,141,891 |

(1) Includes an aggregate of $1.3 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes an aggregate of $58.9 million of nonaccrual loans which were current with respect to contractual principal and interest payments.
Credit Quality Indicators
Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information at September 30, 2023 and December 31, 2022 is included in the previous tables. The past due information is the primary credit quality indicator within the following classes of loans: (1) overdrafts in the commercial, financial and agricultural portfolio segment; (2) retail loans in the construction real estate portfolio segment; (3) mortgage loans, HELOC and installment loans in the residential real estate portfolio segment; and (4) consumer loans and check loans in the consumer portfolio segment. The primary credit indicator for commercial loans is based on an internal grading system that grades all commercial loans on a scale from 1 to 8. Credit grades are continuously monitored by the responsible loan officer and adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded a 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher PD is applied to these loans. Loans classified as special mention have potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of Park’s credit position at some future date. Commercial loans graded a 6 (substandard), also considered watch list credits, are considered to represent higher credit risk and, as a result, a higher PD is applied to these loans. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or the value of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that Park will sustain some loss if the weaknesses are not corrected. Commercial loans graded a 7 (doubtful) are shown as nonaccrual and Park generally charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and included within the individually evaluated category. A commercial loan is deemed nonaccrual, and is individually evaluated, when management determines the borrower's ability to perform in accordance with the contractual loan agreement is in doubt. Any commercial loan graded an 8 (loss) is completely charged off.
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Based on the most recent analysis performed, the risk category of commercial loans by class of loans at September 30, 2023 and at December 31, 2022 are detailed in the tables below. Also included in the table detailing loan balances at September 30, 2023 are gross charge offs for the nine months ended September 30, 2023.

September 30, 2023 | Term Loans Amortized Cost Basis by Origination Year |  |
(In thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans Amortized Cost Basis | Total
Commercial, financial and agricultural: Commercial, financial and agricultural (1) |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | 157,097 |  | $ | 162,986 |  | $ | 136,515 |  | $ | 116,752 |  | $ | 45,243 |  | $ | 48,042 |  | $ | 567,498 |  | $ | 1,234,133 |
Special Mention | 125 |  | 598 |  | 285 |  | 242 |  | 110 |  | 11 |  | 28,954 |  | 30,325 |
Substandard | 111 |  | 191 |  | 197 |  | 2,530 |  | 140 |  | 623 |  | 6,100 |  | 9,892 |
Doubtful | 75 |  | 52 |  | 42 |  | 126 |  | 104 |  | 7,862 |  | 874 |  | 9,135 |
Total | $ | 157,408 |  | $ | 163,827 |  | $ | 137,039 |  | $ | 119,650 |  | $ | 45,597 |  | $ | 56,538 |  | $ | 603,426 |  | $ | 1,283,485 |
Current period gross charge-offs | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 51 |  | $ | — |  | $ | 51 |

Commercial, financial and agricultural: PPP |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | — |  | $ | — |  | $ | 1,014 |  | $ | 1,413 |  | $ | — |  | $ | — |  | $ | — |  | $ | 2,427 |
Special Mention | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Substandard | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Doubtful | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | — |  | $ | — |  | $ | 1,014 |  | $ | 1,413 |  | $ | — |  | $ | — |  | $ | — |  | $ | 2,427 |
Current period gross charge-offs | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |

Commercial real estate (1) |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | 198,641 |  | $ | 309,027 |  | $ | 343,355 |  | $ | 328,768 |  | $ | 210,212 |  | $ | 356,293 |  | $ | 15,401 |  | $ | 1,761,697 |
Special Mention | 72 |  | 16,984 |  | 4,249 |  | 4,336 |  | — |  | 24,670 |  | 99 |  | 50,410 |
Substandard | 1,624 |  | 1,137 |  | 2,759 |  | 3,198 |  | 2,590 |  | 7,012 |  | 1,892 |  | 20,212 |
Doubtful | — |  | — |  | 740 |  | — |  | — |  | 341 |  | — |  | 1,081 |
Total | $ | 200,337 |  | $ | 327,148 |  | $ | 351,103 |  | $ | 336,302 |  | $ | 212,802 |  | $ | 388,316 |  | $ | 17,392 |  | $ | 1,833,400 |
Current period gross charge-offs | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 530 |  | $ | — |  | $ | 530 |

Construction real estate: Commercial |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | 63,281 |  | $ | 75,994 |  | $ | 7,581 |  | $ | 18,474 |  | $ | 1,897 |  | $ | 2,806 |  | $ | 11,198 |  | $ | 181,231 |
Special Mention | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Substandard | 1,414 |  | 270 |  | 77 |  | — |  | — |  | — |  | — |  | 1,761 |
Doubtful | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | 64,695 |  | $ | 76,264 |  | $ | 7,658 |  | $ | 18,474 |  | $ | 1,897 |  | $ | 2,806 |  | $ | 11,198 |  | $ | 182,992 |
Current period gross charge-offs | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |

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September 30, 2023 | Term Loans Amortized Cost Basis by Origination Year |  |
(In thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans Amortized Cost Basis | Total
Residential Real Estate: Commercial |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | 86,116 |  | $ | 108,555 |  | $ | 108,655 |  | $ | 123,374 |  | $ | 51,584 |  | $ | 79,032 |  | $ | 20,793 |  | $ | 578,109 |
Special Mention | — |  | 338 |  | 462 |  | 607 |  | 415 |  | 848 |  | — |  | 2,670 |
Substandard | 200 |  | 572 |  | 333 |  | 256 |  | 31 |  | 890 |  | 190 |  | 2,472 |
Doubtful | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | 86,316 |  | $ | 109,465 |  | $ | 109,450 |  | $ | 124,237 |  | $ | 52,030 |  | $ | 80,770 |  | $ | 20,983 |  | $ | 583,251 |
Current period gross charge-offs | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |

Leases |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | 4,530 |  | $ | 5,597 |  | $ | 2,448 |  | $ | 2,276 |  | $ | 483 |  | $ | 843 |  | $ | — |  | $ | 16,177 |
Special Mention | 665 |  | 752 |  | 442 |  | 27 |  | 13 |  | 1 |  | — |  | 1,900 |
Substandard | — |  | — |  | — |  | 256 |  | 82 |  | 14 |  | — |  | 352 |
Doubtful | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | 5,195 |  | $ | 6,349 |  | $ | 2,890 |  | $ | 2,559 |  | $ | 578 |  | $ | 858 |  | $ | — |  | $ | 18,429 |
Current period gross charge-offs | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |

Total Commercial Loans |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | 509,665 |  | $ | 662,159 |  | $ | 599,568 |  | $ | 591,057 |  | $ | 309,419 |  | $ | 487,016 |  | $ | 614,890 |  | $ | 3,773,774 |
Special Mention | 862 |  | 18,672 |  | 5,438 |  | 5,212 |  | 538 |  | 25,530 |  | 29,053 |  | 85,305 |
Substandard | 3,349 |  | 2,170 |  | 3,366 |  | 6,240 |  | 2,843 |  | 8,539 |  | 8,182 |  | 34,689 |
Doubtful | 75 |  | 52 |  | 782 |  | 126 |  | 104 |  | 8,203 |  | 874 |  | 10,216 |
Total | $ | 513,951 |  | $ | 683,053 |  | $ | 609,154 |  | $ | 602,635 |  | $ | 312,904 |  | $ | 529,288 |  | $ | 652,999 |  | $ | 3,903,984 |
Current period gross charge-offs | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 581 |  | $ | — |  | $ | 581 |

(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.
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December 31, 2022 | Term Loans Amortized Cost Basis by Origination Year |  |
(In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Total
Commercial, financial and agricultural: Commercial, financial and agricultural (1) |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | 197,497 |  | $ | 198,999 |  | $ | 142,487 |  | $ | 60,845 |  | $ | 32,887 |  | $ | 47,135 |  | $ | 546,237 |  | $ | 1,226,087 |
Special Mention | 700 |  | 313 |  | 918 |  | 315 |  | 4 |  | 35 |  | 25,536 |  | 27,821 |
Substandard | 1,101 |  | 18 |  | 2,737 |  | 226 |  | 1,836 |  | 8,424 |  | 26,464 |  | 40,806 |
Doubtful | — |  | — |  | 3 |  | 77 |  | 80 |  | 172 |  | 192 |  | 524 |
Total | $ | 199,298 |  | $ | 199,330 |  | $ | 146,145 |  | $ | 61,463 |  | $ | 34,807 |  | $ | 55,766 |  | $ | 598,429 |  | $ | 1,295,238 |

Commercial, financial and agricultural: PPP |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | — |  | $ | 1,875 |  | $ | 2,331 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 4,206 |
Special Mention | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Substandard | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Doubtful | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | — |  | $ | 1,875 |  | $ | 2,331 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 4,206 |

Commercial real estate (1) |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | 323,235 |  | $ | 374,763 |  | $ | 372,653 |  | $ | 220,072 |  | $ | 107,467 |  | $ | 305,539 |  | $ | 14,052 |  | $ | 1,717,781 |
Special Mention | 199 |  | 3,256 |  | 3,388 |  | 5,863 |  | 16,059 |  | 22,220 |  | 150 |  | 51,135 |
Substandard | 7,856 |  | 1,427 |  | 3,007 |  | 3,561 |  | 856 |  | 5,471 |  | 428 |  | 22,606 |
Doubtful | — |  | — |  | — |  | — |  | 1,941 |  | 591 |  | — |  | 2,532 |
Total | $ | 331,290 |  | $ | 379,446 |  | $ | 379,048 |  | $ | 229,496 |  | $ | 126,323 |  | $ | 333,821 |  | $ | 14,630 |  | $ | 1,794,054 |

Construction real estate: Commercial |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | 107,976 |  | $ | 40,534 |  | $ | 21,556 |  | $ | 2,686 |  | $ | 1,428 |  | $ | 3,015 |  | $ | 29,183 |  | $ | 206,378 |
Special Mention | — |  | — |  | 232 |  | — |  | — |  | — |  | — |  | 232 |
Substandard | 652 |  | 800 |  | 260 |  | — |  | 660 |  | — |  | — |  | 2,372 |
Doubtful | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | 108,628 |  | $ | 41,334 |  | $ | 22,048 |  | $ | 2,686 |  | $ | 2,088 |  | $ | 3,015 |  | $ | 29,183 |  | $ | 208,982 |

Residential Real Estate: Commercial |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | 107,086 |  | $ | 120,303 |  | $ | 147,802 |  | $ | 56,980 |  | $ | 33,140 |  | $ | 63,499 |  | $ | 15,191 |  | $ | 544,001 |
Special Mention | — |  | 92 |  | 1,477 |  | 440 |  | — |  | 1,625 |  | — |  | 3,634 |
Substandard | 610 |  | 449 |  | 264 |  | 29 |  | 304 |  | 553 |  | 339 |  | 2,548 |
Doubtful | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | 107,696 |  | $ | 120,844 |  | $ | 149,543 |  | $ | 57,449 |  | $ | 33,444 |  | $ | 65,677 |  | $ | 15,530 |  | $ | 550,183 |

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December 31, 2022 | Term Loans Amortized Cost Basis by Origination Year |  |
(In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Total

Leases |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | 7,629 |  | $ | 3,310 |  | $ | 3,347 |  | $ | 1,167 |  | $ | 981 |  | $ | 605 |  | $ | — |  | $ | 17,039 |
Special Mention | 1,085 |  | 614 |  | 130 |  | 60 |  | — |  | — |  | — |  | 1,889 |
Substandard | — |  | — |  | 464 |  | 111 |  | 12 |  | 26 |  | — |  | 613 |
Doubtful | — |  | — |  | — |  | 96 |  | — |  | — |  | — |  | 96 |
Total | $ | 8,714 |  | $ | 3,924 |  | $ | 3,941 |  | $ | 1,434 |  | $ | 993 |  | $ | 631 |  | $ | — |  | $ | 19,637 |

Total Commercial Loans |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |
Pass | $ | 743,423 |  | $ | 739,784 |  | $ | 690,176 |  | $ | 341,750 |  | $ | 175,903 |  | $ | 419,793 |  | $ | 604,663 |  | $ | 3,715,492 |
Special Mention | 1,984 |  | 4,275 |  | 6,145 |  | 6,678 |  | 16,063 |  | 23,880 |  | 25,686 |  | 84,711 |
Substandard | 10,219 |  | 2,694 |  | 6,732 |  | 3,927 |  | 3,668 |  | 14,474 |  | 27,231 |  | 68,945 |
Doubtful | — |  | — |  | 3 |  | 173 |  | 2,021 |  | 763 |  | 192 |  | 3,152 |
Total | $ | 755,626 |  | $ | 746,753 |  | $ | 703,056 |  | $ | 352,528 |  | $ | 197,655 |  | $ | 458,910 |  | $ | 657,772 |  | $ | 3,872,300 |

(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.
Park considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential and consumer loan classes, Park also evaluates credit quality based on the aging status of the loan, which was previously presented, and by performing status. The following tables present the amortized cost in residential and consumer loans based on performing status. Also included in the table detailing loan balances at September 30, 2023 are gross charge offs for the nine months ended September 30, 2023. As previously mentioned, the adoption of ASU 2022-02 on January 1, 2023 eliminated the concept of TDRs. After the adoption of ASU 2022-02 on January 1, 2023, nonperforming loans consisted of nonaccrual loans and loans past due 90 days or more and still accruing. Prior to the adoption of ASU 2022-02, nonperforming loans consisted of nonaccrual loans, accruing TDRs and loans past due 90 days or more and still accruing.

September 30, 2023 | Term Loans Amortized Cost Basis by Origination Year |  |
(In thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans Amortized Cost Basis | Total
Commercial, financial and agricultural: Overdrafts |  |  |  |  |  |
Performing | $ | 3,109 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 3,109 |
Nonperforming | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | 3,109 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 3,109 |
Current period gross charge-offs | $ | 704 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 704 |

Construction Real Estate: Retail |  |  |  |  |  |
Performing | $ | 33,399 |  | $ | 50,927 |  | $ | 9,846 |  | $ | 4,402 |  | $ | 3,921 |  | $ | 3,128 |  | $ | 311 |  | $ | 105,934 |
Nonperforming | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | 33,399 |  | $ | 50,927 |  | $ | 9,846 |  | $ | 4,402 |  | $ | 3,921 |  | $ | 3,128 |  | $ | 311 |  | $ | 105,934 |
Current period gross charge-offs | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |

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September 30, 2023 | Term Loans Amortized Cost Basis by Origination Year |  |
(In thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans Amortized Cost Basis | Total
Residential Real Estate: Mortgage |  |  |  |  |  |
Performing | $ | 151,811 |  | $ | 235,246 |  | $ | 223,499 |  | $ | 180,736 |  | $ | 83,584 |  | $ | 299,594 |  | $ | — |  | $ | 1,174,470 |
Nonperforming | — |  | 976 |  | 706 |  | 851 |  | 423 |  | 8,118 |  | — |  | 11,074 |
Total | $ | 151,811 |  | $ | 236,222 |  | $ | 224,205 |  | $ | 181,587 |  | $ | 84,007 |  | $ | 307,712 |  | $ | — |  | $ | 1,185,544 |
Current period gross charge-offs | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 35 |  | $ | — |  | $ | 35 |

Residential Real Estate: HELOC |  |  |  |  |  |
Performing | $ | 79 |  | $ | 181 |  | $ | 299 |  | $ | 102 |  | $ | 242 |  | $ | 1,975 |  | $ | 169,421 |  | $ | 172,299 |
Nonperforming | — |  | — |  | — |  | — |  | 32 |  | 685 |  | 240 |  | 957 |
Total | $ | 79 |  | $ | 181 |  | $ | 299 |  | $ | 102 |  | $ | 274 |  | $ | 2,660 |  | $ | 169,661 |  | $ | 173,256 |
Current period gross charge-offs | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 9 |  | $ | — |  | $ | 9 |

Residential Real Estate: Installment |  |  |  |  |  |
Performing | $ | 1,692 |  | $ | 168 |  | $ | — |  | $ | 4 |  | $ | 165 |  | $ | 3,231 |  | $ | — |  | $ | 5,260 |
Nonperforming | — |  | — |  | — |  | — |  | — |  | 35 |  | — |  | 35 |
Total | $ | 1,692 |  | $ | 168 |  | $ | — |  | $ | 4 |  | $ | 165 |  | $ | 3,266 |  | $ | — |  | $ | 5,295 |
Current period gross charge-offs | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |

Consumer: Consumer |  |  |  |  |  |  |  |
Performing | $ | 520,059 |  | $ | 664,029 |  | $ | 348,910 |  | $ | 239,729 |  | $ | 95,045 |  | $ | 82,256 |  | $ | 17,921 |  | $ | 1,967,949 |
Nonperforming | 155 |  | 687 |  | 730 |  | 367 |  | 181 |  | 497 |  | 4 |  | 2,621 |
Total | $ | 520,214 |  | $ | 664,716 |  | $ | 349,640 |  | $ | 240,096 |  | $ | 95,226 |  | $ | 82,753 |  | $ | 17,925 |  | $ | 1,970,570 |
Current period gross charge-offs | $ | 253 |  | $ | 2,223 |  | $ | 1,893 |  | $ | 635 |  | $ | 497 |  | $ | 346 |  | $ | 3 |  | $ | 5,850 |

Consumer: Check loans |  |  |  |  |  |  |  |
Performing | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 2,053 |  | $ | 2,053 |
Nonperforming | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 2,053 |  | $ | 2,053 |
Current period gross charge-offs | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 34 |  | $ | 34 |

Total Consumer Loans |  |  |  |  |  |  |  |
Performing | $ | 710,149 |  | $ | 950,551 |  | $ | 582,554 |  | $ | 424,973 |  | $ | 182,957 |  | $ | 390,184 |  | $ | 189,706 |  | $ | 3,431,074 |
Nonperforming | 155 |  | 1,663 |  | 1,436 |  | 1,218 |  | 636 |  | 9,335 |  | 244 |  | 14,687 |
Total | $ | 710,304 |  | $ | 952,214 |  | $ | 583,990 |  | $ | 426,191 |  | $ | 183,593 |  | $ | 399,519 |  | $ | 189,950 |  | $ | 3,445,761 |
Current period gross charge-offs | $ | 957 |  | $ | 2,223 |  | $ | 1,893 |  | $ | 635 |  | $ | 497 |  | $ | 390 |  | $ | 37 |  | $ | 6,632 |

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December 31, 2022 | Term Loans Amortized Cost Basis by Origination Year |  |
(In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Total
Commercial, financial and agricultural: Overdrafts |  |  |  |  |  |
Performing | $ | 1,489 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 1,489 |
Nonperforming | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | 1,489 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 1,489 |

Construction Real Estate: Retail |  |  |  |  |  |
Performing | $ | 71,923 |  | $ | 26,134 |  | $ | 8,218 |  | $ | 4,619 |  | $ | 1,618 |  | $ | 2,580 |  | $ | 75 |  | $ | 115,167 |
Nonperforming | 731 |  | — |  | 523 |  | — |  | — |  | 12 |  | — |  | 1,266 |
Total | $ | 72,654 |  | $ | 26,134 |  | $ | 8,741 |  | $ | 4,619 |  | $ | 1,618 |  | $ | 2,592 |  | $ | 75 |  | $ | 116,433 |

Residential Real Estate: Mortgage |  |  |  |  |  |
Performing | $ | 207,093 |  | $ | 227,131 |  | $ | 192,904 |  | $ | 90,014 |  | $ | 55,648 |  | $ | 286,464 |  | $ | — |  | $ | 1,059,254 |
Nonperforming | — |  | — |  | 700 |  | 650 |  | 518 |  | 14,324 |  | — |  | 16,192 |
Total | $ | 207,093 |  | $ | 227,131 |  | $ | 193,604 |  | $ | 90,664 |  | $ | 56,166 |  | $ | 300,788 |  | $ | — |  | $ | 1,075,446 |

Residential Real Estate: HELOC |  |  |  |  |  |
Performing | $ | 140 |  | $ | 299 |  | $ | 23 |  | $ | 130 |  | $ | 141 |  | $ | 1,957 |  | $ | 163,134 |  | $ | 165,824 |
Nonperforming | — |  | — |  | 43 |  | 100 |  | — |  | 999 |  | 185 |  | 1,327 |
Total | $ | 140 |  | $ | 299 |  | $ | 66 |  | $ | 230 |  | $ | 141 |  | $ | 2,956 |  | $ | 163,319 |  | $ | 167,151 |

Residential Real Estate: Installment |  |  |  |  |  |
Performing | $ | 187 |  | $ | — |  | $ | 1 |  | $ | 241 |  | $ | 62 |  | $ | 2,512 |  | $ | — |  | $ | 3,003 |
Nonperforming | — |  | — |  | 7 |  | 2 |  | 16 |  | 1,063 |  | — |  | 1,088 |
Total | $ | 187 |  | $ | — |  | $ | 8 |  | $ | 243 |  | $ | 78 |  | $ | 3,575 |  | $ | — |  | $ | 4,091 |

Consumer: Consumer |  |  |  |  |  |  |  |
Performing | $ | 823,484 |  | $ | 462,014 |  | $ | 333,391 |  | $ | 150,348 |  | $ | 61,219 |  | $ | 65,614 |  | $ | 4,366 |  | $ | 1,900,436 |
Nonperforming | 440 |  | 489 |  | 424 |  | 365 |  | 157 |  | 520 |  | — |  | 2,395 |
Total | $ | 823,924 |  | $ | 462,503 |  | $ | 333,815 |  | $ | 150,713 |  | $ | 61,376 |  | $ | 66,134 |  | $ | 4,366 |  | $ | 1,902,831 |

Consumer: Check loans |  |  |  |  |  |  |  |
Performing | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 2,150 |  | $ | 2,150 |
Nonperforming | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 2,150 |  | $ | 2,150 |

Total Consumer Loans |  |  |  |  |  |  |  |
Performing | $ | 1,104,316 |  | $ | 715,578 |  | $ | 534,537 |  | $ | 245,352 |  | $ | 118,688 |  | $ | 359,127 |  | $ | 169,725 |  | $ | 3,247,323 |
Nonperforming | 1,171 |  | 489 |  | 1,697 |  | 1,117 |  | 691 |  | 16,918 |  | 185 |  | 22,268 |
Total | $ | 1,105,487 |  | $ | 716,067 |  | $ | 536,234 |  | $ | 246,469 |  | $ | 119,379 |  | $ | 376,045 |  | $ | 169,910 |  | $ | 3,269,591 |

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Loans and Leases Acquired with Deteriorated Credit Quality
In conjunction with the NewDominion acquisition, Park acquired loans with a book value of $277.9 million as of the July 1, 2018 acquisition date. These loans were recorded at the initial fair value of $272.8 million. Loans acquired with deteriorated credit quality (ASC 310-30) with a book value of $5.1 million were recorded at the initial fair value of $4.9 million. In conjunction with the Carolina Alliance acquisition, Park acquired loans and leases with a book value of $589.7 million as of the April 1, 2019 acquisition date. These loans and leases were recorded at the initial fair value of $578.6 million. Loans and leases acquired with deteriorated credit quality (ASC 310-30) with a book value of $19.9 million were recorded at the initial fair value of $18.4 million.
Upon Park's adoption of CECL on January 1, 2021, $52,000 of the credit discount on PCD loans was reclassified to the allowance for credit losses. PCD loans are individually evaluated on a quarterly basis to determine if a specific reserve is necessary. At September 30, 2023 and at December 31, 2022, there was no allowance for credit losses on PCD loans. The carrying amount of accruing loans acquired with deteriorated credit quality at September 30, 2023 and at December 31, 2022 was $3.8 million and $4.7 million, respectively. The carrying amount of nonaccrual loans acquired with deteriorated credit quality was $549,000 at September 30, 2023. There were no nonaccrual loans acquired with deteriorated quality at December 31, 2022.
Modifications to Borrowers Experiencing Financial Difficulty
Management identifies loans as modifications to borrowers experiencing financial difficulty when a borrower is experiencing financial difficulties and Park has altered the cash flow of the loan as part of a modification or in the loan renewal process. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of the borrower's debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy. Park modifies loans to borrowers experiencing financial difficulty by providing principal forgiveness, a term extension, an other-than-insignificant payment delay or interest rate adjustments.
In some cases, Park provides multiple types of modifications on one loan. Typically, one type of modification, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another modification, such as principal forgiveness, may be granted. For the loans included in the combination columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate adjustment.
The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. As a result, the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses and a change to the allowance for credit losses is generally not recorded upon modification. When principal forgiveness is provided, the amount of forgiveness is charged off against the allowance for credit losses.
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The following tables present the amortized cost basis of loans at September 30, 2023 that were both experiencing financial difficulty and modified during the three months and the nine months ended September 30, 2023 by class of and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below.

|  | Three Months Ended September 30, 2023
(Dollars in thousands) |  | Principal Forgiveness |  | Payment Delay |  | Term Extension |  | Interest Rate Adjustment |  | Combination Term Extension and Interest Rate Adjustment |  | Other |  | Total |  | Percent of Total Class of Financing Receivable
Commercial, financial and agricultural: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | — |  |  | $ | — |  |  | $ | 1,920 |  |  | $ | 387 |  |  | $ | 2,568 |  |  | $ | — |  |  | $ | 4,875 |  |  | 0.38 | %
PPP loans |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — | %
Overdrafts |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — | %
Commercial real estate |  | — |  |  | — |  |  | 366 |  |  | — |  |  | 511 |  |  | — |  |  | 877 |  |  | 0.05 | %
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | — |  |  | — |  |  | 228 |  |  | — |  |  | 637 |  |  | — |  |  | 865 |  |  | 0.47 | %
Retail |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — | %
Residential real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | — |  |  | — |  |  | — |  |  | — |  |  | 147 |  |  | — |  |  | 147 |  |  | 0.03 | %
Mortgage |  | — |  |  | — |  |  | — |  |  | — |  |  | 95 |  |  | — |  |  | 95 |  |  | 0.01 | %
HELOC |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — | %
Installment |  | — |  |  | — |  |  | 174 |  |  | — |  |  | 121 |  |  | — |  |  | 295 |  |  | 5.57 | %
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer |  | — |  |  | — |  |  | — |  |  | 22 |  |  | — |  |  | — |  |  | 22 |  |  | — | %
Check loans |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — | %
Leases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — | %
Total |  | $ | — |  |  | $ | — |  |  | $ | 2,688 |  |  | $ | 409 |  |  | $ | 4,079 |  |  | $ | — |  |  | $ | 7,176 |  |  | 0.10 | %

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|  | Nine Months Ended September 30, 2023
(Dollars in thousands) |  | Principal Forgiveness |  | Payment Delay |  | Term Extension |  | Interest Rate Adjustment |  | Combination Term Extension and Interest Rate Adjustment |  | Other |  | Total |  | Percent of Total Class of Financing Receivable
Commercial, financial and agricultural: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | — |  |  | $ | — |  |  | $ | 452 |  |  | $ | 387 |  |  | $ | 11,312 |  |  | $ | 11 |  |  | $ | 12,162 |  |  | 0.95 | %
PPP loans |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — | %
Overdrafts |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — | %
Commercial real estate |  | — |  |  | — |  |  | 1,366 |  |  | — |  |  | 511 |  |  | — |  |  | 1,877 |  |  | 0.10 | %
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | — |  |  | — |  |  | 228 |  |  | — |  |  | 637 |  |  | — |  |  | 865 |  |  | 0.47 | %
Retail |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — | %
Residential real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | — |  |  | — |  |  | — |  |  | — |  |  | 158 |  |  | — |  |  | 158 |  |  | 0.03 | %
Mortgage |  | — |  |  | — |  |  | — |  |  | — |  |  | 229 |  |  | — |  |  | 229 |  |  | 0.02 | %
HELOC |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — | %
Installment |  | — |  |  | — |  |  | 178 |  |  | — |  |  | 199 |  |  | — |  |  | 377 |  |  | 7.12 | %
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer |  | — |  |  | — |  |  | — |  |  | 39 |  |  | — |  |  | — |  |  | 39 |  |  | — | %
Check loans |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — | %
Leases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — | %
Total |  | $ | — |  |  | $ | — |  |  | $ | 2,224 |  |  | $ | 426 |  |  | $ | 13,046 |  |  | $ | 11 |  |  | $ | 15,707 |  |  | 0.21 | %

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Park has committed to lend additional amounts totaling $3.4 million to the borrowers included in the previous table as of September 30, 2023.
The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months and the nine months ended September 30, 2023:

|  | Three Months Ended September 30, 2023
(Dollars in thousands) |  | Principal Forgiveness |  | Weighted Average Interest Rate Adjustment |  | Weighted Average Term Extension (years)
Commercial, financial and agricultural: |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | — |  |  | (0.15) | % |  | 0.5
PPP loans |  | — |  |  | — | % |  | 0.0
Overdrafts |  | — |  |  | — | % |  | 0.0
Commercial real estate |  | — |  |  | 2.76 | % |  | 2.0
Construction real estate: |  |  |  |  |  |
Commercial |  | — |  |  | 2.34 | % |  | 1.6
Retail |  | — |  |  | — | % |  | 0.0
Residential real estate: |  |  |  |  |  |
Commercial |  | — |  |  | (2.75) | % |  | 1.1
Mortgage |  | — |  |  | (4.00) | % |  | 0.8
HELOC |  | — |  |  | — | % |  | 0.0
Installment |  | — |  |  | (0.89) | % |  | 13.6
Consumer: |  |  |  |  |  |
Consumer |  | — |  |  | (1.49) | % |  | 0.0
Check loans |  | — |  |  | — | % |  | 0.0
Leases |  | — |  |  | — | % |  | 0.0
Total |  | $ | — |  |  | 0.34 | % |  | 1.4

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|  | Nine Months Ended September 30, 2023
(Dollars in thousands) |  | Principal Forgiveness |  | Weighted Average Interest Rate Adjustment |  | Weighted Average Term Extension (years)
Commercial, financial and agricultural: |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | — |  |  | 0.58 | % |  | 0.6
PPP loans |  | — |  |  | — | % |  | 0.0
Overdrafts |  | — |  |  | — | % |  | 0.0
Commercial real estate |  | — |  |  | 2.76 | % |  | 3.1
Construction real estate: |  |  |  |  |  |
Commercial |  | — |  |  | 2.34 | % |  | 1.6
Retail |  | — |  |  | — | % |  | 0.0
Residential real estate: |  |  |  |  |  |
Commercial |  | — |  |  | (2.47) | % |  | 1.4
Mortgage |  | — |  |  | (2.76) | % |  | 0.6
HELOC |  | — |  |  | — | % |  | 0.0
Installment |  | — |  |  | (1.21) | % |  | 12.9
Consumer: |  |  |  |  |  |
Consumer |  | — |  |  | (2.33) | % |  | 0.0
Check loans |  | — |  |  | — | % |  | 0.0
Leases |  | — |  |  | — | % |  | 0.0
Total |  | $ | — |  |  | 0.62 | % |  | 1.3

Park closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of Park's modification efforts. There were no loans modified to borrowers experiencing financial difficulty that had been modified during the three months ended September 30, 2023 that were greater than 30 days past due as of September 30, 2023. There were $11,000 of loans modified to borrowers experiencing financial difficulty that had been modified during the nine months ended September 30, 2023 that were 30-59 days past due as of September 30, 2023 in the Commercial, financial, and agricultural loan portfolio segment.
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The following table presents the amortized cost basis of loans that had a payment default during the three months ended September 30, 2023 and were modified in the nine months prior to that default to borrowers experiencing financial difficulty. For this table, a loan is considered to be in default when it becomes 30 days contractually past due under the modified terms:

| Three Months Ended September 30, 2023
(In thousands) | Term Extension |  | Interest Rate Adjustment |  | Combination Term Extension and Interest Rate Adjustment |  | Other
Commercial, financial and agricultural: |  |  |  |  |  |  |
Commercial, financial and agricultural | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 11 |
PPP loans | — |  |  | — |  |  | — |  |  | — |
Overdrafts | — |  |  | — |  |  | — |  |  | — |
Commercial real estate | — |  |  | — |  |  | — |  |  | — |
Construction real estate: |  |  |  |  |  |  |
Commercial | — |  |  | — |  |  | — |  |  | — |
Retail | — |  |  | — |  |  | — |  |  | — |
Residential real estate: |  |  | — |  |  | — |  |  | — |
Commercial | — |  |  | — |  |  | — |  |  | — |
Mortgage | — |  |  | — |  |  | — |  |  | — |
HELOC | — |  |  | — |  |  | — |  |  | — |
Installment | — |  |  | — |  |  | — |  |  | — |
Consumer: |  |  |  |  |  |  |
Consumer | — |  |  | — |  |  | — |  |  | — |
Check loans | — |  |  | — |  |  | — |  |  | — |
Leases | — |  |  | — |  |  | — |  |  | — |
Total loans | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 11 |

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The following table presents the amortized cost basis of loans that had a payment default during the nine months ended September 30, 2023 and were modified in the nine months prior to that default to borrowers experiencing financial difficulty. For this table, a loan is considered to be in default when it becomes 30 days contractually past due under the modified terms:

| Nine Months Ended September 30, 2023
(In thousands) | Term Extension |  | Interest Rate Adjustment |  | Combination Term Extension and Interest Rate Adjustment |  | Other
Commercial, financial and agricultural: |  |  |  |  |  |  |
Commercial, financial and agricultural | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 11 |
PPP loans | — |  |  | — |  |  | — |  |  | — |
Overdrafts | — |  |  | — |  |  | — |  |  | — |
Commercial real estate | — |  |  | — |  |  | — |  |  | — |
Construction real estate: |  |  |  |  |  |  |
Commercial | — |  |  | — |  |  | — |  |  | — |
Retail | — |  |  | — |  |  | — |  |  | — |
Residential real estate: |  |  | — |  |  | — |  |  | — |
Commercial | — |  |  | — |  |  | 147 |  |  | — |
Mortgage | — |  |  | — |  |  | 134 |  |  | — |
HELOC | — |  |  | — |  |  | — |  |  | — |
Installment | — |  |  | — |  |  | — |  |  | — |
Consumer: |  |  |  |  |  |  |
Consumer | — |  |  | 4 |  |  | — |  |  | — |
Check loans | — |  |  | — |  |  | — |  |  | — |
Leases | — |  |  | — |  |  | — |  |  | — |
Total loans | $ | — |  |  | $ | 4 |  |  | $ | 281 |  |  | $ | 11 |

Upon the determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged-off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amounts.
Note 6 – Allowance for Credit Losses
The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors.
During the first quarter of 2023, Park adopted ASU 2022-02. This standard was adopted using a modified retrospective transition method on January 1, 2023, resulting in a $383,000 increase to the ACL. A cumulative effect adjustment resulting in a $303,000 decrease to retained earnings was also recorded as a result of the adoption of ASU 2022-02.
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Quantitative Considerations
The ACL is primarily calculated utilizing a DCF model. Key inputs and assumptions used in this model are discussed below:
•Forecast model - For each portfolio segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized Park's own FFIEC Call Report data for the commercial, financial and agricultural loan and the residential real estate portfolio loan segments. Peer data was incorporated into the analysis for the commercial real estate loan, the construction real estate loan, and the consumer portfolio loan segments. Park updated the LDA in the fourth quarter of 2022 with data through September 30, 2022. After considering the impact of the inclusion of periods impacted by COVID, as well as analysis of the ongoing applicability of the selected peer group, management decided it was appropriate to continue to utilize the LDA analysis from the fourth quarter of 2019 as the correlation of the LDA was higher.
•Probability of default – PD is the probability that an asset will be in default within a given time frame. Park has defined default to be when a charge-off has occurred, a loan is placed on nonaccrual, or a loan is greater than 90 days past due. Whenever possible, Park utilizes its own loan-level PDs for the reasonable and supportable forecast period. When loan-level data is not available reflecting the forecasted economic conditions, a forecast model is utilized to estimate PDs.
•Loss given default – LGD is the percentage of the asset not expected to be collected due to default. Whenever possible, Park utilizes its own loan-level LGDs for the reasonable and supportable forecast period. When it is not possible to use Park's own LGDs, the LGD is derived using a method referred to as Frye Jacobs.
•Prepayments and curtailments – Prepayments and curtailments are calculated based on Park’s own data utilizing a three-year average. This analysis is updated annually in the fourth quarter and was last updated in the fourth quarter of 2022.
•Forecast and reversion – Park has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.
•Economic forecast - Park utilizes a third party to provide economic forecasts under various scenarios, which are weighted in order to reflect model risk in the current economic environment. The scenario weighting is evaluated by management on a quarterly basis.
◦A s of December 31, 2022, the "most likely" scenario forecasted Ohio unemployment between 4.14% and 4.36% during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2022, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued high level of inflation, historically low consumer confidence, rising interest rates, geopolitical conflict (including the conflict between Russia and Ukraine), and workforce and supply chain challenges continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 20 22.
◦A s of March 31, 2023, the "most likely" scenario forecasted Ohio unemployment between 4.15% and 4.51% during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2023, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued high level of inflation, historically low consumer confidence, rising interest rates, financial system stress related to recent bank failures, geopolitical conflict, and workforce challenges continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at March 31, 2023.
◦A s of June 30, 2023, the "most likely" scenario forecasted Ohio unemployment between 4.01% and 4.62% during the next four quarters. In determining the appropriate weighting of scenarios at June 30, 2023, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued elevated levels of inflation, volatile levels of consumer confidence, the likelihood of interest rates increasing, financial system stress and geopolitical conflict continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at June 30, 2023.
◦As of September 30, 2023, the "most likely" scenario forecasted Ohio unemployment between 4.07% and 4.66% during the next four quarters. In determining the appropriate weighting of scenarios at September 30, 2023, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued elevated levels of inflation, volatile levels of consumer confidence, continued elevated interest rates, financial system stress and geopolitical conflict (including the conflicts between Russia and Ukraine and between Israel and Hamas), continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing
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weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at September 30, 2023.
Qualitative Considerations
Park reviews various internal and external factors to consider the need for any qualitative adjustments to the quantitative model. Factors considered include the following:
•The nature and volume of Park’s financial assets; the existence, growth, and effect of any concentrations of credit and the volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets. Specifically, management considers:
◦Trends (e.g., growth, reduction) in specific categories of the loan portfolio, as well as adjustments to the types of loans offered by Park.
◦Level of and trend in loan delinquencies, troubled loans, commercial watch list loans and nonperforming loans.
◦Level of and trend in new nonaccrual loans.
◦Level of and trend in loan charge-offs and recoveries.
•Park's lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, charge-offs, and recoveries.
•The quality of Park’s credit review function.
•The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff.
•The effect of other external factors such as the regulatory, legal and technological environments; competition; geopolitical conflict; and events such as natural disasters or pandemics.
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in the markets in which Park operates that affect the collectability of financial assets.
•Where the U.S. economy is within a given credit cycle.
•The extent that there is government assistance (stimulus).
At September 30, 2023 and at December 31, 2022, Park had $2.4 million and $4.2 million, respectively, of PPP loans which were included in the commercial, financial and agricultural loan portfolio segment. These loans are guaranteed by the SBA and thus have not been reserved for using the same methodology as the rest of Park’s loan portfolio. A 10 basis point reserve at each of September 30, 2023 and December 31, 2022 was calculated for the PPP loans to reflect minimal credit risk.
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ACL Activity
The activity in the ACL for the three-month and the nine-month periods ended September 30, 2023 and September 30, 2022 is summarized in the following tables:

| Three Months Ended September 30, 2023
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 16,278 |  |  | $ | 19,141 |  |  | $ | 4,886 |  |  | $ | 18,419 |  |  | $ | 28,370 |  |  | $ | 112 |  |  | $ | 87,206 |
Charge-offs | 218 |  |  | — |  |  | — |  |  | 1 |  |  | 2,074 |  |  | — |  |  | 2,293 |
Recoveries | 79 |  |  | 3 |  |  | 40 |  |  | 8 |  |  | 1,139 |  |  | — |  |  | 1,269 |
Net charge-offs/(recoveries) | $ | 139 |  |  | $ | (3) |  |  | $ | (40) |  |  | $ | (7) |  |  | $ | 935 |  |  | $ | — |  |  | $ | 1,024 |
(Recovery of) provision for credit losses | (1,171) |  |  | (526) |  |  | 373 |  |  | (1,437) |  |  | 1,185 |  |  | (4) |  |  | (1,580) |
Ending balance | $ | 14,968 |  |  | $ | 18,618 |  |  | $ | 5,299 |  |  | $ | 16,989 |  |  | $ | 28,620 |  |  | $ | 108 |  |  | $ | 84,602 |

| Three Months Ended September 30, 2022
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 12,747 |  |  | $ | 22,339 |  |  | $ | 4,391 |  |  | $ | 13,619 |  |  | $ | 28,149 |  |  | $ | 203 |  |  | $ | 81,448 |
Charge-offs | 543 |  |  | — |  |  | — |  |  | — |  |  | 1,169 |  |  | 36 |  |  | 1,748 |
Recoveries | 110 |  |  | 36 |  |  | 20 |  |  | 20 |  |  | 884 |  |  | 1 |  |  | 1,071 |
Net charge-offs/(recoveries) | $ | 433 |  |  | $ | (36) |  |  | $ | (20) |  |  | $ | (20) |  |  | $ | 285 |  |  | $ | 35 |  |  | $ | 677 |
Provision for (recovery of) credit losses | 563 |  |  | (1,653) |  |  | 87 |  |  | 1,464 |  |  | 2,699 |  |  | 30 |  |  | 3,190 |
Ending balance | $ | 12,877 |  |  | $ | 20,722 |  |  | $ | 4,498 |  |  | $ | 15,103 |  |  | $ | 30,563 |  |  | $ | 198 |  |  | $ | 83,961 |

| Nine Months Ended September 30, 2023
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 16,987 |  |  | $ | 17,829 |  |  | $ | 5,550 |  |  | $ | 16,831 |  |  | $ | 28,021 |  |  | $ | 161 |  |  | $ | 85,379 |
Impact of Adoption of ASU 2022-02 | 222 |  |  | 181 |  |  | — |  |  | (20) |  |  | — |  |  | — |  |  | 383 |
Charge-offs | 755 |  |  | 530 |  |  | — |  |  | 44 |  |  | 5,884 |  |  | — |  |  | 7,213 |
Recoveries | 209 |  |  | 235 |  |  | 548 |  |  | 479 |  |  | 3,487 |  |  | — |  |  | 4,958 |
Net charge-offs/(recoveries) | $ | 546 |  |  | $ | 295 |  |  | $ | (548) |  |  | $ | (435) |  |  | $ | 2,397 |  |  | $ | — |  |  | $ | 2,255 |
(Recovery of) provision for credit losses | (1,695) |  |  | 903 |  |  | (799) |  |  | (257) |  |  | 2,996 |  |  | (53) |  |  | 1,095 |
Ending balance | $ | 14,968 |  |  | $ | 18,618 |  |  | $ | 5,299 |  |  | $ | 16,989 |  |  | $ | 28,620 |  |  | $ | 108 |  |  | $ | 84,602 |

| Nine Months Ended September 30, 2022
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 14,025 |  |  | $ | 25,466 |  |  | $ | 5,758 |  |  | $ | 11,424 |  |  | $ | 26,286 |  |  | $ | 238 |  |  | $ | 83,197 |
Charge-offs | 1,456 |  |  | 598 |  |  | 33 |  |  | 81 |  |  | 3,287 |  |  | 42 |  |  | 5,497 |
Recoveries | 544 |  |  | 624 |  |  | 550 |  |  | 106 |  |  | 2,859 |  |  | 2 |  |  | 4,685 |
Net charge-offs/(recoveries) | $ | 912 |  |  | $ | (26) |  |  | $ | (517) |  |  | $ | (25) |  |  | $ | 428 |  |  | $ | 40 |  |  | $ | 812 |
(Recovery of) provision for credit losses | (236) |  |  | (4,770) |  |  | (1,777) |  |  | 3,654 |  |  | 4,705 |  |  | — |  |  | 1,576 |
Ending balance | $ | 12,877 |  |  | $ | 20,722 |  |  | $ | 4,498 |  |  | $ | 15,103 |  |  | $ | 30,563 |  |  | $ | 198 |  |  | $ | 83,961 |

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ACL Summary
Loans collectively evaluated for impairment in the following tables include all performing loans at September 30, 2023 and at December 31, 2022, as well as nonperforming loans internally classified as consumer loans. Nonperforming consumer loans are not typically individually evaluated for impairment, but receive a portion of the statistical allocation of the ACL. Loans individually evaluated for impairment include all internally classified commercial nonaccrual loans at September 30, 2023 and all internally classified commercial nonaccrual loans and TDRs at December 31, 2022, which are individually evaluated for impairment in accordance with U.S. GAAP (see Note 1 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 2022 Form 10-K).
The composition of the ACL at September 30, 2023 and at December 31, 2022 was as follows:

| September 30, 2023
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |
Ending allowance balance attributed to loans: |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 3,122 |  | $ | 205 |  | $ | 95 |  | $ | — |  | $ | — |  | $ | — |  | $ | 3,422
Collectively evaluated for impairment | 11,846 |  | 18,413 |  | 5,204 |  | 16,989 |  | 28,620 |  | 108 |  | 81,180
Accruing loans acquired with deteriorated credit quality | — |  | — |  | — |  | — |  | — |  | — |  | —
Total ending allowance balance | $ | 14,968 |  | $ | 18,618 |  | $ | 5,299 |  | $ | 16,989 |  | $ | 28,620 |  | $ | 108 |  | $ | 84,602
Loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment | $ | 17,257 |  | $ | 19,869 |  | $ | 1,124 |  | $ | 2,237 |  | $ | — |  | $ | 352 |  | $ | 40,839
Loans collectively evaluated for impairment | 1,271,722 |  | 1,810,736 |  | 287,165 |  | 1,944,776 |  | 1,972,623 |  | 18,077 |  | 7,305,099
Accruing loans acquired with deteriorated credit quality | 42 |  | 2,795 |  | 637 |  | 333 |  | — |  | — |  | 3,807
Total ending loan balance | $ | 1,289,021 |  | $ | 1,833,400 |  | $ | 288,926 |  | $ | 1,947,346 |  | $ | 1,972,623 |  | $ | 18,429 |  | $ | 7,349,745
ACL as a percentage of loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment | 18.09 | % |  | 1.03 | % |  | 8.45 | % |  | — | % |  | — | % |  | — | % |  | 8.38 | %
Loans collectively evaluated for impairment | 0.93 | % |  | 1.02 | % |  | 1.81 | % |  | 0.87 | % |  | 1.45 | % |  | 0.60 | % |  | 1.11 | %
Accruing loans acquired with deteriorated credit quality | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | %
Total | 1.16 | % |  | 1.02 | % |  | 1.83 | % |  | 0.87 | % |  | 1.45 | % |  | 0.59 | % |  | 1.15 | %

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|  | December 31, 2022
(In thousands) |  | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending allowance balance attributed to loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 3,426 |  | $ | 131 |  | $ | — |  | $ | — |  | $ | — |  | $ | 9 |  | $ | 3,566
Collectively evaluated for impairment |  | 13,561 |  | 17,698 |  | 5,550 |  | 16,831 |  | 28,021 |  | 152 |  | 81,813
Accruing loans acquired with deteriorated credit quality |  | — |  | — |  | — |  | — |  | — |  | — |  | —
Total ending allowance balance |  | $ | 16,987 |  | $ | 17,829 |  | $ | 5,550 |  | $ | 16,831 |  | $ | 28,021 |  | $ | 161 |  | $ | 85,379
Loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | $ | 41,307 |  | $ | 32,423 |  | $ | 1,712 |  | $ | 2,191 |  | $ | — |  | $ | 708 |  | $ | 78,341
Loans collectively evaluated for impairment |  | 1,259,524 |  | 1,758,118 |  | 323,043 |  | 1,794,302 |  | 1,904,981 |  | 18,929 |  | 7,058,897
Accruing loans acquired with deteriorated credit quality |  | 102 |  | 3,513 |  | 660 |  | 378 |  | — |  | — |  | 4,653
Total ending loan balance |  | $ | 1,300,933 |  | $ | 1,794,054 |  | $ | 325,415 |  | $ | 1,796,871 |  | $ | 1,904,981 |  | $ | 19,637 |  | $ | 7,141,891
ACL as a percentage of loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | 8.29 | % |  | 0.40 | % |  | — | % |  | — | % |  | — | % |  | 1.27 | % |  | 4.55 | %
Loans collectively evaluated for impairment |  | 1.08 | % |  | 1.01 | % |  | 1.72 | % |  | 0.94 | % |  | 1.47 | % |  | 0.80 | % |  | 1.16 | %
Accruing loans acquired with deteriorated credit quality |  | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | %
Total |  | 1.31 | % |  | 0.99 | % |  | 1.71 | % |  | 0.94 | % |  | 1.47 | % |  | 0.82 | % |  | 1.20 | %

Note 7 – Loans Held For Sale
Mortgage loans held for sale are carried at their fair value. At September 30, 2023 and at December 31, 2022, respectively, Park had $2.9 million and $2.1 million in mortgage loans held for sale. These amounts are included in loans on the Consolidated Condensed Balance Sheets and in the residential real estate loan portfolio segment in Note 5 - Loans, and Note 6 - Allowance for Credit Losses. The contractual balance was $2.8 million and $2.1 million at September 30, 2023 and at December 31, 2022, respectively. The gain expected upon sale was $44,000 and $41,000 at September 30, 2023 and at December 31, 2022, respectively. None of these loans were 90 days or more past due or on nonaccrual status at September 30, 2023 or at December 31, 2022.
During the three months ended June 30, 2022, Park transferred certain commercial loans held for investment, previously nonperforming, with an amortized cost of $6.3 million, to the loans held for sale portfolio. The transferred loans were recorded at the lower of cost or fair value, with a charge-off recorded in each instance where the fair value of an individual loan was deemed to be below the carrying cost at the time the loans were moved to the held for sale portfolio. The sale of $3.9 million in loans held for sale was subsequently completed during the three months ended September 30, 2022, and Park recognized a gain on sale of $495,000 which is recorded within "Miscellaneous income" on the Consolidated Condensed Statements of Income for the three months ended September 30, 2022. The remaining $2.4 million in loans held for sale were transferred back to loans held for investment at the lower of cost or fair value. No non-performing loans were held for sale or sold during the three months or the nine months ended September 30, 2023.
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Note 8 – Goodwill and Other Intangible Assets
The following table shows the activity in goodwill and other intangible assets for the three-month and the nine-month periods ended September 30, 2023 and 2022.

(in thousands) |  | Goodwill |  | Other intangible assets |  | Total
July 1, 2022 |  | $ | 159,595 |  |  | $ | 6,657 |  |  | $ | 166,252 |
Amortization |  | — |  |  | 341 |  |  | 341 |
September 30, 2022 |  | $ | 159,595 |  |  | $ | 6,316 |  |  | $ | 165,911 |
July 1, 2023 |  | $ | 159,595 |  |  | $ | 5,320 |  |  | $ | 164,915 |
Amortization |  | — |  |  | 334 |  |  | 334 |
September 30, 2023 |  | $ | 159,595 |  |  | $ | 4,986 |  |  | $ | 164,581 |

(in thousands) |  | Goodwill |  | Other intangible assets |  | Total
December 31, 2021 |  | $ | 159,595 |  |  | $ | 7,462 |  |  | $ | 167,057 |
Amortization |  | — |  |  | 1,146 |  |  | 1,146 |
September 30, 2022 |  | $ | 159,595 |  |  | $ | 6,316 |  |  | $ | 165,911 |
December 31, 2022 |  | $ | 159,595 |  |  | $ | 5,975 |  |  | $ | 165,570 |
Amortization |  | — |  |  | 989 |  |  | 989 |
September 30, 2023 |  | $ | 159,595 |  |  | $ | 4,986 |  |  | $ | 164,581 |

Park evaluates goodwill for impairment during the second quarter of each year, with financial data as of the immediately prior March 31. Based on the qualitative analysis performed as of April 1, 2023, the Company determined that goodwill for Park's reporting unit, PNB, was not impaired.
Acquired Intangible Assets
The following table shows the balance of acquired intangible assets at September 30, 2023 and at December 31, 2022.

|  | September 30, 2023 |  | December 31, 2022
(in thousands) |  | Gross Carrying Amount |  | Accumulated Amortization |  | Gross Carrying Amount |  | Accumulated Amortization
Other intangible assets: |  |  |  |  |  |  |  |
Core deposit intangible assets |  | $ | 14,456 |  |  | $ | 9,470 |  |  | $ | 14,456 |  |  | $ | 8,481 |
Trade name intangible assets |  | 1,300 |  |  | 1,300 |  |  | 1,300 |  |  | 1,300 |
Total |  | $ | 15,756 |  |  | $ | 10,770 |  |  | $ | 15,756 |  |  | $ | 9,781 |

Core deposit intangible assets are being amortized, on an accelerated basis, over a period of ten years. Aggregate amortization expense was $334,000 and $341,000 for the three months ended September 30, 2023 and 2022, respectively, and was $989,000 and $1.1 million for the nine months ended September 30, 2023 and 2022, respectively.
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Estimated amortization expense related to core deposit intangible assets for the remainder of 2023 and the next four years follows:

(in thousands) |  | Total
Three months ending December 31, 2023 |  | $ | 334 |
2024 |  | 1,215 |
2025 |  | 1,042 |
2026 |  | 887 |
2027 |  | 754 |

Note 9 – Investment in Qualified Affordable Housing
Park makes certain equity investments in various limited partnerships that sponsor affordable housing projects. The purposes of these investments are to achieve a satisfactory return on capital, help create affordable housing opportunities, and assist the Company to achieve its goals associated with the Community Reinvestment Act.
The table below details the balances of Park’s affordable housing tax credit investments and related unfunded commitments at September 30, 2023 and December 31, 2022.

(in thousands) |  | September 30, 2023 | December 31, 2022
Affordable housing tax credit investments |  | $ | 64,676 |  | $ | 60,968 |
Unfunded commitments |  | 31,553 |  | 28,132 |

Commitments are funded when capital calls are made by the general partner. Park expects that the current commitments will be funded between the remainder of 2023 through 2033.
Park recognized amortization expense of $2.1 million and $2.0 million, respectively, for the three months ended September 30, 2023 and 2022, and $6.3 million and $5.9 million, respectively, for the nine months ended September 30, 2023 and 2022, which were included within the provision for income taxes. Additionally, during the three months ended September 30, 2023 and 2022, Park recognized tax credits and other benefits from its affordable housing tax credit investments of $2.6 million and $2.5 million, respectively, and during the nine months ended September 30, 2023 and 2022, recognized $7.6 million and $7.4 million, respectively, which were included within the provision for income taxes.
Note 10 – Foreclosed and Repossessed Assets
Park typically transfers a loan to OREO at the time that Park takes deed/title to the real estate property asset. The carrying amounts of foreclosed real estate properties held at September 30, 2023 and December 31, 2022 are listed below, as well as the recorded investment of loans secured by residential real estate properties for which formal foreclosure proceedings were in process at those dates.

(in thousands) |  | September 30, 2023 |  | December 31, 2022
OREO: |  |  |  |
Commercial real estate |  | $ | 1,354 |  |  | $ | 1,354 |
Residential real estate |  | — |  |  | — |
Total OREO |  | $ | 1,354 |  |  | $ | 1,354 |
Loans in process of foreclosure: |  |  |  |
Residential real estate |  | $ | 1,877 |  |  | $ | 1,614 |

Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value, less costs to sell, when acquired. During the three months and the nine months ended September 30, 2022, Park recognized a $12.0 million OREO valuation markup related to the foreclosure and subsequent sale of a property collateralizing a former Vision Bank relationship. This income is included in "OREO valuation markup" on the Consolidated Condensed Statements of Income. There was no OREO
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valuation markup related to former Vision Bank relationships during the three months or the nine months ended September 30, 2023.
During the three months and the nine months ended September 30, 2022, Park recognized a $5.6 million gain on the sale of OREO related to former Vision Bank relationships. This income is included in "(Loss) gain on sale of OREO, net" on the Consolidated Condensed Statements of Income. There was no gain or loss on the sale of OREO related to former Vision Bank
relationships during the three months or the nine months ended September 30, 2023.
In addition to real estate, Park may also repossess different types of collateral. At September 30, 2023 and December 31, 2022, Park had $0.7 million and $0.6 million, respectively, in other repossessed assets which are included in "Other assets" on the Consolidated Condensed Balance Sheets.
Note 11 – Loan Servicing
Park serviced sold mortgage loans of $1.96 billion at September 30, 2023, $2.05 billion at December 31, 2022 and $2.09 billion at September 30, 2022. At September 30, 2023, $3.0 million of the sold mortgage loans were sold with recourse, compared to $3.2 million at December 31, 2022 and $3.3 million at September 30, 2022. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. At September 30, 2023 and December 31, 2022, management had established reserves of $54,000 and $59,000, respectively, to account for expected losses on loan repurchases.
When Park sells mortgage loans with servicing rights retained, these servicing rights are initially recorded at fair value. Park has selected the “amortization method” as permissible within U.S. GAAP, whereby the servicing rights capitalized are amortized in proportion to and over the period of estimated future servicing income with respect to the underlying loan. At the end of each reporting period, the carrying value of MSRs is assessed for impairment with a comparison to fair value. MSRs are carried at the lower of their amortized cost or fair value. The amortization of MSRs is included within "Other service income" in the Consolidated Condensed Statements of Income.
Activity for MSRs and the related valuation allowance follows:

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Mortgage servicing rights: |  |  |  |  |  |  |  |
Carrying amount, net, beginning of period |  | $ | 15,237 |  |  | $ | 16,470 |  |  | $ | 15,792 |  |  | $ | 15,264 |
Additions |  | 169 |  |  | 254 |  |  | 437 |  |  | 1,336 |
Amortization |  | (462) |  |  | (592) |  |  | (1,366) |  |  | (1,804) |
Change in valuation allowance |  | 16 |  |  | 59 |  |  | 97 |  |  | 1,395 |
Carrying amount, net, end of period |  | $ | 14,960 |  |  | $ | 16,191 |  |  | $ | 14,960 |  |  | $ | 16,191 |
Valuation allowance: |  |  |  |  |  |  |  |
Beginning of period |  | $ | 101 |  |  | $ | 232 |  |  | $ | 182 |  |  | $ | 1,568 |
Change in valuation allowance |  | (16) |  |  | (59) |  |  | (97) |  |  | (1,395) |
End of period |  | $ | 85 |  |  | $ | 173 |  |  | $ | 85 |  |  | $ | 173 |

Servicing fees included in "Other service income" were $1.3 million and $1.4 million for the three months ended September 30, 2023 and 2022, respectively, and were $3.9 million and $4.1 million for the nine months ended September 30, 2023 and 2022, respectively.
Note 12 - Leases
Park is a lessee in several noncancellable operating lease arrangements, primarily for retail branches, administrative and warehouse buildings, ATMs, and certain office equipment within its Ohio, North Carolina, South Carolina, and Kentucky markets. Certain of these leases contain renewal options for periods ranging from one year to five years. Park’s leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. Payments due under the lease arrangements include fixed payments plus, for many of Park’s real estate leases, variable payments such as Park's proportionate share of property taxes, insurance and common area maintenance.
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Park's operating lease ROU asset and lease liability are presented in “Operating lease ROU asset" and "Operating lease liability," respectively, on Park's Consolidated Condensed Balance Sheets. The carrying amounts of Park's ROU asset and lease liability at September 30, 2023 were $16.3 million and $17.4 million, respectively. At December 31, 2022, the carrying amounts of Park's ROU asset and lease liability were $17.6 million and $19.3 million, respectively. Park's operating lease expense is recorded in "Occupancy expense" on the Company's Consolidated Condensed Statements of Income.
Other information related to operating leases for the three-month and the nine-month periods ended September 30, 2023 and 2022 follows:

| Three Months Ended |  | Nine Months Ended
(in thousands) | September 30, 2023 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Lease cost |  |  |  |  |  |  |
Operating lease cost | $ | 727 |  |  | $ | 811 |  |  | $ | 2,187 |  |  | $ | 2,286 |
Sublease income | (73) |  |  | (63) |  |  | (199) |  |  | (189) |
Total lease cost | $ | 654 |  |  | $ | 748 |  |  | $ | 1,988 |  |  | $ | 2,097 |
Other information |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |  |
Operating cash flows from operating leases | $ | 890 |  |  | $ | 766 |  |  | $ | 2,734 |  |  | $ | 2,307 |
ROU assets obtained in exchange for new operating lease liabilities | $ | 320 |  |  | $ | 88 |  |  | $ | 499 |  |  | $ | 4,270 |
Reductions to ROU assets resulting from reductions to lease obligations | $ | (753) |  |  | $ | (697) |  |  | $ | (2,307) |  |  | $ | (2,090) |

At each of September 30, 2023 and December 31, 2022, Park's operating leases had a weighted average remaining term of 10.0 years. The weighted average discount rate of Park's operating leases was 3.5% and 3.3% at September 30, 2023 and at December 31, 2022, respectively.
Undiscounted cash flows included in lease liabilities have expected contractual payments as follows:

(in thousands) | September 30, 2023
Three months ending December 31, 2023 | $ | 884 |
2024 | 2,515 |
2025 | 2,169 |
2026 | 2,134 |
2027 | 2,040 |
Thereafter | 11,474 |
Total undiscounted minimum lease payments | $ | 21,216 |
Present value adjustment | (3,790) |
Total lease liabilities | $ | 17,426 |

Note 13 – Repurchase Agreement Borrowings
Securities sold under agreements to repurchase ("repurchase agreements") with customers represent funds deposited by customers, generally on an overnight basis, that are collateralized by investment securities owned by Park. Repurchase agreements with customers are included in "Short-term borrowings" on the Consolidated Condensed Balance Sheets.
All repurchase agreements are subject to terms and conditions of repurchase/security agreements between Park and the client and are accounted for as secured borrowings. Park's repurchase agreements consist of customer accounts and securities which are pledged on an individual security basis.
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At September 30, 2023 and at December 31, 2022, Park's repurchase agreement borrowings totaled $105.8 million and $227.3 million, respectively. These borrowings were collateralized with U.S. Government sponsored entities' asset-backed securities with a fair value of $179.0 million and $313.1 million at September 30, 2023 and at December 31, 2022, respectively. Declines in the value of the collateral would require Park to pledge additional securities. At September 30, 2023 and at December 31, 2022, Park had $1,106 million and $1,147 million, respectively, of available unpledged securities.
The table below shows the remaining contractual maturity of repurchase agreements by collateral pledged at September 30, 2023 and at December 31, 2022:

|  | September 30, 2023
(in thousands) |  | Remaining Contractual Maturity of the Agreements
|  | Overnight and Continuous |  | Up to 30 days |  | 30 - 90 days |  | Greater than 90 days |  | Total
U.S. government and agency securities |  | $ | 105,786 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 105,786 |
|  | December 31, 2022
(in thousands) |  | Remaining Contractual Maturity of the Agreements
|  | Overnight and Continuous |  | Up to 30 days |  | 30 - 90 days |  | Greater than 90 days |  | Total
U.S. government and agency securities |  | $ | 227,342 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 227,342 |

Note 14 - Derivatives
Park uses certain derivative financial instruments (or "derivatives") to meet the needs of Park's clients while managing the interest rate risk associated with certain transactions. Park does not use derivatives for speculative purposes. A summary of derivative financial instruments utilized by Park follows.
Interest Rate Swaps
Park utilizes interest rate swap agreements (or "interest rate swaps") as part of its asset-liability management strategy to help manage its interest rate risk position and as a means to meet the financing, interest rate and other risk management needs of qualifying commercial banking customers. The notional amount of the interest rate swaps does not represent the amount exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.
Borrowing Derivatives: At September 30, 2023 and at December 31, 2022, Park had no borrowing derivatives. There was no interest expense recorded on swap transactions for the three-month period ended September 30, 2022. Interest expense recorded on swap transactions was $171,000 for the nine-month period ended September 30, 2022. Additionally, Park recognized a $154,000 gain, net of income taxes, related to borrowing swaps that was recorded in "Other comprehensive loss" on the Consolidated Condensed Statements of Comprehensive Income (Loss) during the nine-month period ended September 30, 2022. No gain (loss) related to borrowing swaps was recorded during the three-month period ended September 30, 2022.
Loan Derivatives: In conjunction with the Carolina Alliance acquisition, Park acquired interest rate swaps related to certain commercial loans. Simultaneously with borrowers entering into interest rate swaps, Carolina Alliance entered into offsetting interest rate swaps executed with a third party, such that Carolina Alliance minimized its net interest rate risk exposure resulting from such transactions. These interest rate swaps had a notional amount totaling $18.6 million and $21.7 million at September 30, 2023 and at December 31, 2022, respectively.
All of the Company's interest rate swaps were determined to be fully effective during each of the three-month and the nine-month periods ended September 30, 2023 and September 30, 2022. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the interest rate swaps is recorded in "Other assets" and "Other liabilities" with changes in fair value recorded in "Other comprehensive loss". The amount included in "Accumulated other comprehensive loss, net of tax" would be reclassified to net income should the hedges no longer be considered effective. During the nine-month period ended September 30, 2022, Park recognized expense of $66,000, or $52,000, net of taxes, as the result of the early termination of a borrowing interest rate swap. There was no early termination expense related to borrowing interest rate swaps during the three-month period ended September 30, 2022 or during the three-month period or the nine-month period ended
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September 30, 2023. Park expects the outstanding hedges to remain fully effective during the remaining respective terms of the interest rate swaps.
Summary information about Park's interest rate swaps at September 30, 2023 and at December 31, 2022 follows:

|  | September 30, 2023 |  | December 31, 2022
(In thousands, except weighted average data) |  | Loan Derivatives |  | Loan Derivatives
Notional amounts |  | $ | 18,584 |  |  | $ | 21,700 |
Weighted average pay rates |  | 4.512 | % |  | 4.553 | %
Weighted average receive rates |  | 4.512 | % |  | 4.553 | %
Weighted average maturity (years) |  | 6.8 |  | 7.9
Unrealized losses |  | $ | — |  |  | $ | — |

Interest Rate Swaps
The following table reflects the interest rate swaps included in the Consolidated Condensed Balance Sheets at September 30, 2023 and at December 31, 2022.

(In thousands) |  | September 30, 2023 |  | December 31, 2022
| Notional Amount |  | Fair Value |  | Notional Amount |  | Fair Value
Included in "Other assets": |  |  |  |  |  |  |  |
Loan derivatives - instruments associated with loans |  |  |  |  |  |  |  |
Matched interest rate swaps with borrower |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Matched interest rate swaps with counterparty |  | 18,584 |  |  | 1,719 |  |  | 21,700 |  |  | 1,508 |
Total included in "Other assets" |  | $ | 18,584 |  |  | $ | 1,719 |  |  | $ | 21,700 |  |  | $ | 1,508 |
Included in "Other liabilities": |  |  |  |  |  |  |  |
Loan derivatives - instruments associated with loans |  |  |  |  |  |  |  |
Matched interest rate swaps with borrower |  | $ | 18,584 |  |  | $ | (1,719) |  |  | $ | 21,700 |  |  | $ | (1,508) |
Matched interest rate swaps with counterparty |  | — |  |  | — |  |  | — |  |  | — |
Total included in "Other liabilities" |  | $ | 18,584 |  |  | $ | (1,719) |  |  | $ | 21,700 |  |  | $ | (1,508) |

Mortgage Banking Derivatives
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free-standing derivatives. In order to hedge the change in interest rates resulting from its commitments to fund the loans, the Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into. These mortgage banking derivatives are not designated as hedge relationships. The fair value of an interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Fair values of these mortgage banking derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in "Other service income" in the Condensed Consolidated Statements of Income.
At September 30, 2023 and at December 31, 2022, Park had $1.7 million and $2.1 million, respectively, of interest rate lock commitments. The fair value of these mortgage banking derivatives was reflected by a derivative asset of $30,000 and $46,000 at September 30, 2023 and at December 31, 2022, respectively.
Other Derivatives
In connection with the sale of Park’s Class B Visa shares during 2009, Park entered into a swap agreement with the purchaser of the shares. The swap agreement adjusts for dilution in the conversion ratio of Class B Visa shares resulting from certain Visa litigation. At September 30, 2023 and at December 31, 2022, the fair value of the swap liability of $123,000 and $243,000, respectively, represented an estimate of the exposure based upon probability-weighted potential Visa litigation losses.
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Note 15 – Accumulated Other Comprehensive Loss
Other comprehensive loss components, net of tax, are shown in the following table for the three-month and the nine-month periods ended September 30, 2023 and 2022:

(in thousands) |  | Changes in pension plan assets and benefit obligations |  | Unrealized net holding (loss) gain on cash flow hedge |  | Unrealized (losses) gains on debt securities AFS |  | Total
Beginning balance at July 1, 2023 |  | $ | (6,680) |  |  | $ | — |  |  | $ | (90,106) |  |  | $ | (96,786) |
| Other comprehensive loss before reclassifications |  | — |  |  | — |  |  | (19,104) |  |  | (19,104) |
Net current period other comprehensive loss |  | — |  |  | — |  |  | (19,104) |  |  | (19,104) |
Ending balance at September 30, 2023 |  | $ | (6,680) |  |  | $ | — |  |  | $ | (109,210) |  |  | $ | (115,890) |
Beginning balance at July 1, 2022 |  | $ | (5,792) |  |  | $ | — |  |  | $ | (79,612) |  |  | $ | (85,404) |
| Other comprehensive loss before reclassifications |  | — |  |  | — |  |  | (39,939) |  |  | (39,939) |
Net current period other comprehensive loss |  | — |  |  | — |  |  | (39,939) |  |  | (39,939) |
Ending balance at September 30, 2022 |  | $ | (5,792) |  |  | $ | — |  |  | $ | (119,551) |  |  | $ | (125,343) |

(in thousands) |  | Changes in pension plan assets and benefit obligations |  | Unrealized net holding (loss) gain on cash flow hedge |  | Unrealized (losses) gains on debt securities AFS |  | Total
Beginning balance at January 1, 2023 |  | $ | (6,680) |  |  | $ | — |  |  | $ | (95,714) |  |  | $ | (102,394) |
| Other comprehensive loss before reclassifications |  | — |  |  | — |  |  | (13,496) |  |  | (13,496) |
Net current period other comprehensive loss |  | — |  |  | — |  |  | (13,496) |  |  | (13,496) |
Ending balance at September 30, 2023 |  | $ | (6,680) |  |  | $ | — |  |  | $ | (109,210) |  |  | $ | (115,890) |
Beginning balance at January 1, 2022 |  | $ | (5,792) |  |  | $ | (206) |  |  | $ | 21,153 |  |  | $ | 15,155 |
| Other comprehensive income (loss) before reclassifications |  | — |  |  | 154 |  |  | (140,704) |  |  | (140,550) |
| Amounts reclassified from other comprehensive loss |  | — |  |  | 52 |  |  | — |  |  | 52 |
Net current period other comprehensive income (loss) |  | — |  |  | 206 |  |  | (140,704) |  |  | (140,498) |
Ending balance at September 30, 2022 |  | $ | (5,792) |  |  | $ | — |  |  | $ | (119,551) |  |  | $ | (125,343) |

During the three-month and the nine-month periods ended September 30, 2023, there were no reclassifications out of accumulated other comprehensive loss. During the three-month period ended September 30, 2022, there were no reclassifications out of accumulated other comprehensive loss. During the nine-month period ended September 30, 2022, there was $66,000 ($52,000 net of tax) reclassified out of accumulated other comprehensive loss due to a net loss on the early termination of a borrowing interest rate swap. This loss was recorded within "Miscellaneous" other expense on the Consolidated Condensed Statements of Income.
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Note 16 – Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per common share for the three months and the nine months ended September 30, 2023 and 2022.

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands, except common share and per common share data) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Numerator: |  |  |  |  |  |  |  |
Net income |  | $ | 36,917 |  |  | $ | 42,068 |  |  | $ | 102,234 |  |  | $ | 115,267 |
Denominator: |  |  |  |  |  |  |  |
Weighted-average common shares outstanding |  | 16,133,310 |  |  | 16,253,704 |  |  | 16,180,261 |  |  | 16,240,966 |
Effect of dilutive PBRSUs and TBRSUs |  | 84,570 |  |  | 121,278 |  |  | 80,848 |  |  | 114,824 |
Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs |  | 16,217,880 |  |  | 16,374,982 |  |  | 16,261,109 |  |  | 16,355,790 |
Earnings per common share: |  |  |  |  |  |  |  |
Basic earnings per common share |  | $ | 2.29 |  |  | $ | 2.59 |  |  | $ | 6.32 |  |  | $ | 7.10 |
Diluted earnings per common share |  | $ | 2.28 |  |  | $ | 2.57 |  |  | $ | 6.29 |  |  | $ | 7.05 |

Park awarded 54,698 PBRSUs and 52,335 PBRSUs to certain employees during the nine months ended September 30, 2023 and 2022, respectively. No PBRSUs were awarded during either of the three months ended September 30, 2023 or 2022.
Park repurchased an aggregate of 50,000 and 199,000 common shares during the three months and the nine months ended September 30, 2023, respectively, to fund the PBRSUs, the TBRSUs and the common shares to be awarded to directors of Park and to directors of Park's subsidiary PNB (and its divisions) as well as pursuant to Park's previously announced stock repurchase authorizations. No common shares were repurchased during the three months or the nine months ended September 30, 2022.
Note 17 – Segment Information
The Corporation is a financial holding company headquartered in Newark, Ohio. The reportable segments for the Corporation are its chartered national bank subsidiary, PNB (headquartered in Newark, Ohio) and "All Other", which primarily consists of Park as the "Parent Company", GFSC and SEPH.
Management is required to disclose information about the different types of business activities in which a company engages and also information on the different economic environments in which a company operates, so that the users of the financial statements can better understand the company’s performance, better understand the potential for future cash flows, and make more informed judgments about the company as a whole. Park has two reportable segments, as: (i) discrete financial
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information is available for these reportable segments and (ii) the segments are aligned with internal reporting to Park’s Chief Executive Officer, who is the chief operating decision-maker.

|  | Operating Results for the three months ended September 30, 2023
(In thousands) |  | PNB |  | All Other |  | Total
Net interest income (expense) |  | $ | 96,078 |  |  | $ | (1,809) |  |  | $ | 94,269 |
Recovery of credit losses |  | (1,538) |  |  | (42) |  |  | (1,580) |
Other income (loss) |  | 27,888 |  |  | (175) |  |  | 27,713 |
Other expense |  | 74,623 |  |  | 3,185 |  |  | 77,808 |
Income (loss) before income taxes |  | $ | 50,881 |  |  | $ | (5,127) |  |  | $ | 45,754 |
Income tax expense (benefit) |  | 10,093 |  |  | (1,256) |  |  | 8,837 |
Net income (loss) |  | $ | 40,788 |  |  | $ | (3,871) |  |  | $ | 36,917 |
Assets (at September 30, 2023) |  | $ | 9,959,528 |  |  | $ | 41,386 |  |  | $ | 10,000,914 |

|  | Operating Results for the three months ended September 30, 2022
(In thousands) |  | PNB |  | All Other |  | Total
Net interest income (expense) |  | $ | 92,035 |  |  | $ | (1,207) |  |  | $ | 90,828 |
Provision for (recovery of) credit losses |  | 3,235 |  |  | (45) |  |  | 3,190 |
Other income |  | 28,918 |  |  | 17,776 |  |  | 46,694 |
Other expense |  | 79,070 |  |  | 3,833 |  |  | 82,903 |
Income before income taxes |  | $ | 38,648 |  |  | $ | 12,781 |  |  | $ | 51,429 |
Income tax expense |  | 7,133 |  |  | 2,228 |  |  | 9,361 |
Net income |  | $ | 31,515 |  |  | $ | 10,553 |  |  | $ | 42,068 |
Assets (at September 30, 2022) |  | $ | 9,816,644 |  |  | $ | 38,403 |  |  | $ | 9,855,047 |

|  | Operating Results for the nine months ended September 30, 2023
(In thousands) |  | PNB |  | All Other |  | Total
Net interest income (expense) |  | $ | 283,216 |  |  | $ | (5,177) |  |  | $ | 278,039 |
Provision for (recovery of) credit losses |  | 1,901 |  |  | (806) |  |  | 1,095 |
Other income (loss) |  | 77,241 |  |  | (126) |  |  | 77,115 |
Other expense |  | 220,741 |  |  | 9,455 |  |  | 230,196 |
Income (loss) before income taxes |  | $ | 137,815 |  |  | $ | (13,952) |  |  | $ | 123,863 |
Income tax expense (benefit) |  | 25,273 |  |  | (3,644) |  |  | 21,629 |
Net income (loss) |  | $ | 112,542 |  |  | $ | (10,308) |  |  | $ | 102,234 |

|  | Operating Results for the nine months ended September 30, 2022
(In thousands) |  | PNB |  | All Other |  | Total
Net interest income (expense) |  | $ | 254,818 |  |  | $ | (2,365) |  |  | $ | 252,453 |
Provision for (recovery of) credit losses |  | 2,045 |  |  | (469) |  |  | 1,576 |
Other income |  | 89,420 |  |  | 20,123 |  |  | 109,543 |
Other expense |  | 209,500 |  |  | 10,824 |  |  | 220,324 |
Income before income taxes |  | $ | 132,693 |  |  | $ | 7,403 |  |  | $ | 140,096 |
Income tax expense |  | 24,770 |  |  | 59 |  |  | 24,829 |
Net income |  | $ | 107,923 |  |  | $ | 7,344 |  |  | $ | 115,267 |

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The operating results in the “All Other” column are used to reconcile the segment totals to the Consolidated Condensed Statements of Income for the three-month and the nine-month period s ended September 30, 2023 and 2022. The reconciling amounts for consolidated total assets for the periods ended September 30, 2023 and 2022 consisted of the elimination of intersegment borrowings and the assets of the Parent Company, GFSC and SEPH which were not eliminated.
Note 18 - Share-Based Compensation
The Park National Corporation 2017 Long-Term Incentive Plan for Employees (the "2017 Employees LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. The 2017 Employees LTIP makes equity-based awards and cash-based awards available for grant to employee participants in the form of incentive stock options, nonqualified stock options, stock appreciation rights ("SARs"), restricted stock, restricted stock units, other stock-based awards and cash-based awards. Under the 2017 Employees LTIP, 750,000 common shares are authorized to be delivered in connection with grants under the 2017 Employees LTIP. The common shares to be delivered under the 2017 Employees LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At September 30, 2023, 320,302 common shares were available for future grants under the 2017 Employees LTIP.
The Park National Corporation 2017 Long-Term Incentive Plan for Non-Employee Directors (the "2017 Non-Employee Directors LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. The 2017 Non-Employee Directors LTIP makes equity-based awards and cash-based awards available for grant to non-employee director participants in the form of nonqualified stock options, SARs, restricted stock, restricted stock units, other stock-based awards, and cash-based awards. Under the 2017 Non-Employee Directors LTIP, 150,000 common shares are authorized to be delivered in connection with grants under the 2017 Non-Employee Directors LTIP. The common shares to be delivered under the 2017 Non-Employee Directors LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At September 30, 2023, 75,000 common shares were available for future grants under the 2017 Non-Employee Directors LTIP.
During the nine months ended September 30, 2023 and 2022, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 54,698 common shares and 52,335 common shares, respectively, to certain employees of Park and its subsidiaries. No awards were granted during either of the three months ended September 30, 2023 or 2022.
At September 30, 2023, Park reported 187,461 nonvested PBRSUs. The number of PBRSUs earned or settled will depend on the level of achievement with respect to certain performance criteria over a three-year period. The PBRSUs are also subject to subsequent service-based vesting.
A summary of changes in the common shares subject to nonvested PBRSUs for the nine months ended September 30, 2023 follows:

| Common shares subject to PBRSUs
Nonvested at January 1, 2023 | 199,650 |
Granted | 54,698 |
Vested | (62,815) |
Forfeited | (4,072) |
Adjustment for performance conditions of PBRSUs (1) | — |
Nonvested at September 30, 2023 (2) | 187,461 |

(1) The number of PBRSUs earned depends on the level of achievement with respect to certain performance criteria. Adjustment herein, if any, represents the difference between the maximum number of common shares which could be earned and the actual number earned for those PBRSUs as to which the performance period was completed.
(2) Nonvested amount herein represents the maximum number of nonvested PBRSUs. As of September 30, 2023, an aggregate of 182,647 PBRSUs were expected to vest.
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A summary of awards vested during the three months and the nine months ended September 30, 2023 and 2022 follows:

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
PBRSUs and TBRSUs vested |  | — |  | 7,049 |  |  | 62,815 |  | 55,464 |
Common shares withheld to satisfy employee income tax withholding obligations |  | — |  | 2,559 |  |  | 23,973 |  | 21,217 |
Net common shares issued |  | — |  | 4,490 |  | 38,842 |  | 34,247

Share-based compensation expense of $1.3 million and $1.4 million was recognized for the three-month periods ended September 30, 2023 and 2022, respectively, and share-based compensation expense of $5.4 million and $4.8 million was recognized for the nine-month periods ended September 30, 2023 and 2022, respectively.
The following table details expected additional share-based compensation expense related to PBRSUs outstanding at September 30, 2023:

(In thousands) |  |
Three months ending December 31, 2023 |  | $ | 1,341 |
2024 |  | 4,337 |
2025 |  | 2,838 |
2026 |  | 1,184 |
2027 |  | 190 |
Total |  | $ | 9,890 |

Note 19 – Benefit Plans
Park has a noncontributory defined benefit pension plan (the "Pension Plan") covering substantially all of its employees. The Pension Plan provides benefits based on an employee’s years of service and compensation.
There were no Pension Plan contributions for any of the three-month or the nine-month periods ended September 30, 2023 and 2022. Additionally, no contributions are expected to be made during the remainder of 2023.
The following table shows the components of net periodic pension benefit income:

|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  | Affected Line Item in the Consolidated Condensed Statements of Income
(In thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022 |
Service cost |  | $ | 1,559 |  |  | $ | 2,437 |  |  | $ | 4,677 |  |  | $ | 7,311 |  |  | Employee benefits
Interest cost |  | 1,631 |  |  | 1,426 |  |  | 4,893 |  |  | 4,278 |  |  | Other components of net periodic pension benefit income
Expected return on plan assets |  | (3,536) |  |  | (4,449) |  |  | (10,608) |  |  | (13,347) |  |  | Other components of net periodic pension benefit income
Recognized prior service cost (credit) |  | 12 |  |  | (4) |  |  | 36 |  |  | (12) |  |  | Other components of net periodic pension benefit income
Net periodic pension benefit income |  | $ | (334) |  |  | $ | (590) |  |  | $ | (1,002) |  |  | $ | (1,770) |  |  |

Park has entered into Supplemental Executive Retirement Plan Agreements (the “SERP Agreements”) with certain key officers of Park and its subsidiaries which provide defined pension benefits in excess of limits imposed by federal tax law. The expense
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for the Corporation related to the SERP Agreements for the three months and the nine months ended September 30, 2023 and 2022 was as follows:

|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  | Affected Line Item in the Consolidated Condensed Statements of Income
(In thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022 |
Service cost |  | $ | 234 |  |  | $ | 212 |  |  | $ | 702 |  |  | $ | 637 |  |  | Employee benefits
Interest cost |  | 176 |  |  | 183 |  |  | 527 |  |  | 549 |  |  | Miscellaneous expense
Total SERP expense |  | $ | 410 |  |  | $ | 395 |  |  | $ | 1,229 |  |  | $ | 1,186 |  |  |

Note 20 – Fair Value
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that Park uses to measure fair value are as follows:
•Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that Park has the ability to access as of the measurement date.
•Level 2: Level 1 inputs for assets or liabilities that are not actively traded. Also consists of an observable market price for a similar asset or liability. This includes the use of “matrix pricing” to value debt securities absent the exclusive use of quoted prices.
•Level 3: Consists of unobservable inputs that are used to measure fair value when observable market inputs are not available. This could include the use of internally developed models, financial forecasting and similar inputs.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the balance sheet date. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and Park must use other valuation methods to develop a fair value. The fair value of individually evaluated collateral dependent loans is typically based on the fair value of the underlying collateral, which is estimated through third-party appraisals in accordance with Park's valuation requirements under its commercial and real estate loan policies.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis:
The following table presents assets and liabilities measured at fair value on a recurring basis:

Fair Value Measurements at September 30, 2023 using:
(In thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Balance at September 30, 2023
Assets |  |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |  |
Obligations of U.S. Government sponsored entities |  | $ | — |  |  | $ | 37,300 |  |  | $ | — |  |  | $ | 37,300 |
Obligations of states and political subdivisions |  | — |  |  | 389,097 |  |  | — |  |  | 389,097 |
U.S. Government sponsored entities’ asset-backed securities |  | — |  |  | 640,282 |  |  | — |  |  | 640,282 |
Collateralized loan obligations |  | — |  |  | 524,891 |  |  | — |  |  | 524,891 |
Corporate debt securities |  | — |  |  | 11,460 |  |  | 6,126 |  |  | 17,586 |
Equity securities |  | 2,328 |  |  | — |  |  | 466 |  |  | 2,794 |
Mortgage loans held for sale |  | — |  |  | 2,866 |  |  | — |  |  | 2,866 |
Mortgage IRLCs |  | — |  |  | 30 |  |  | — |  |  | 30 |
Loan interest rate swaps |  | — |  |  | 1,719 |  |  | — |  |  | 1,719 |
Liabilities |  |  |  |  |  |  |  |
Fair value swap |  | $ | — |  |  | $ | — |  |  | $ | 123 |  |  | $ | 123 |
Loan interest rate swaps |  | — |  |  | 1,719 |  |  | — |  |  | 1,719 |

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 |

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The following methods and assumptions were used by the Company in determining the fair value of the financial assets and financial liabilities discussed above:
Interest rate swaps: The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2).
Investment securities: Fair values for investment securities are based on quoted market prices, where available (Level 1). If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows (Level 3).
Fair value swap: The fair value of the swap agreement entered into with the purchaser of the Visa Class B shares represents an internally developed estimate of the exposure based upon probability-weighted potential Visa litigation losses and is classified as Level 3.
Mortgage interest rate lock commitments: Mortgage IRLCs are based on current secondary market pricing and are classified as Level 2.
Mortgage loans held for sale: Mortgage loans held for sale are carried at their fair value. Mortgage loans held for sale are estimated using market prices for similar product types and, therefore, are classified in Level 2.
The following tables present a reconciliation of the beginning and ending balances of the Level 3 inputs for the three-month and the nine-month periods ended September 30, 2023 and 2022, for financial instruments measured on a recurring basis and classified as Level 3:

Level 3 Fair Value Measurements
Three months ended September 30, 2023 and 2022
(In thousands) |  | Corporate debt securities |  | Equity securities |  | Fair value swap
Balance at July 1, 2023 |  | $ | 6,116 |  |  | $ | 455 |  |  | $ | (296) |
Transfer into (out of) level 3, net |  | — |  |  | — |  |  | — |
Total (losses) / gains |  |  |  |  |  |
Included in other income / other expense |  | — |  |  | 11 |  |  | — |
Included in other comprehensive income |  | 10 |  |  | — |  |  | — |
Purchases, sales, issuances and settlements, other, net |  | — |  |  | — |  |  | 173 |
Balance at September 30, 2023 |  | $ | 6,126 |  |  | $ | 466 |  |  | $ | (123) |
Balance at July 1, 2022 |  | $ | — |  |  | $ | 491 |  |  | $ | (447) |
Total losses |  |  |  |  |  |
Included in other income / other expense |  | — |  |  | (22) |  |  | — |
Purchases, sales, issuances and settlements, other, net |  | — |  |  | — |  |  | 204 |
Balance at September 30, 2022 |  | $ | — |  |  | $ | 469 |  |  | $ | (243) |

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Level 3 Fair Value Measurements
Nine months ended September 30, 2023 and 2022
(In thousands) |  | Corporate debt securities |  | Equity securities |  | Fair value swap
Balance at January 1, 2023 |  | $ | 7,000 |  |  | $ | 439 |  |  | $ | (243) |
Transfers into (out of) level 3, net |  | 11 |  |  | — |  |  | — |
Total (losses) / gains |  |  |  |  |  |
Included in other income / other (expense) |  | — |  |  | 27 |  |  | (175) |
Included in other comprehensive income |  | (885) |  |  | — |  |  | — |
Purchases, sales, issuances and settlements, other, net |  | — |  |  | — |  |  | 295 |
Balance at September 30, 2023 |  | $ | 6,126 |  |  | $ | 466 |  |  | $ | (123) |
Balance at January 1, 2022 |  | $ | — |  |  | $ | 499 |  |  | $ | (226) |
Total losses |  |  |  |  |  |
Included in other income / other (expense) |  | — |  |  | (30) |  |  | (221) |
Purchases, sales, issuances and settlements, other, net |  | — |  |  | — |  |  | 204 |
Balance at September 30, 2022 |  | $ | — |  |  | $ | 469 |  |  | $ | (243) |

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis:
The following methods and assumptions were used by the Company in determining the fair value of assets and liabilities measured at fair value on a nonrecurring basis as described below:
Individually evaluated collateral dependent loans: When a loan is individually evaluated, it is valued at the lower of cost or fair value. Collateral dependent loans which are individually evaluated and carried at fair value have been partially charged off or receive 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:
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•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 September 30, 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.
At September 30, 2023 and December 31, 2022, there were no OREO properties held by Park that were carried at fair value due to fair value adjustments made subsequent to the initial OREO measurement.

Fair Value Measurements at September 30, 2023 using:
(In thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Balance at September 30, 2023
Individually evaluated collateral dependent loans recorded at fair value: |  |  |  |  |  |  |  |
Commercial real estate |  | $ | — |  |  | $ | — |  |  | $ | 2,289 |  |  | $ | 2,289 |
Construction real estate |  | — |  |  | — |  |  | 455 |  |  | 455 |
Residential real estate |  | — |  |  | — |  |  | 186 |  |  | 186 |
Total individually evaluated collateral dependent loans recorded at fair value |  | $ | — |  |  | $ | — |  |  | $ | 2,930 |  |  | $ | 2,930 |
MSRs |  | $ | — |  |  | $ | 872 |  |  | $ | — |  |  | $ | 872 |

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 |

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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.

|  | September 30, 2023
(In thousands) |  | Loan Balance |  | Prior Charge-Offs |  | Specific Valuation Allowance |  | Carrying Balance
Total individually evaluated collateral dependent loans recorded at fair value |  | $ | 3,230 |  |  | $ | 1,824 |  |  | $ | 300 |  |  | $ | 2,930 |
Remaining individually evaluated loans |  | 37,609 |  |  | 244 |  |  | 3,122 |  |  | 34,487 |
Total individually evaluated loans |  | $ | 40,839 |  |  | $ | 2,068 |  |  | $ | 3,422 |  |  | $ | 37,417 |

|  | 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 |

The (expense) income from credit adjustments related to individually evaluated loans carried at fair value was $(0.3) million and $7,000 for the three-month periods ended September 30, 2023 and 2022, respectively, and was $(0.9) million and $(1.0) million for the nine-month periods ended September 30, 2023 and 2022, respectively.
MSRs totaled $15.0 million at September 30, 2023. Of this $15.0 million MSR carrying balance, $0.9 million were recorded at fair value and included a valuation allowance of $85,000. The remaining $14.1 million were recorded at cost, as the fair value exceeded cost at September 30, 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 $182,000. The remaining $14.1 million were recorded at cost, as the fair value exceeded cost at December 31, 2022. The income r elated to MSRs carried at fair value during the three-month periods ended September 30, 2023 and September 30, 2022 was $16,000 and $59,000, respectively, and was $97,000 and $1.4 million for the nine-month periods ended September 30, 2023 and 2022, respectively.
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The following tables present qualitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at September 30, 2023 and December 31, 2022:

September 30, 2023
(In thousands) |  | Fair Value |  | Valuation Technique |  | Unobservable Input(s) |  | Range (Weighted Average)
Individually evaluated collateral dependent loans: |  |  |  |  |  |  |  |
Commercial real estate |  | $ | 2,289 |  |  | Sales comparison approach |  | Adj to comparables |  | 0.0% - 202.0% (25.2%)
|  |  |  | Income approach |  | Capitalization rate |  | 7.3% - 8.5% (7.8%)
Construction real estate |  | $ | 455 |  |  | Sales comparison approach |  | Adj to comparables |  | 0.0% - 20.0% (10.0%)
|  |  |  | Income approach |  | Capitalization rate |  | 7.3% (7.3%)
Residential real estate |  | $ | 186 |  |  | Sales comparison approach |  | Adj to comparables |  | 1.2% - 78.6% (7.7%)

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%)

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Assets Measured at Net Asset Value:
Park's portfolio of Partnership Investments is valued using the NAV practical expedient in accordance with ASC 820.
At September 30, 2023 and at December 31, 2022, Park had Partnership Investments with a NAV of $26.7 million and $24.4 million, respectively. At September 30, 2023 and at December 31, 2022, Park had $19.4 million and $20.3 million, respectively, in unfunded commitments related to these Partnership Investments. For the three-month periods ended September 30, 2023 and 2022, Park recogniz ed income of $924,000 and $97,000, respectively, and for the nine-month periods ended September 30, 2023 and 2022, recogn ized income of $683,000 and $2.6 million, respectively, related to these Partnership Investments.
The fair value of certain financial instruments at September 30, 2023 and at December 31, 2022, was as follows:

|  | September 30, 2023
|  |  |  | Fair Value Measurements
(In thousands) |  | Carrying value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total fair value
Financial assets: |  |  |  |  |  |  |  |  |  |
Cash and money market instruments |  | $ | 223,618 |  |  | $ | 223,618 |  |  | $ | — |  |  | $ | — |  |  | $ | 223,618 |
Investment securities (1) |  | 1,609,156 |  |  | — |  |  | 1,603,030 |  |  | 6,126 |  |  | 1,609,156 |
Other investment securities (2) |  | 2,794 |  |  | 2,328 |  |  | — |  |  | 466 |  |  | 2,794 |
Mortgage loans held for sale |  | 2,866 |  |  | — |  |  | 2,866 |  |  | — |  |  | 2,866 |
Mortgage IRLCs |  | 30 |  |  | — |  |  | 30 |  |  | — |  |  | 30 |
Individually evaluated loans carried at fair value |  | 2,930 |  |  | — |  |  | — |  |  | 2,930 |  |  | 2,930 |
Other loans, net |  | 7,259,317 |  |  | — |  |  | — |  |  | 7,086,524 |  |  | 7,086,524 |
Loans receivable, net |  | $ | 7,265,143 |  |  | $ | — |  |  | $ | 2,896 |  |  | $ | 7,089,454 |  |  | $ | 7,092,350 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Time deposits |  | $ | 603,165 |  |  | $ | — |  |  | $ | 601,491 |  |  | $ | — |  |  | $ | 601,491 |
Other |  | 4,896 |  |  | 4,896 |  |  | — |  |  | — |  |  | 4,896 |
Deposits (excluding demand deposits) |  | $ | 608,061 |  |  | $ | 4,896 |  |  | $ | 601,491 |  |  | $ | — |  |  | $ | 606,387 |
Short-term borrowings |  | $ | 352,786 |  |  | $ | — |  |  | $ | 352,786 |  |  | $ | — |  |  | $ | 352,786 |
Subordinated notes |  | 189,025 |  |  | — |  |  | 176,506 |  |  | — |  |  | 176,506 |
Derivative financial instruments - assets: |  |  |  |  |  |  |  |  |  |
Loan interest rate swaps |  | $ | 1,719 |  |  | $ | — |  |  | $ | 1,719 |  |  | $ | — |  |  | $ | 1,719 |
Derivative financial instruments - liabilities: |  |  |  |  |  |  |  |  |  |
Fair value swap |  | $ | 123 |  |  | $ | — |  |  | $ | — |  |  | $ | 123 |  |  | $ | 123 |
Loan interest rate swaps |  | 1,719 |  |  | — |  |  | 1,719 |  |  | — |  |  | 1,719 |

(1) Includes debt securities AFS.
(2) Excludes FHLB stock and FRB stock which are carried at their respective redemption values, investment securities accounted for at modified cost as these investments do not have a readily determinable fair value, and Partnership Investments valued using the NAV practical expedient.
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|  | December 31, 2022
|  |  |  | Fair Value Measurements
(In thousands) |  | Carrying value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total fair value
Financial assets: |  |  |  |  |  |  |  |  |  |
Cash and money market instruments |  | $ | 189,728 |  |  | $ | 189,728 |  |  | $ | — |  |  | $ | — |  |  | $ | 189,728 |
Investment securities (1) |  | 1,733,696 |  |  | — |  |  | 1,726,696 |  |  | 7,000 |  |  | 1,733,696 |
Other investment securities (2) |  | 1,859 |  |  | 1,420 |  |  | — |  |  | 439 |  |  | 1,859 |
Mortgage loans held for sale |  | 2,149 |  |  | — |  |  | 2,149 |  |  | — |  |  | 2,149 |
Mortgage IRLCs |  | 46 |  |  | — |  |  | 46 |  |  | — |  |  | 46 |
Individually evaluated loans carried at fair value |  | 5,773 |  |  | — |  |  | — |  |  | 5,773 |  |  | 5,773 |
Other loans, net |  | 7,048,544 |  |  | — |  |  | — |  |  | 6,918,326 |  |  | 6,918,326 |
Loans receivable, net |  | $ | 7,056,512 |  |  | $ | — |  |  | $ | 2,195 |  |  | $ | 6,924,099 |  |  | $ | 6,926,294 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Time deposits |  | $ | 554,445 |  |  | $ | — |  |  | $ | 552,443 |  |  | — |  |  | $ | 552,443 |
Other |  | 1,325 |  |  | 1,325 |  |  | — |  |  | — |  |  | 1,325 |
Deposits (excluding demand deposits) |  | $ | 555,770 |  |  | $ | 1,325 |  |  | $ | 552,443 |  |  | $ | — |  |  | $ | 553,768 |
Short-term borrowings |  | $ | 227,342 |  |  | $ | — |  |  | $ | 227,342 |  |  | $ | — |  |  | $ | 227,342 |
Subordinated notes |  | 188,667 |  |  | — |  |  | 177,928 |  |  | — |  |  | 177,928 |
Derivative financial instruments - assets: |  |  |  |  |  |  |  |  |  |
Loan interest rate swaps |  | $ | 1,508 |  |  | $ | — |  |  | $ | 1,508 |  |  | $ | — |  |  | $ | 1,508 |
Derivative financial instruments - liabilities: |  |  |  |  |  |  |  |  |  |
Fair value swap |  | $ | 243 |  |  | $ | — |  |  | $ | — |  |  | $ | 243 |  |  | $ | 243 |
Loan interest rate swaps |  | 1,508 |  |  | — |  |  | 1,508 |  |  | — |  |  | 1,508 |

(1) Includes debt securities AFS.
(2) Excludes FHLB stock and FRB stock which are carried at their respective redemption values, investment securities accounted for at modified cost as these investments do not have a readily determinable fair value, and Partnership Investments valued using the NAV practical expedient.
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Note 21 - Revenue from Contracts with Customers
All of Park's revenue from contracts with customers within the scope of ASC 606 is recognized within "Other income" in the Consolidated Condensed Statements of Income.
The following tables present the Corporation's sources of other income by revenue stream and operating segment for the three-month and the nine-month periods ended September 30, 2023 and September 30, 2022:

|  | Three Months Ended September 30, 2023
Revenue by Operating Segment (in thousands) |  | PNB |  | All Other |  | Total
Income from fiduciary activities |  |  |  |  |  |
Personal trust and agency accounts |  | $ | 2,593 |  |  | $ | — |  |  | $ | 2,593 |
Employee benefit and retirement-related accounts |  | 2,568 |  |  | — |  |  | 2,568 |
Investment management and investment advisory agency accounts |  | 3,407 |  |  | — |  |  | 3,407 |
Other |  | 532 |  |  | — |  |  | 532 |
Service charges on deposit accounts |  |  |  |  |  |
Non-sufficient funds (NSF) fees |  | 943 |  |  | — |  |  | 943 |
Demand deposit account (DDA) charges |  | 1,060 |  |  | — |  |  | 1,060 |
Other |  | 106 |  |  | — |  |  | 106 |
Other service income (1) |  |  |  |  |  |
Credit card |  | 719 |  |  | — |  |  | 719 |
HELOC |  | 100 |  |  | — |  |  | 100 |
Installment |  | 39 |  |  | — |  |  | 39 |
Real estate |  | 1,497 |  |  | — |  |  | 1,497 |
Commercial |  | 260 |  |  | — |  |  | 260 |
Debit card fee income |  | 6,652 |  |  | — |  |  | 6,652 |
Bank owned life insurance income (2) |  | 1,394 |  |  | 54 |  |  | 1,448 |
ATM fees |  | 575 |  |  | — |  |  | 575 |
Loss on sale of OREO, net |  | (6) |  |  | — |  |  | (6) |
OREO valuation markup |  | — |  |  | — |  |  | — |
Gain (loss) on equity securities, net (2) |  | 1,264 |  |  | (266) |  |  | 998 |
Other components of net periodic pension benefit income (2) |  | 1,857 |  |  | 36 |  |  | 1,893 |
Miscellaneous (3) |  | 2,328 |  |  | 1 |  |  | 2,329 |
Total other income |  | $ | 27,888 |  |  | $ | (175) |  |  | $ | 27,713 |

(1) Of the $2.6 million of aggregate revenue included within "Other service income", approximately $1.3 million was within the scope of ASC 606, with the remaining $1.3 million consisting primarily of certain residential real estate loan fees which were out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income included brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $2.3 million, all of which were within the scope of ASC 606.
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|  | Three Months Ended September 30, 2022
Revenue by Operating Segment (in thousands) |  | PNB |  | All Other |  | Total
Income from fiduciary activities |  |  |  |  |  |
Personal trust and agency accounts |  | $ | 2,411 |  |  | $ | — |  |  | $ | 2,411 |
Employee benefit and retirement-related accounts |  | 2,353 |  |  | — |  |  | 2,353 |
Investment management and investment advisory agency accounts |  | 3,000 |  |  | — |  |  | 3,000 |
Other |  | 452 |  |  | — |  |  | 452 |
Service charges on deposit accounts |  |  |  |  |  |
Non-sufficient funds (NSF) fees |  | 1,722 |  |  | — |  |  | 1,722 |
Demand deposit account (DDA) charges |  | 996 |  |  | — |  |  | 996 |
Other |  | 141 |  |  | — |  |  | 141 |
Other service income (1) |  |  |  |  |  |
Credit card |  | 734 |  |  | — |  |  | 734 |
HELOC |  | 103 |  |  | — |  |  | 103 |
Installment |  | 40 |  |  | — |  |  | 40 |
Real estate |  | 1,692 |  |  | — |  |  | 1,692 |
Commercial |  | 384 |  |  | 3 |  |  | 387 |
Debit card fee income |  | 6,514 |  |  | — |  |  | 6,514 |
Bank owned life insurance income (2) |  | 1,133 |  |  | 52 |  |  | 1,185 |
ATM fees |  | 610 |  |  | — |  |  | 610 |
Gain on sale of OREO, net |  | — |  |  | 5,607 |  |  | 5,607 |
OREO valuation markup |  | — |  |  | 12,009 |  |  | 12,009 |
Gain on equity securities, net (2) |  | 25 |  |  | 33 |  |  | 58 |
Other components of net periodic pension benefit income (2) |  | 2,955 |  |  | 72 |  |  | 3,027 |
Miscellaneous (3) |  | 3,653 |  |  | — |  |  | 3,653 |
Total other income |  | $ | 28,918 |  |  | $ | 17,776 |  |  | $ | 46,694 |

(1) Of the $3.0 million of aggregate revenue included within "Other service income", approximately $1.4 million was within the scope of ASC 606, with the remaining $1.6 million consisting primarily of certain residential real estate loan fees which were out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income included brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $3.7 million, all of which were within the scope of ASC 606.
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|  | Nine Months Ended September 30, 2023
Revenue by Operating Segment (in thousands) |  | PNB |  | All Other |  | Total
Income from fiduciary activities |  |  |  |  |  |
Personal trust and agency accounts |  | $ | 7,668 |  |  | $ | — |  |  | $ | 7,668 |
Employee benefit and retirement-related accounts |  | 7,507 |  |  | — |  |  | 7,507 |
Investment management and investment advisory agency accounts |  | 9,842 |  |  | — |  |  | 9,842 |
Other |  | 1,514 |  |  | — |  |  | 1,514 |
Service charges on deposit accounts |  |  |  |  |  |
Non-sufficient funds (NSF) fees |  | 2,864 |  |  | — |  |  | 2,864 |
Demand deposit account (DDA) charges |  | 3,167 |  |  | — |  |  | 3,167 |
Other |  | 360 |  |  | — |  |  | 360 |
Other service income (1) |  |  |  |  |  |
Credit card |  | 2,132 |  |  | — |  |  | 2,132 |
HELOC |  | 297 |  |  | — |  |  | 297 |
Installment |  | 123 |  |  | — |  |  | 123 |
Real estate |  | 4,462 |  |  | — |  |  | 4,462 |
Commercial |  | 802 |  |  | 135 |  |  | 937 |
Debit card fee income |  | 19,939 |  |  | — |  |  | 19,939 |
Bank owned life insurance income (2) |  | 3,807 |  |  | 158 |  |  | 3,965 |
ATM fees |  | 1,661 |  |  | — |  |  | 1,661 |
Loss on sale of OREO, net |  | (3) |  |  | — |  |  | (3) |
OREO valuation markup |  | 15 |  |  | — |  |  | 15 |
Gain (loss) on equity securities, net (2) |  | 1,146 |  |  | (528) |  |  | 618 |
Other components of net periodic pension benefit income (2) |  | 5,571 |  |  | 108 |  |  | 5,679 |
Miscellaneous (3) |  | 4,367 |  |  | 1 |  |  | 4,368 |
Total other income |  | $ | 77,241 |  |  | $ | (126) |  |  | $ | 77,115 |

(1) Of the $8.0 million of aggregate revenue included within "Other service income", approximately $4.1 million was within the scope of ASC 606, with the remaining $3.9 million consisting primarily of certain residential real estate loan fees which were out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income included brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $4.4 million, all of which were within the scope of ASC 606.
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|  | Nine Months Ended September 30, 2022
Revenue by Operating Segment (in thousands) |  | PNB |  | All Other |  | Total
Income from fiduciary activities |  |  |  |  |  |
Personal trust and agency accounts |  | $ | 7,681 |  |  | $ | — |  |  | $ | 7,681 |
Employee benefit and retirement-related accounts |  | 7,384 |  |  | — |  |  | 7,384 |
Investment management and investment advisory agency accounts |  | 9,403 |  |  | — |  |  | 9,403 |
Other |  | 1,404 |  |  | — |  |  | 1,404 |
Service charges on deposit accounts |  |  |  |  |  |
Non-sufficient funds (NSF) fees |  | 4,658 |  |  | — |  |  | 4,658 |
Demand deposit account (DDA) charges |  | 2,425 |  |  | — |  |  | 2,425 |
Other |  | 413 |  |  | — |  |  | 413 |
Other service income (1) |  |  |  |  |  |
Credit card |  | 2,091 |  |  | — |  |  | 2,091 |
HELOC |  | 297 |  |  | — |  |  | 297 |
Installment |  | 128 |  |  | — |  |  | 128 |
Real estate |  | 8,685 |  |  | — |  |  | 8,685 |
Commercial |  | 1,039 |  |  | 475 |  |  | 1,514 |
Debit card fee income |  | 19,371 |  |  | — |  |  | 19,371 |
Bank owned life insurance income (2) |  | 3,356 |  |  | 1,378 |  |  | 4,734 |
ATM fees |  | 1,725 |  |  | — |  |  | 1,725 |
Gain on sale of OREO, net |  | 4 |  |  | 5,607 |  |  | 5,611 |
OREO valuation markup |  | 30 |  |  | 12,009 |  |  | 12,039 |
Gain on equity securities, net (2) |  | 2,285 |  |  | 835 |  |  | 3,120 |
Other components of net periodic pension benefit income (2) |  | 8,864 |  |  | 217 |  |  | 9,081 |
Miscellaneous (3) |  | 8,177 |  |  | (398) |  |  | 7,779 |
Total other income |  | $ | 89,420 |  |  | $ | 20,123 |  |  | $ | 109,543 |

(1) Of the $12.7 million of aggregate revenue included within "Other service income", approximately $4.3 million was within the scope of ASC 606, with the remaining $8.4 million consisting primarily of certain residential real estate loan fees which were out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income included brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $7.8 million, all of which were within the scope of ASC 606.
A description of Park's material revenue streams accounted for under ASC 606 follows:
Income from fiduciary activities (gross): Park earns fiduciary fee income and investment brokerage fees from its contracts with trust customers for various fiduciary and investment-related services. These fees are earned over time as the Company provides the contracted monthly and quarterly services and are generally assessed based on the market value of the trust assets.
Service charges on deposit accounts and ATM fees: The Corporation earns fees from the Corporation's deposit customers for transaction-based, account maintenance, and overdraft services. Fees for transaction-based services, which include services such as ATM use fees, stop payment charges, statement rendering fees, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are generally recognized at the end of the month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.
Other service income: Other service income includes income from (1) the sale and servicing of loans sold to the secondary market, (2) incentive income from third-party credit card issuers, and (3) loan customers for various loan-related activities and services. Income related to the sale and servicing of loans sold to the secondary market is included within "Other service income", but is not within the scope of ASC 606. Services that fall within the scope of ASC 606 are recognized as revenue when the Company satisfies the Company's performance obligation to the customer.
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Debit card fee income: Park earns interchange fees from debit cardholder transactions conducted primarily through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, net of card network fees, concurrently with the transaction processing services provided to the cardholder.
Gain or loss on sale of OREO, net: The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of delivery of an executed deed. When Park finances the sale of OREO to the buyer, the Corporation assesses whether the buyer is committed to perform the buyer's obligation under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Corporation adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.
OREO valuation markup: The Corporation records an OREO valuation markup immediately prior to the transfer of a loan to OREO when the fair market value of the property less costs to sell exceeds the principal balance of the loan.
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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;
•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;
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•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 "FASB"), the SEC, the Public Company Accounting Oversight Board and other regulatory agencies, may adversely affect Park's reported financial condition or results of operations;
•Park's assumptions and estimates used in applying critical accounting policies and modeling 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;
•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, such as the recent closures of Silicon Valley Bank in California, Signature Bank in New York, First Republic Bank in California, and Heartland Tri-State Bank in Kansas, 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 in light of the recent bank failures;
•unexpected outflows of deposits which may require Park to sell investment securities at a loss;
•and other risk factors relating to the financial services industry as detailed from time to time in Park's reports filed with the SEC including those described in "Item 1A. Risk Factors" of Part I of Park's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, in "Item 1A. Risk Factors" of Part II of Park's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, in "Item 1A. Risk Factors" of Part II of Park's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 and in "Item 1A. Risk Factors" of Part II of this Quarterly Report on Form 10-Q.
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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 applicable law.
Non-U.S. GAAP Financial Measures
This Management's Discussion and Analysis (or "MD&A") contains non-U.S. GAAP financial measures where management believes them 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 measures, as well as the reconciliation from the comparable U.S. GAAP financial measures, 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, tangible book value per common share and pre-tax, pre-provision net income.
Management has included in the tables included within the "Items Impacting Comparability" section of this MD&A information relating to the annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio, tangible book value per common share and pre-tax, pre-provision net income for the three months and the nine months ended and at September 30, 2023 and September 30, 2022. For the purpose of calculating the annualized return on average tangible equity, a non-U.S. GAAP financial measure, net income for each period is divided by average tangible equity during the period. Average tangible equity equals average shareholders' equity during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating the annualized return on average tangible assets, a non-U.S. 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-U.S. GAAP financial measure, tangible equity is divided by tangible assets. Tangible equity equals total shareholders' equity less goodwill and other intangible assets, in each case at period end. Tangible assets equal total assets less goodwill and other intangible assets, in each case at period end. For the purpose of calculating tangible book value per common share, a non-U.S. GAAP financial measure, tangible equity is divided by the number of common shares outstanding, in each case at period end. For the purpose of calculating pre-tax, pre-provision net income, a non-U.S. 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 annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio, tangible book value per common share and pre-tax, pre-provision net
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income presents additional information to the reader of the condensed consolidated financial statements, which, when read in conjunction with the condensed 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 "Items Impacting Comparability" section of this MD&A, 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 annualized return on average tangible equity, the annualized return on average tangible assets, the tangible equity to tangible assets ratio, tangible book value per common share and pre-tax, pre-provision net income are substitutes for the annualized return on average equity, the annualized return on average assets, the total shareholders' equity to total assets ratio, book value per common share 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 federal corporate income tax rate of 21 percent. In the tables included within the "Items Impacting Comparability" section of this MD&A, Park has provided a reconciliation 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.
Critical Accounting Policies
Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2022 Form 10-K lists significant accounting policies used in the development and presentation of Park’s consolidated financial statements. The accounting and reporting policies of Park conform with U.S. GAAP and general practices within the financial services industry. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.
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 LGD, the amounts and timing of expected future cash flows on individually evaluated loans, and estimated losses based on historical loss experience and forecasted economic conditions. All of these factors may be susceptible to significant change. To the extent that actual results differ from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods.
One of the most significant judgments impacting the ACL estimate is the economic forecast for Ohio unemployment, Ohio GDP, and Ohio HPI. Changes in the economic forecast could significantly affect the estimated credit losses which could potentially lead to materially different allowance levels from one reporting period to the next.
In calculating the ACL, management weighs several different scenarios, including a baseline (most likely) scenario and an adverse scenario. To create hypothetical sensitivity analyses, management calculated a quantitative allowance using a 100% weighting applied to a baseline scenario and a quantitative allowance using a 100% weighting applied to an adverse scenario. The adverse scenario assumes among other things that: (1) disagreements in Congress result in a longer shutdown of the federal government than in the baseline; (2) the Russian invasion of Ukraine persists longer than expected; (3) tensions between China and Taiwan increase and China briefly interrupts trade through the Taiwan Strait, worsening supply chain issues and eroding consumer and business confidence; (4) the Federal Reserve Board keeps the fed funds rate elevated through the fourth quarter of 2023 due to continued concerns about inflation, but starts to ease subsequently because of weakening economic conditions; (5) recent bank failures raise fears of further collapse in the banking industry, reducing consumer confidence and causing banks to tighten lending standards; and (6) the economy falls into recession in the fourth quarter of 2023. The adverse scenario forecasts Ohio unemployment for the next twelve months to range from 6.2% to 8.8%. Excluding consideration of general reserve adjustments, this sensitivity analysis would result in a hypothetical increase in Park's ACL of $26.4 million as of
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September 30, 2023 if only the adverse scenario was used. Excluding consideration of general reserve adjustments, a corresponding $26.4 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 (Recovery of) Provision for Credit Losses" section of this MD&A for additional discussion.
Goodwill: Management believes that the accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies. U.S. GAAP establishes standards for the impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in each business acquired. Park’s goodwill, as of September 30, 2023, relates to the value inherent in the financial services industry and that value is dependent upon the ability of Park’s national bank subsidiary, PNB, to provide quality, cost-effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base, the inability to deliver cost-effective services over sustained periods or significant credit problems could lead to impairment of goodwill that could, in turn, adversely impact earnings in future periods.
U.S. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Park evaluates goodwill for impairment during the second quarter of each year, with financial data as of the immediately preceding March 31. Based on the qualitative analysis performed as of April 1, 2023, the Company determined that goodwill for Park's reporting unit, PNB, was not impaired. The fair value of the goodwill, which resides on the books of PNB, is evaluated for potential impairment by reviewing the past and projected operating results for PNB, deposit and loan totals for PNB and financial services industry comparable information.
Pension Plan: The determination of pension plan obligations and related expenses requires the use of assumptions to estimate the amount of benefits that employees will earn while working, as well as the present value of those benefits. Annual pension expense is principally based on four components: (1) the value of benefits earned by employees for working during the year (service cost), (2) the increase in the liability due to the passage of time (interest cost), and (3) other gains and losses, reduced by (4) the expected return on plan assets for our pension plan. On January 1, 2023, the pension plan was amended to update the pension plan's benefit formula, vesting schedule and the hours of service basis. These changes were taken into account in the calculation of annual pension expense.
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.
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.
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Comparison of Results of Operations
For the Three and Nine Months Ended September 30, 2023 and 2022
Summary Discussion of Results
Net income for the three months ended September 30, 2023 was $36.9 million, compared to $42.1 million for the third quarter of 2022. Diluted earnings per common share were $2.28 for the third quarter of 2023, compared to $2.57 for the third quarter of 2022. Weighted average diluted common shares outstanding were 16,217,880 for the third quarter of 2023, compared to 16,374,982 weighted average diluted common shares outstanding for the third quarter of 2022.
Net income for the nine months ended September 30, 2023 was $102.2 million, compared to $115.3 million for the first nine months of 2022. Diluted earnings per common share were $6.29 for the first nine months of 2023, compared to $7.05 for the first nine months of 2022. Weighted average diluted common shares outstanding were 16,261,109 for the first nine months of 2023, compared to 16,355,790 weighted average diluted common shares outstanding for the first nine months of 2022.
The following table reflects Park's consolidated net income for the third quarters of each of 2023 and 2022 and for the the first nine months of each of 2023 and 2022 (the nine months ended September 30).

(In thousands) | Q3 2023 | Q3 2022 | Nine months YTD 2023 | Nine months YTD 2022 |  | $ change Q to Q | % change Q to Q |  | $ change YTD to YTD | % change YTD to YTD
Net interest income | $ | 94,269 |  | $ | 90,828 |  | $ | 278,039 |  | $ | 252,453 |  |  | $ | 3,441 |  | 3.8 | % |  | $ | 25,586 |  | 10.1 | %
(Recovery of) provision for credit losses | (1,580) |  | 3,190 |  | 1,095 |  | 1,576 |  |  | $ | (4,770) |  | N.M. |  | $ | (481) |  | (30.5) | %
Other income | 27,713 |  | 46,694 |  | 77,115 |  | 109,543 |  |  | $ | (18,981) |  | (40.6) | % |  | $ | (32,428) |  | (29.6) | %
Other expense | 77,808 |  | 82,903 |  | 230,196 |  | 220,324 |  |  | $ | (5,095) |  | (6.1) | % |  | $ | 9,872 |  | 4.5 | %
Income before income taxes | $ | 45,754 |  | $ | 51,429 |  | $ | 123,863 |  | $ | 140,096 |  |  | $ | (5,675) |  | (11.0) | % |  | $ | (16,233) |  | (11.6) | %
Income tax expense | 8,837 |  | 9,361 |  | 21,629 |  | 24,829 |  |  | $ | (524) |  | (5.6) | % |  | $ | (3,200) |  | (12.9) | %
Net income | $ | 36,917 |  | $ | 42,068 |  | $ | 102,234 |  | $ | 115,267 |  |  | $ | (5,151) |  | (12.2) | % |  | $ | (13,033) |  | (11.3) | %
Pre-tax, pre-provision net income (1) | $ | 44,174 |  | $ | 54,619 |  | $ | 124,958 |  | $ | 141,672 |  |  | $ | (10,445) |  | (19.1) | % |  | $ | (16,714) |  | (11.8) | %

(1) Pre-tax, pre-provision ("PTPP") net income is calculated as net income, (minus) plus income taxes, plus the (recovery of) provision for credit losses, in each case during the applicable period.
Highlights from the three-month and nine-month periods ended September 30, 2023 and 2022 included:
•During the three months ended September 30, 2023, Park recorded interest income of $16,000 related to PPP loans, compared to $361,000 for the three months ended September 30, 2022. During the nine months ended September 30, 2023, Park recorded interest income of $57,000 related to PPP loans, compared to $3.0 million for the nine months ended September 30, 2022.
•Park recognized a $5.6 million gain on the sale of OREO, net, during the three months and the nine months ended September 30, 2022 related to former Vision Bank relationships. There was no gain or loss on the sale of OREO, net, related to former Vision Bank relationships during the three months or the nine months ended September 30, 2023.
•Park recognized a $12.0 million OREO valuation markup during the three months and the nine months ended September 30, 2022 related to the foreclosure and subsequent sale of a property collateralizing a former Vision Bank relationship. There was no OREO valuation markup related to former Vision Bank relationships during the three months or the nine months ended September 30, 2023.
•During the three months and the nine months ended September 30, 2023, Park recorded income of $1.2 million as a result of an annual Visa incentive, which was the same amount recorded during the three months and the nine months ended September 30, 2022.
•During the three months and the nine months ended September 30, 2022, Park paid $1.8 million in one-time bonuses and accrued an additional $1.5 million for future one-time bonuses for associates. There were no similar one-time bonuses paid or accrued during the three months or the nine months ended September 30, 2023.
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•During the three months and the nine months ended September 30, 2022, Park incurred expenses of $1.3 million and $1.7 million, respectively, in direct expenses related to the collection of payments on former Vision Bank loan relationships, compared to $0 and $100,000 for the three months and the nine months ended September 30, 2023, respectively.
•During the three months and the nine months ended September 30, 2022, Park contributed $4.0 million to its charitable foundation. There was no contribution made by Park to its charitable foundation during the three months or the nine months ended September 30, 2023.
•PNB loans outstanding at September 30, 2023 (i) increased 3.5% compared to September 30, 2022, (ii) increased 2.9% compared to December 31, 2022, and (iii) increased 2.0% compared to June 30, 2023.
•Park's loan portfolio had net loan charge-offs as a percentage of average loans of 0.06% for the three months ended September 30, 2023, compared to net charge-offs as a percentage of average loans of 0.04% for the three months ended September 30, 2022. Park's loan portfolio had net loan charge-offs as a percentage of average loans of 0.04% for the nine months ended September 30, 2023, compared to net loan charge-offs as a percentage of average loans of 0.02% for the nine months ended September 30, 2022.
Net income for each of the three months ended September 30, 2023 and September 30, 2022 and for each of the nine months ended September 30, 2023 and September 30, 2022, included several items of income and expense that impacted comparability of period results. These items are detailed in the "Items Impacting Comparability" section within this MD&A.
Liquidity and Capital
Park continues to maintain strong capital and liquidity. 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. The most easily accessible forms of liquidity, Fed Funds Sold, unpledged investment securities and available FHLB borrowing capacity, totaled $2.17 billion at September 30, 2023.
Park's debt securities portfolio is classified as available-for-sale ("AFS") and these debt securities are available to be sold in the future in response to Park's liquidity needs, changes in market interest rates, and asset-liability management strategies, among other reasons. AFS debt securities are reported at fair value, with unrealized holding gains and losses excluded from earnings, but included in other comprehensive income (loss), net of applicable income taxes. The table below provides additional detail on Park's debt securities portfolio and capital position.

(Dollars in thousands) | September 30, 2023 | December 31, 2022 | September 30, 2022 |  | % change from 12/31/22 | % change from 09/30/22
Net unrealized losses on debt securities | $ | 138,240 |  | $ | 121,156 |  | $ | 151,330 |  |  | 14.10 | % | (8.65) | %
Net unrealized losses on debt securities as a percentage of period end total assets | 1.38 | % | 1.23 | % | 1.54 | % |  | 12.20 | % | (10.39) | %
Total shareholders' equity / Period end total assets | 10.85 | % | 10.85 | % | 10.51 | % |  | — | % | 3.24 | %
Tangible equity / Tangible assets (1) | 9.36 | % | 9.33 | % | 8.98 | % |  | 0.32 | % | 4.23 | %

(1) 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.
Park has demonstrated that it has the tools available to remain under $10.0 billion in assets. Various tools such as moving deposits off balance, regulating loan growth, securitizing or packaging loans, and the sale of investment securities may be used to manage Park's balance sheet. Management expects to have assets totaling less than $10.0 billion at December 31, 2023.
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Deposits
Park's deposits grew during the COVID pandemic and normalized throughout 2022 and the first nine months of 2023. In order to manage the impact of this growth on its balance sheet, Park has utilized a program where certain deposit balances are transferred off balance sheet while maintaining the customer relationship. 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 normalized levels. The table below breaks out the change in deposit balances, by deposit type, for Park.

(Dollars in thousands) | September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | December 31, 2021 | December 31, 2020 | December 31, 2019
Retail deposits | $ | 4,110,821 |  | $ | 4,136,401 |  | $ | 4,263,947 |  | $ | 4,388,394 |  | $ | 4,416,228 |  | $ | 4,025,852 |  | $ | 3,748,039 |
Commercial deposits | 4,133,903 |  | 4,222,575 |  | 4,030,497 |  | 3,846,321 |  | 3,488,300 |  | 3,546,506 |  | 3,304,573 |
Total deposits | $ | 8,244,724 |  | $ | 8,358,976 |  | $ | 8,294,444 |  | $ | 8,234,715 |  | $ | 7,904,528 |  | $ | 7,572,358 |  | $ | 7,052,612 |
Off balance sheet deposits | 763 |  | 767 |  | 164,600 |  | 195,937 |  | 983,053 |  | 710,101 |  | — |
Total deposits including off balance sheet deposits | $ | 8,245,487 |  | $ | 8,359,743 |  | $ | 8,459,044 |  | $ | 8,430,652 |  | $ | 8,887,581 |  | $ | 8,282,459 |  | $ | 7,052,612 |
$ change from prior period end | $ | (114,256) |  | $ | (99,301) |  | $ | 28,392 |  | $ | (456,929) |  | $ | 605,122 |  | $ | 1,229,847 |  |
% change from prior period end | (1.4) | % | (1.2) | % | 0.3 | % | (5.1) | % | 7.3 | % | 17.4 | % |

During the three months ended September 30, 2023, total deposits including off balance sheet deposits decreased by $114.3 million, or 1.4%. This decrease consisted of a $25.6 million decrease in total retail deposits and a $88.7 million decrease in total commercial deposits. During the nine months ended September 30, 2023, total deposits including off balance sheet deposits decreased by $185.2 million, or 2.2%. This decrease consisted of a $277.6 million decrease in total retail deposits and a $195.2 million decrease in off balance sheet deposits, partially offset by a $287.6 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 tables detail the change in public fund deposits.

(Dollars in thousands) | September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | December 31, 2021 | December 31, 2020 | December 31, 2019
Total public fund deposits | $ | 1,400,807 |  | $ | 1,573,684 |  | $ | 1,518,319 |  | $ | 1,335,400 |  | $ | 1,548,217 |  | $ | 1,406,101 |  | $ | 1,293,090 |
$ change from prior period end | $ | (172,877) |  | $ | 55,365 |  | $ | 182,919 |  | $ | (212,817) |  | $ | 142,116 |  | $ | 113,011 |  |
% change from prior period end | (11.0) | % | 3.6 | % | 13.7 | % | (13.7) | % | 10.1 | % | 8.7 | % |

(Dollars in thousands) | September 30, 2023 | December 31, 2022 | September 30, 2022 |  | $ change from 12/31/22 | % change from 12/31/22 |  | $ change from 9/30/22 | % change from 9/30/22
Total public fund deposits | $ | 1,400,807 |  | $ | 1,335,400 |  | $ | 1,743,210 |  |  | $ | 65,407 |  | 4.9 | % |  | $ | (342,403) |  | (19.6) | %

As of September 30, 2023, Park had approximately $1.4 billion of uninsured deposits, which was 17.2% of total deposits. Uninsured deposits of $1.4 billion included $300 million of deposits which were over the $250,000 FDIC insured limit but were fully collateralized by Park's investment securities portfolio.
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Financial Results by Segment
The table below reflects the net income (loss) by segment for the first, second, and third quarters of 2023, for the first nine months of each of 2023 and 2022 (the nine months ended September 30) and for the years ended December 31, 2022 and 2021. Park's segments include The Park National Bank ("PNB") and "All Other," which primarily consists of Park as the "Parent Company", Guardian Financial Services Company ("GFSC") and SE Property Holdings, LLC ("SEPH").

(In thousands) | Q3 2023 | Q2 2023 | Q1 2023 | Nine months YTD 2023 | Nine months YTD 2022 |  | 2022 |  | 2021
PNB | $ | 40,788 |  | $ | 35,485 |  | $ | 36,269 |  | $ | 112,542 |  | $ | 107,923 |  |  | $ | 143,243 |  |  | $ | 159,461 |
All Other | (3,871) |  | (3,901) |  | (2,536) |  | (10,308) |  | 7,344 |  |  | 5,108 |  |  | (5,516) |
Total Park | $ | 36,917 |  | $ | 31,584 |  | $ | 33,733 |  | $ | 102,234 |  | $ | 115,267 |  |  | $ | 148,351 |  |  | $ | 153,945 |

Net income for each of the three months ended September 30, 2023 and September 30, 2022 and for each of the nine months ended September 30, 2023 and September 30, 2022, included several items of income and expense that impacted comparability of period results. These items are detailed in the "Items Impacting Comparability" section within this MD&A.
The following discussion provides additional information regarding the PNB segment, followed by additional information regarding the All Other segment.
The Park National Bank (PNB)
The table below reflects PNB's net income for the first, second and third quarters of 2023, for the first nine months of each of 2023 and 2022 (the nine months ended September 30) and for the years ended December 31, 2022 and 2021.

(In thousands) | Q3 2023 | Q2 2023 | Q1 2023 | Nine months YTD 2023 | Nine months YTD 2022 | 2022 | 2021
Net interest income | $ | 96,078 |  | $ | 93,549 |  | $ | 93,589 |  | $ | 283,216 |  | $ | 254,818 |  | $ | 350,646 |  | $ | 328,398 |
(Recovery of) provision for credit losses | (1,538) |  | 2,524 |  | 915 |  | 1,901 |  | 2,045 |  | 5,834 |  | (8,554) |
Other income | 27,888 |  | 25,091 |  | 24,262 |  | 77,241 |  | 89,420 |  | 115,211 |  | 126,802 |
Other expense | 74,623 |  | 73,121 |  | 72,997 |  | 220,741 |  | 209,500 |  | 283,670 |  | 266,678 |
Income before income taxes | $ | 50,881 |  | $ | 42,995 |  | $ | 43,939 |  | $ | 137,815 |  | $ | 132,693 |  | $ | 176,353 |  | $ | 197,076 |
Income tax expense | 10,093 |  | 7,510 |  | 7,670 |  | 25,273 |  | 24,770 |  | 33,110 |  | 37,615 |
Net income | $ | 40,788 |  | $ | 35,485 |  | $ | 36,269 |  | $ | 112,542 |  | $ | 107,923 |  | $ | 143,243 |  | $ | 159,461 |

Net interest income of $283.2 million for the nine months ended September 30, 2023 represented a $28.4 million, or 11.1%, increase compared to $254.8 million for the nine months ended September 30, 2022. The increase was a result of a $79.6 million increase in interest income, partially offset by a $51.2 million increase in interest expense.
The $79.6 million increase in interest income was due to a $60.1 million increase in interest income on loans and a $19.5 million increase in investment income. The $60.1 million increase in interest income on loans was primarily the result of a $263.8 million (or 3.82%) increase in average loans, from $6.90 billion for the nine months ended September 30, 2022 to $7.17 billion for the nine months ended September 30, 2023, as well as an increase in the yield on loans, which increased 96 basis points to 5.43% for the nine months ended September 30, 2023, compared to 4.47% for the nine months ended September 30, 2022. The $19.5 million increase in investment income was primarily the result of an increase in the yield on investments, including money market investments, which increased 155 basis points to 3.83% for the nine months ended September 30, 2023, compared to 2.28% for the nine months ended September 30, 2022. The increase in the yield on investments was partially offset by a decrease in average investments, including money market investments, from $2.22 billion for the nine months ended September 30, 2022 to $2.01 billion for the nine months ended September 30, 2023.
The $51.2 million increase in interest expense was due to a $49.0 million increase in interest expense on deposits, as well as a $2.2 million increase in interest expense on borrowings. The increase in interest expense on deposits was the result of a $248.8
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million (or 4.70%) increase in average on-balance sheet interest bearing deposits from $5.29 billion for the nine months ended September 30, 2022, to $5.54 billion for the nine months ended September 30, 2023 as well as an increase in the cost of deposits of 118 basis points, from 0.24% for the nine months ended September 30, 2022 to 1.42% for the nine months ended September 30, 2023. The increase in on-balance sheet interest bearing deposits was due to an increase in transaction accounts, which was partially offset by decreases in savings accounts and time deposits. During the nine months ended September 30, 2023 and 2022, Park made the decision to continue its participation in a program to transfer deposits off-balance sheet in order to manage growth of the balance sheet.
The provision for credit losses of $1.9 million for the nine months ended September 30, 2023 represented a decline of $144,000, compared to $2.0 million for the nine months ended September 30, 2022. Refer to the “Credit Metrics and (Recovery of) Provision for Credit Losses” section for additional details regarding the level of the provision for (recovery of) credit losses recognized in each period presented above.
Other income of $77.2 million for the nine months ended September 30, 2023 represented a decrease of $12.2 million, or 13.6%, compared to $89.4 million for the nine months ended September 30, 2022. The $12.2 million decrease was primarily related to (i) a $4.4 million decrease in other service income, which was primarily due to declines in fee income from mortgage loan originations and mortgage servicing rights, partially offset by increases in investor rate locks and mortgage loans held for sale; (ii) a $3.8 million decrease in other miscellaneous income, which was primarily due to decreases in the net gain on the sale of loans and other assets and in other fee income; (iii) a $3.3 million decrease in other components of net periodic benefit income; (iv) a $1.1 million decrease in gain on equity securities, net, from a $2.3 million gain for the nine months ended September 30, 2022 to a $1.1 million gain for the nine months ended September 30, 2023; and (v) a $1.1 million decrease in service charges on deposits income, primarily related to a decrease in overdraft fee income. These decreases were partially offset by a $658,000 increase in fiduciary income, a $568,000 increase in debit card fee income, and a $451,000 increase in bank owned life insurance income.
A summary of mortgage loan originations for the first, second and third quarters of 2023 and 2022 and the years ended December 31, 2022 and 2021 follows.

(In thousands) | Q3 2023 | Q2 2023 | Q1 2023 | Q3 2022 | Q2 2022 | Q1 2022 | 2022 | 2021
Mortgage Loan Origination Volume |  |  |  |  |
Sold | $ | 19,035 | $ | 15,805 | $ | 13,756 | $ | 27,025 | $ | 50,013 | $ | 69,053 | $ | 159,142 | $ | 555,278
Portfolio | 78,847 | 65,252 | 32,743 | 90,551 | 63,104 | 53,498 | 263,287 | 284,686
Construction | 27,826 | 20,659 | 13,124 | 34,026 | 34,044 | 32,928 | 120,794 | 119,555
Service released | 1,678 | 1,583 | 1,576 | 2,537 | 4,580 | 4,660 | 14,738 | 13,802
Total mortgage loan originations | $ | 127,386 | $ | 103,299 | $ | 61,199 | $ | 154,139 | $ | 151,741 | $ | 160,139 | $ | 557,961 | $ | 973,321
Refinances as a % of Total Mortgage Loan Originations | 15.2 | % | 19.1 | % | 24.7 | % | 24.0 | % | 25.9 | % | 41.7 | % | 29.4 | % | 54.2 | %

Total mortgage loan originations decreased $174.1 million, or 37.4%, to $291.9 million for the nine months ended September 30, 2023 compared to $466.0 million for the nine months ended September 30, 2022.
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The table below reflects PNB's total other expense for the nine months ended September 30, 2023 and 2022.

(Dollars in thousands) | 2023 | 2022 | $ change | % change
Other expense: |  |  |  |
Salaries | $ | 99,883 |  | $ | 96,340 |  | $ | 3,543 |  | 3.7 | %
Employee benefits | 31,957 |  | 30,221 |  | 1,736 |  | 5.7 | %
Occupancy expense | 9,740 |  | 9,699 |  | 41 |  | 0.4 | %
Furniture and equipment expense | 9,407 |  | 8,782 |  | 625 |  | 7.1 | %
Data processing fees | 27,777 |  | 23,844 |  | 3,933 |  | 16.5 | %
Professional fees and services | 18,696 |  | 16,020 |  | 2,676 |  | 16.7 | %
Marketing | 3,688 |  | 3,922 |  | (234) |  | (6.0) | %
Insurance | 5,895 |  | 3,875 |  | 2,020 |  | 52.1 | %
Communication | 3,152 |  | 2,894 |  | 258 |  | 8.9 | %
State tax expense | 3,187 |  | 3,332 |  | (145) |  | (4.4) | %
Amortization of intangible assets | 989 |  | 1,146 |  | (157) |  | (13.7) | %
Foundation contribution | — |  | 4,000 |  | (4,000) |  | (100.0) | %
Miscellaneous | 6,370 |  | 5,425 |  | 945 |  | 17.4 | %
Total other expense | $ | 220,741 |  | $ | 209,500 |  | $ | 11,241 |  | 5.4 | %

Total other expense of $220.7 million for the nine months ended September 30, 2023 represented an increase of $11.2 million, or 5.4%, compared to $209.5 million for the nine months ended September 30, 2022. The increase in salaries expense was primarily related to increases in base salary expense and share-based compensation expense, partially offset by decreases in additional compensation expense and officer incentive compensation expense. The increase in employee benefits expense was primarily related to increases in group insurance expense and payroll tax expense, partially offset by a decrease in retirement benefit expense. The increase in furniture and equipment expense was primarily related to increases in depreciation expense and maintenance and repairs on equipment expense. The increase in data processing fees was primarily related to increases in software data processing expense and debit card processing expense. The increase in professional fees and services expense was primarily due to increases in consulting, other fees, IntraFi insured deposit fees, temporary wages and directors' fees. The increase in insurance expense was due to an increase in FDIC insurance assessment expense. The increase in miscellaneous expense was due to increased expense related to fraud and other non-loan related losses, other miscellaneous expense and increased training and travel-related expenses, which were partially offset by a decrease in operating lease depreciation expense and a decrease in expense for the allowance for unfunded lines of credit.
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The table below provides certain balance sheet information and financial ratios for PNB as of or for the nine months ended September 30, 2023 and 2022 and as of or for the year ended December 31, 2022.

(Dollars in thousands) | September 30, 2023 | December 31, 2022 | September 30, 2022 |  | % change from 12/31/22 | % change from 09/30/22
Loans | 7,349,580 |  | 7,141,362 |  | 7,102,503 |  |  | 2.92 | % | 3.48 | %
Allowance for credit losses | 84,601 |  | 85,370 |  | 83,947 |  |  | (0.90) | % | 0.78 | %
Net loans | 7,264,979 |  | 7,055,992 |  | 7,018,556 |  |  | 2.96 | % | 3.51 | %
Investment securities | 1,682,705 |  | 1,796,613 |  | 1,805,163 |  |  | (6.34) | % | (6.78) | %
Total assets | 9,959,528 |  | 9,815,951 |  | 9,816,644 |  |  | 1.46 | % | 1.46 | %
Total deposits | 8,536,433 |  | 8,534,320 |  | 8,606,272 |  |  | 0.02 | % | (0.81) | %
Average assets (1) | 9,941,499 |  | 10,011,932 |  | 9,934,726 |  |  | (0.70) | % | 0.07 | %
Efficiency ratio (2) | 60.75 | % | 60.43 | % | 60.40 | % |  | 0.53 | % | 0.58 | %
Return on average assets (3) | 1.51 | % | 1.43 | % | 1.45 | % |  | 5.59 | % | 4.14 | %

(1) Average assets for the nine months ended September 30, 2023 and 2022 and for the year ended December 31, 2022.
(2) Efficiency ratio is calculated by dividing total other expense by the sum of fully taxable equivalent net interest income and other income. Fully taxable equivalent net interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustments were $2.9 million for the nine months ended September 30, 2023, $3.5 million for the year ended December 31 2022 and $2.6 million for the nine months ended September 30 2022.
(3) Annualized for the nine months ended September 30, 2023 and 2022.
Loans outstanding at September 30, 2023 were $7.35 billion, compared to (i) $7.14 billion at December 31, 2022, an increase of $208.2 million, and (ii) $7.10 billion at September 30, 2022, an increase of $247.1 million. The table below breaks out the change in loans outstanding, by loan type.

(Dollars in thousands) | September 30, 2023 | December 31, 2022 | September 30, 2022 |  | $ change from 12/31/22 | % change from 12/31/22 |  | $ change from 9/30/22 | % change from 9/30/22
Home equity | $ | 173,570 |  | $ | 167,232 |  | $ | 167,072 |  |  | $ | 6,338 |  | 3.8 | % |  | $ | 6,498 |  | 3.9 | %
Installment | 1,977,730 |  | 1,921,059 |  | 1,948,819 |  |  | 56,671 |  | 2.9 | % |  | 28,911 |  | 1.5 | %
Real estate | 1,295,769 |  | 1,195,037 |  | 1,171,079 |  |  | 100,732 |  | 8.4 | % |  | 124,690 |  | 10.6 | %
Commercial | 3,897,676 |  | 3,854,683 |  | 3,813,691 |  |  | 42,993 |  | 1.1 | % |  | 83,985 |  | 2.2 | %
Other | 4,835 |  | 3,351 |  | 1,842 |  |  | 1,484 |  | 44.3 | % |  | 2,993 |  | 162.5 | %
Total loans | $ | 7,349,580 |  | $ | 7,141,362 |  | $ | 7,102,503 |  |  | $ | 208,218 |  | 2.9 | % |  | $ | 247,077 |  | 3.5 | %

Loans outstanding at September 30, 2023 were $7.35 billion, compared to $7.21 billion at June 30, 2023, an increase of $141.7 million. The $141.7 million increase represented a 2.0% (7.8% annualized) increase during the three months ended September 30, 2023.
The table below breaks out the change in loans outstanding, by loan type.

(Dollars in thousands) | September 30, 2023 | June 30, 2023 |  | $ change from 6/30/23 | % change from 6/30/23
Home equity | $ | 173,570 |  | $ | 168,256 |  |  | $ | 5,314 |  | 3.2 | %
Installment | 1,977,730 |  | 1,945,125 |  |  | 32,605 |  | 1.7 | %
Real estate | 1,295,769 |  | 1,252,243 |  |  | 43,526 |  | 3.5 | %
Commercial | 3,897,676 |  | 3,838,136 |  |  | 59,540 |  | 1.6 | %
Other | 4,835 |  | 4,102 |  |  | 733 |  | 17.9 | %
Total loans | $ | 7,349,580 |  | $ | 7,207,862 |  |  | $ | 141,718 |  | 2.0 | %

PNB's allowance for credit losses was $84.6 million at September 30, 2023, compared to (i) $85.4 million at December 31, 2022, a decrease of $0.8 million, or 0.9%, and (ii) $83.9 million at September 30, 2022, an increase of $0.7 million, or 0.8%.
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Net charge-offs were $3.1 million, or 0.06% of total average loans, for the nine months ended September 30, 2023 and were $3.6 million, or 0.05% of total average loans, for the year ended December 31, 2022. Net charge-offs were $1.2 million, or 0.02% of total average loans, for the nine months ended September 30, 2022. Refer to the “Credit Metrics and (Recovery of) Provision for Credit Losses” section for additional information regarding PNB's loan portfolio and the level of provision for (recovery of) credit losses recognized in each period presented.
Total deposits at September 30, 2023 were $8.54 billion, compared to (i) $8.53 billion at December 31, 2022, an increase of $2.1 million, and (ii) $8.61 billion at September 30, 2022, a decrease of $69.8 million, or 0.8%. During the nine months ended September 30, 2023 and 2022 and the year ended December 31, 2022, Park made the decision 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. At September 30, 2023, December 31, 2022 and September 30, 2022, Park had $763,000, $195.9 million, and $766.2 million, respectively, in deposits which were off-balance sheet. Total deposits would have decreased $193.1 million, or 2.2%, compared to December 31, 2022 had the $763,000 and $195.9 million in deposits remained on the balance sheet at the respective dates. Total deposits would have decreased $835.3 million, or 8.9%, compared to September 30, 2022 had the $763,000 and $766.2 million in deposits remained on the balance sheet at the respective dates.
The table below breaks out the change in deposit balances, by deposit type.

(Dollars in thousands) | September 30, 2023 | December 31, 2022 | September 30, 2022 |  | $ change from 12/31/22 | % change from 12/31/22 |  | $ change from 9/30/22 | % change from 9/30/22
Non-interest bearing deposits | $ | 3,024,412 |  | $ | 3,374,269 |  | $ | 3,435,307 |  |  | $ | (349,857) |  | (10.4) | % |  | $ | (410,895) |  | (12.0) | %
Transaction accounts | 2,193,054 |  | 1,988,106 |  | 1,989,340 |  |  | 204,948 |  | 10.3 | % |  | 203,714 |  | 10.2 | %
Savings | 2,715,802 |  | 2,617,500 |  | 2,568,404 |  |  | 98,302 |  | 3.8 | % |  | 147,398 |  | 5.7 | %
Certificates of deposit | 603,165 |  | 554,445 |  | 613,222 |  |  | 48,720 |  | 8.8 | % |  | (10,057) |  | (1.6) | %
Total deposits | $ | 8,536,433 |  | $ | 8,534,320 |  | $ | 8,606,273 |  |  | $ | 2,113 |  | — | % |  | $ | (69,840) |  | (0.8) | %
Off-balance sheet deposits | 763 |  | 195,937 |  | 766,184 |  |  | (195,174) |  | N.M. |  | (765,421) |  | N.M.
Total deposits including off-balance sheet deposits | $ | 8,537,196 |  | $ | 8,730,257 |  | $ | 9,372,457 |  |  | $ | (193,061) |  | (2.2) | % |  | $ | (835,261) |  | (8.9) | %

Total deposits at September 30, 2023 were $8.54 billion, compared to $8.66 billion at June 30, 2023, a decrease of $119.7 million, or 1.4%. The table below breaks out the change in deposit balances, by deposit type.

(Dollars in thousands) | September 30, 2023 | June 30, 2023 |  | $ change from 6/30/23 | % change from 6/30/23
Non-interest bearing deposits | $ | 3,024,412 |  | $ | 3,093,460 |  |  | $ | (69,048) |  | (2.2) | %
Transaction accounts | 2,193,054 |  | 2,238,131 |  |  | (45,077) |  | (2.0) | %
Savings | 2,715,802 |  | 2,755,961 |  |  | (40,159) |  | (1.5) | %
Certificates of deposit | 603,165 |  | 568,609 |  |  | 34,556 |  | 6.1 | %
Total deposits | $ | 8,536,433 |  | $ | 8,656,161 |  |  | $ | (119,728) |  | (1.4) | %
Off-balance sheet deposits | 763 |  | 767 |  |  | (4) |  | (0.5) | %
Total deposits including off-balance sheet deposits | $ | 8,537,196 |  | $ | 8,656,928 |  |  | $ | (119,732) |  | (1.4) | %

All Other
The table below reflects All Other net (loss) income for the first, second and third quarters of 2023, for the first nine months of
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each of 2023 and 2022 (the nine months ended September 30) and for the years ended December 31, 2022, and 2021.

(In thousands) | Q3 2023 | Q2 2023 | Q1 2023 | Nine months YTD 2023 | Nine months YTD 2022 | 2022 | 2021
Net interest (expense) income | $ | (1,809) |  | $ | (1,977) |  | $ | (1,391) |  | $ | (5,177) |  | $ | (2,365) |  | $ | (3,587) |  | $ | 1,495 |
Recovery of credit losses | (42) |  | (32) |  | (732) |  | (806) |  | (469) |  | (1,277) |  | (3,362) |
Other (loss) income | (175) |  | (76) |  | 125 |  | (126) |  | 20,123 |  | 20,724 |  | 3,142 |
Other expense | 3,185 |  | 2,764 |  | 3,506 |  | 9,455 |  | 10,824 |  | 14,308 |  | 16,840 |
Net (loss) income before income tax (benefit) expense | $ | (5,127) |  | $ | (4,785) |  | $ | (4,040) |  | $ | (13,952) |  | $ | 7,403 |  | $ | 4,106 |  | $ | (8,841) |
Income tax (benefit) expense | (1,256) |  | (884) |  | (1,504) |  | (3,644) |  | 59 |  | (1,002) |  | (3,325) |
Net (loss) income | $ | (3,871) |  | $ | (3,901) |  | $ | (2,536) |  | $ | (10,308) |  | $ | 7,344 |  | $ | 5,108 |  | $ | (5,516) |

The net interest (expense) income for All Other included, for all periods presented, interest income on subordinated debt investments in PNB, which was eliminated in the consolidated Park totals, as well as interest income on GFSC loans and SEPH impaired loan relationships. The net interest (expense) income for All Other also included interest expense on $175.0 million aggregate principal amount of 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030 issued by Park in August 2020 (the "Park Subordinated Notes").
Net interest (expense) income reflected net interest expense of $5.2 million for the nine months ended September 30, 2023, compared to net interest expense of $2.4 million for the nine months ended September 30, 2022. The change was largely the result of a decrease of $2.4 million in loan interest income related to payment collections at SEPH, a decrease of $197,000 in net interest income from GFSC and an increase in interest expense on borrowings of $469,000 as the result of an increase in the applicable interest rate.
Refer to the “Credit Metrics and (Recovery of) Provision for Credit Losses” section for additional information regarding the All Other loan portfolio and the level of recovery of credit losses recognized in each period presented.
All Other had other loss of $(126,000) for the nine months ended September 30, 2023, compared to other income of $20.1 million for the nine months ended September 30, 2022. The decrease was due to a $12.0 million decrease in income from an OREO valuation markup, a $5.6 million decrease in gain on sale of OREO, net, a $1.2 million decrease in bank owned life insurance income as the result of death benefits received in 2022 which did not reoccur in 2023, as well as a $1.4 million decrease in gain (loss) on equity securities, net.
All Other had other expense of $9.5 million for the nine months ended September 30, 2023, compared to $10.8 million for the nine months ended September 30, 2022. The decrease was largely due to a $1.5 million decrease in professional fees and services expense.
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Park National Corporation
The table below reflects Park's consolidated net income for the first, second and third quarters of 2023, for the first nine months of each of 2023 and 2022 (the nine months ended September 30) and for the years ended December 31, 2022, and 2021.

(In thousands) | Q3 2023 | Q2 2023 | Q1 2023 | Nine months YTD 2023 | Nine months YTD 2022 | 2022 | 2021
Net interest income | $ | 94,269 |  | $ | 91,572 |  | $ | 92,198 |  | $ | 278,039 |  | $ | 252,453 |  | $ | 347,059 |  | $ | 329,893 |
(Recovery of) provision for credit losses | (1,580) |  | 2,492 |  | 183 |  | 1,095 |  | 1,576 |  | 4,557 |  | (11,916) |
Other income | 27,713 |  | 25,015 |  | 24,387 |  | 77,115 |  | 109,543 |  | 135,935 |  | 129,944 |
Other expense | 77,808 |  | 75,885 |  | 76,503 |  | 230,196 |  | 220,324 |  | 297,978 |  | 283,518 |
Income before income taxes | $ | 45,754 |  | $ | 38,210 |  | $ | 39,899 |  | $ | 123,863 |  | $ | 140,096 |  | $ | 180,459 |  | $ | 188,235 |
Income tax expense | 8,837 |  | 6,626 |  | 6,166 |  | 21,629 |  | 24,829 |  | 32,108 |  | 34,290 |
Net income | $ | 36,917 |  | $ | 31,584 |  | $ | 33,733 |  | $ | 102,234 |  | $ | 115,267 |  | $ | 148,351 |  | $ | 153,945 |

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.
Comparison for the Third Quarters of 2023 and 2022
Net interest income increased by $3.4 million, or 3.8%, to $94.3 million for the third quarter of 2023, compared to $90.8 million for the third quarter of 2022. See the discussion under the table below.

|  | Three months ended September 30, 2023 |  | Three months ended September 30, 2022
(Dollars in thousands) |  | Average balance | Interest | Tax equivalent yield/cost |  | Average balance | Interest | Tax equivalent yield/cost
Loans (1) |  | $ | 7,267,476 |  | $ | 103,529 |  | 5.65 | % |  | $ | 7,039,040 |  | $ | 83,677 |  | 4.72 | %
Taxable investments |  | 1,385,023 |  | 13,321 |  | 3.82 | % |  | 1,528,169 |  | 10,319 |  | 2.68 | %
Tax-exempt investments (2) |  | 421,028 |  | 3,671 |  | 3.46 | % |  | 424,643 |  | 3,700 |  | 3.46 | %
Money market instruments |  | 104,754 |  | 1,410 |  | 5.34 | % |  | 573,858 |  | 3,180 |  | 2.20 | %
Interest earning assets |  | $ | 9,178,281 |  | $ | 121,931 |  | 5.27 | % |  | $ | 9,565,710 |  | $ | 100,876 |  | 4.18 | %
Interest bearing deposits |  | $ | 5,634,621 |  | $ | 23,126 |  | 1.63 | % |  | $ | 5,679,989 |  | $ | 6,582 |  | 0.46 | %
Short-term borrowings |  | 164,237 |  | 1,136 |  | 2.74 | % |  | 196,816 |  | 306 |  | 0.62 | %
Long-term debt |  | 188,966 |  | 2,358 |  | 4.95 | % |  | 188,494 |  | 2,228 |  | 4.69 | %
Interest bearing liabilities |  | $ | 5,987,824 |  | $ | 26,620 |  | 1.76 | % |  | $ | 6,065,299 |  | $ | 9,116 |  | 0.60 | %
Excess interest earning assets |  | $ | 3,190,457 |  |  |  |  | $ | 3,500,411 |  |  |
Tax equivalent net interest income |  |  | $ | 95,311 |  |  |  |  | $ | 91,760 |  |
Net interest spread |  |  |  | 3.51 | % |  |  |  | 3.58 | %
Net interest margin |  |  |  | 4.12 | % |  |  |  | 3.81 | %

(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $271,000 for the three months ended September 30, 2023 and $155,000 for the same period of 2022.
(2) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $771,000 for the three months ended September 30, 2023 and $777,000 for the same period of 2022.
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Average interest earning assets for the third quarter of 2023 decreased by $387.4 million, or 4.1%, to $9,178 million for the third quarter of 2023, compared to $9,566 million for the third quarter of 2022. The average yield on interest earning assets increased by 109 basis points to 5.27% for the third quarter of 2023, compared to 4.18% for the third quarter of 2022.
Interest income for the three months ended September 30, 2023 and 2022 included purchase accounting accretion of $145,000 and $494,000, respectively, related to the acquisitions of NewDominion and Carolina Alliance, as well as $9,000 and $649,000, respectively, of interest income related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB. Interest income for the three months ended September 30, 2023 and 2022 also included $16,000 and $361,000, respectively, of interest income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH-related income, and PPP income, the yield on loans was 5.64% and 4.64% for the three months ended September 30, 2023 and 2022, respectively, and the yield on earning assets was 5.26% and 4.13% for the three months ended September 30, 2023 and 2022, respectively.
Average interest bearing liabilities for the third quarter of 2023 decreased by $77.5 million, or 1.3%, to $5,988 million, compared to $6,065 million for the third quarter of 2022. The average cost of interest bearing liabilities increased by 116 basis points to 1.76% for the third quarter of 2023, compared to 0.60% for the third quarter of 2022. During the three months ended September 30, 2023 and 2022, Park continued to participate in a OWS program in order to manage growth of the balance sheet. At September 30, 2023 and 2022, Park had $763,000 and $766.2 million, respectively, in OWS insured cash sweep deposits which were off-balance sheet. Management from time to time has elected to move these funds both on and off the balance sheet throughout the quarter due to favorable interest rate conditions and other factors. When on the balance sheet, these deposits are included in the average interest bearing liabilities and related interest expense.
Removing the impacts of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance, the interest income related to payments on certain SEPH nonaccrual loan relationships and the interest income related to PPP loans, the net interest margin was 4.11% and 3.75% for the three months ended September 30, 2023 and 2022, respectively.
Yield on Loans: Average loan balances increased $228.4 million, or 3.2%, to $7,267 million for the third quarter of 2023, compared to $7,039 million for the third quarter of 2022. The average yield on the loan portfolio increased by 93 basis points to 5.65% for the third quarter of 2023, compared to 4.72% for the third quarter of 2022. Average loans for the third quarters of 2023 and 2022 included $2.4 million and $9.7 million, respectively, of PPP loans.
The table below shows the average balance and tax equivalent yield by type of loan for the three months ended September 30, 2023 and 2022.

|  | Three months ended September 30, 2023 |  | Three months ended September 30, 2022
(Dollars in thousands) |  | Average balance |  | Tax equivalent yield |  | Average balance |  | Tax equivalent yield
Home equity loans |  | $ | 171,235 |  |  | 8.34 | % |  | $ | 164,766 |  |  | 5.45 | %
Installment loans |  | 1,962,225 |  |  | 5.66 | % |  | 1,912,912 |  |  | 4.74 | %
Real estate loans |  | 1,270,156 |  |  | 4.45 | % |  | 1,147,402 |  |  | 3.85 | %
Commercial loans (1) |  | 3,860,066 |  |  | 5.91 | % |  | 3,808,863 |  |  | 4.93 | %
Other |  | 3,794 |  |  | 9.10 | % |  | 5,097 |  |  | 6.85 | %
Total loans before allowance |  | $ | 7,267,476 |  |  | 5.65 | % |  | $ | 7,039,040 |  |  | 4.72 | %

(1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $271,000 for the three months ended September 30, 2023 and $155,000 for the same period of 2022.
Loan interest income for the three months ended September 30, 2023 and 2022 included the accretion of purchase accounting
adjustments related to the acquisitions of NewDominion and Carolina Alliance, interest income related to payments on certain SEPH nonaccrual loan relationships and interest income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH-related income, and PPP income, (a) the yield on home equity loans was 8.29%, the yield on installment loans was unchanged at 5.66%, the yield on real estate loans was unchanged at 4.45%, the yield on commercial loans was 5.90% and the yield on total loans before allowance was 5.64% for the three months ended September 30, 2023; and (b) the yield on home equity loans was 5.40%, the yield on installment loans was unchanged at 4.74%, the yield on real estate loans was 3.82%, the
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yield on commercial loans was 4.80% and the yield on total loans and leases before allowance was 4.64% for the three months ended September 30, 2022.
Cost of Deposits: Average interest bearing deposit balances decreased $45.4 million, or 0.8%, to $5,635 million for the third quarter of 2023, compared to $5,680 million for the third quarter of 2022. The average cost of funds on deposit balances increased by 117 basis points to 1.63% for the third quarter of 2023, compared to 0.46% for the third quarter of 2022. The table below shows for the three months ended September 30, 2023 and 2022, the average balance and cost of funds by type of deposit.

|  | Three months ended September 30, 2023 |  | Three months ended September 30, 2022
(Dollars in thousands) |  | Average balance |  | Cost of funds |  | Average balance |  | Cost of funds
Transaction accounts |  | $ | 2,309,320 |  |  | 1.62 | % |  | $ | 2,197,169 |  |  | 0.38 | %
Savings deposits and clubs |  | 2,742,151 |  |  | 1.54 | % |  | 2,837,613 |  |  | 0.51 | %
Time deposits |  | 583,150 |  |  | 2.11 | % |  | 645,207 |  |  | 0.51 | %
Total interest bearing deposits |  | $ | 5,634,621 |  |  | 1.63 | % |  | $ | 5,679,989 |  |  | 0.46 | %

Comparison for the First Nine Months of 2023 and 2022
Net interest income increased by $25.6 million, or 10.1%, to $278.0 million for the first nine months of 2023, compared to $252.5 million for the first nine months of 2022. See the discussion under the table below.

|  | Nine months ended September 30, 2023 |  | Nine months ended September 30, 2022
(Dollars in thousands) |  | Average balance | Interest | Tax equivalent yield/cost |  | Average balance | Interest | Tax equivalent yield/cost
Loans (1) |  | $ | 7,166,863 |  | $ | 291,871 |  | 5.44 | % |  | $ | 6,904,019 |  | $ | 234,209 |  | 4.54 | %
Taxable investments |  | 1,418,433 |  | 39,731 |  | 3.74 | % |  | 1,469,586 |  | 24,073 |  | 2.19 | %
Tax-exempt investments (2) |  | 421,925 |  | 11,035 |  | 3.50 | % |  | 398,405 |  | 10,185 |  | 3.42 | %
Money market instruments |  | 181,793 |  | 6,715 |  | 4.94 | % |  | 357,514 |  | 3,593 |  | 1.34 | %
Interest earning assets |  | $ | 9,189,014 |  | $ | 349,352 |  | 5.08 | % |  | $ | 9,129,524 |  | $ | 272,060 |  | 3.98 | %
Interest bearing deposits |  | $ | 5,540,680 |  | $ | 58,719 |  | 1.42 | % |  | $ | 5,292,194 |  | $ | 9,694 |  | 0.24 | %
Short-term borrowings |  | 175,537 |  | 2,688 |  | 2.05 | % |  | 203,888 |  | 740 |  | 0.49 | %
Long-term debt |  | 188,847 |  | 7,018 |  | 4.97 | % |  | 188,381 |  | 6,550 |  | 4.65 | %
Interest bearing liabilities |  | $ | 5,905,064 |  | $ | 68,425 |  | 1.55 | % |  | $ | 5,684,463 |  | $ | 16,984 |  | 0.40 | %
Excess interest earning assets |  | $ | 3,283,950 |  |  |  |  | $ | 3,445,061 |  |  |
Tax equivalent net interest income |  |  | $ | 280,927 |  |  |  |  | $ | 255,076 |  |
Net interest spread |  |  |  | 3.53 | % |  |  |  | 3.58 | %
Net interest margin |  |  |  | 4.09 | % |  |  |  | 3.74 | %

(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $571,000 for the nine months ended September 30, 2023 and $484,000 for the same period of 2022.
(2) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $2.3 million for the nine months ended September 30, 2023 and $2.1 million for the same period of 2022.
Average interest earning assets for the first nine months of 2023 increased by $59.5 million, or 0.7%, to $9,189 million for the first nine months of 2023, compared to $9,130 million for the first nine months of 2022. The average yield on interest earning assets increased by 110 basis points to 5.08% for the first nine months of 2023, compared to 3.98% for the first nine months of 2022.
Interest income for the nine months ended September 30, 2023 and 2022 included purchase accounting accretion of $509,000 and $1.5 million, respectively, related to the acquisitions of NewDominion and Carolina Alliance, as well as $596,000 and $3.0
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million, respectively, of interest income related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB. Interest income for the nine months ended September 30, 2023 and 2022 also included $57,000 and $3.0 million, respectively, of income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH-related income, and PPP income, the yield on loans was 5.42% and 4.41% for the nine months ended September 30, 2023 and 2022, respectively, and the yield on earning assets was 5.07% and 3.89% for the nine months ended September 30, 2023 and 2022, respectively.
Average interest bearing liabilities for the first nine months of 2023 decreased by $220.6 million, or 3.9%, to $5,905 million, compared to $5,684 million for the first nine months of 2022. The average cost of interest bearing liabilities increased by 115 basis points to 1.55% for the first nine months of 2023, compared to 0.40% for the first nine months of 2022. During the nine months ended September 30, 2023 and 2022, Park continued to participate in a OWS program in order to manage growth of the balance sheet. At September 30, 2023 and 2022, Park had $763,000 and $766.2 million, respectively, in OWS insured cash sweep deposits which were off-balance sheet. Management from time to time has elected to move these funds both on and off the balance sheet throughout the quarter due to favorable interest rate conditions and other factors. When on the balance sheet, these deposits are included in the average interest bearing liabilities and related interest expense.
Removing the impacts of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance, the interest income related to payments on certain SEPH nonaccrual loan relationships and the interest income related to PPP loans, the net interest margin was 4.07% and 3.64% for the nine months ended September 30, 2023 and 2022, respectively.
Yield on Loans: Average loan balances increased $262.8 million, or 3.8%, to $7,167 million for the first nine months of 2023, compared to $6,904 million for the first nine months of 2022. The average yield on the loan portfolio increased by 90 basis points to 5.44% for the first nine months of 2023, compared to 4.54% for the first nine months of 2022. Average loans for the first nine months of 2023 and 2022 included $3.3 million and $32.3 million, respectively, of PPP loans.
The table below shows the average balance and tax equivalent yield by type of loan for the nine months ended September 30, 2023 and 2022.

|  | Nine months ended September 30, 2023 |  | Nine months ended September 30, 2022
(Dollars in thousands) |  | Average balance |  | Tax equivalent yield |  | Average balance |  | Tax equivalent yield
Home equity loans |  | $ | 168,246 |  |  | 8.10 | % |  | $ | 162,371 |  |  | 4.38 | %
Installment loans |  | 1,933,664 |  |  | 5.32 | % |  | 1,778,231 |  |  | 4.69 | %
Real estate loans |  | 1,232,501 |  |  | 4.29 | % |  | 1,133,199 |  |  | 3.76 | %
Commercial loans (1) |  | 3,828,457 |  |  | 5.76 | % |  | 3,826,017 |  |  | 4.70 | %
Other |  | 3,995 |  |  | 8.86 | % |  | 4,201 |  |  | 8.01 | %
Total loans before allowance |  | $ | 7,166,863 |  |  | 5.44 | % |  | $ | 6,904,019 |  |  | 4.54 | %

(1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $571,000 for the nine months ended September 30, 2023 and $484,000 for the same period of 2022.
Loan interest income for the nine months ended September 30, 2023 and 2022 included the accretion of purchase accounting
adjustments related to the acquisitions of NewDominion and Carolina Alliance, interest income related to payments on certain SEPH nonaccrual loan relationships and interest income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH-related income, and PPP income, (a) the yield on home equity loans was 8.03%, the yield on installment loans was unchanged at 5.32%, the yield on real estate loans was unchanged at 4.29%, the yield on commercial loans was 5.72% and the yield on total loans before allowance was 5.42% for the nine months ended September 30, 2023; and (b) the yield on home equity loans was 4.28%, the yield on installment loans was unchanged at 4.69%, the yield on real estate loans was 3.74%, the yield on commercial loans was 4.49% and the yield on total loans and leases before allowance was 4.41% for the nine months ended September 30, 2022.
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Cost of Deposits: Average interest bearing deposit balances increased $248.5 million, or 4.7%, to $5,541 million for the first nine months of 2023, compared to $5,292 million for the first nine months of 2022. The average cost of funds on deposit balances increased by 118 basis points to 1.42% for the first nine months of 2023, compared to 0.24% for the first nine months of 2022. The table below shows for the nine months ended September 30, 2023 and 2022, the average balance and cost of funds by type of deposit.

|  | Nine months ended September 30, 2023 |  | Nine months ended September 30, 2022
(Dollars in thousands) |  | Average balance |  | Cost of funds |  | Average balance |  | Cost of funds
Transaction accounts |  | $ | 2,226,680 |  |  | 1.42 | % |  | $ | 1,848,771 |  |  | 0.19 | %
Savings deposits and clubs |  | 2,757,767 |  |  | 1.39 | % |  | 2,766,837 |  |  | 0.23 | %
Time deposits |  | 556,233 |  |  | 1.54 | % |  | 676,586 |  |  | 0.45 | %
Total interest bearing deposits |  | $ | 5,540,680 |  |  | 1.42 | % |  | $ | 5,292,194 |  |  | 0.24 | %

Yield on Average Interest Earning Assets: The following table shows the tax equivalent yield on average interest earning assets for the nine months ended September 30, 2023 and for the years ended December 31, 2022, 2021 and 2020.

|  | Loans (1) (3) |  | Investments (2) |  | Money Market Instruments |  | Total(3)
2020 - year |  | 4.71 | % |  | 2.66 | % |  | 0.26 | % |  | 4.28 | %
2021 - year |  | 4.53 | % |  | 2.22 | % |  | 0.13 | % |  | 3.86 | %
2022 - year |  | 4.65 | % |  | 2.66 | % |  | 2.07 | % |  | 4.14 | %
2023 - first nine months |  | 5.44 | % |  | 3.69 | % |  | 4.94 | % |  | 5.08 | %

(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $571,000 for the nine months ended September 30, 2023, and $627,000, $704,000, and $623,000 for the years ended December 31, 2022, 2021 and 2020, respectively.
(2) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $2.3 million for the nine months ended September 30, 2023, and $2.9 million, $2.2 million and $2.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.
(3) Interest income for the nine months ended September 30, 2023 and for the years ended December 31, 2022, 2021 and 2020 included $596,000, $3.7 million, $8.0 million, and $453,000, respectively, related to payments received on certain SEPH nonaccrual loan relationships, some of which are participated with PNB, as well as $509,000, $1.8 million, $3.3 million, and $4.4 million, respectively, of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Interest income for the nine months ended September 30, 2023 and for the years ended December 31, 2022, 2021, and 2020 included $57,000, $3.1 million, $18.0 million and $16.7 million, respectively, of income related to PPP loans. Excluding all of these sources of income described in the preceding sentences of this footnote, the yield on loans was 5.42%, 4.55%, 4.27%, and 4.63% for the nine months ended September 30, 2023, and for the years ended December 31, 2022, 2021 and 2020, respectively, and the yield on total earning assets was 5.07%, 4.06%, 3.64%, and 4.20% for the nine months ended September 30, 2023 and for the years ended December 31, 2022, 2021 and 2020, respectively.
Cost of Average Interest Bearing Liabilities: The following table shows the cost of funds on average interest bearing liabilities for the nine months ended September 30, 2023 and for the years ended December 31, 2022, 2021 and 2020.

|  | Interest bearing deposits (1) |  | Short-term borrowings |  | Long-term debt |  | Total (1)
2020 - year |  | 0.41 | % |  | 0.40 | % |  | 3.55 | % |  | 0.52 | %
2021 - year |  | 0.12 | % |  | 0.27 | % |  | 4.32 | % |  | 0.28 | %
2022 - year |  | 0.39 | % |  | 0.67 | % |  | 4.69 | % |  | 0.54 | %
2023 - first nine months |  | 1.42 | % |  | 2.05 | % |  | 4.97 | % |  | 1.55 | %

(1) Interest expense for the years ended December 31, 2022, 2021 and 2020 included $7,000, $46,000, and $226,000, respectively, of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance. Excluding this income, for the years ended December 31, 2022, 2021 and 2020, the cost of funds on interest bearing deposits was 0.39%, 0.12%, and 0.41%, respectively, and the cost of total interest bearing liabilities was 0.54%, 0.28%, and 0.53%, respectively. There was no accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance for the nine months ended September 30, 2023.
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Credit Metrics and (Recovery of) Provision for Credit Losses
The (recovery of) provision for credit losses is the amount subtracted from/added to 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 (recovery of) provision for 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.
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.
The table below provides additional information on the (recovery of) provision for credit losses for the three-month and nine-month periods ended September 30, 2023 and 2022.

| Three Months Ended September 30, |  | Nine Months Ended September 30, |
(Dollars in thousands) | 2023 | 2022 |  | 2023 | 2022 |
Allowance for credit losses: |  |  |  |  |  |
Beginning balance | $ | 87,206 |  | $ | 81,448 |  |  | $ | 85,379 |  | $ | 83,197 |  |
Cumulative change in accounting principle; adoption of ASU 2022-02 | — |  | — |  |  | 383 |  | — |  |
Charge-offs | 2,293 |  | 1,748 |  |  | 7,213 |  | 5,497 |  |
Recoveries | 1,269 |  | 1,071 |  |  | 4,958 |  | 4,685 |  |
Net charge-offs | 1,024 |  | 677 |  |  | 2,255 |  | 812 |  |
(Recovery of) provision for credit losses | (1,580) |  | 3,190 |  |  | 1,095 |  | 1,576 |  |
Ending balance | $ | 84,602 |  | $ | 83,961 |  |  | $ | 84,602 |  | $ | 83,961 |  |
Net charge-offs as a % of average loans (annualized) | 0.06 | % | 0.04 | % |  | 0.04 | % | 0.02 | % |

The following table provides additional information related to the allowance for credit losses for Park including information related to specific reserves and general reserves, at September 30, 2023, June 30, 2023, March 31, 2023, December 31, 2022, and September 30, 2022.

(Dollars in thousands) | 9/30/2023 | 6/30/2023 | 3/31/2023 | 12/31/2022 | 9/30/2022
Total allowance for credit losses | $ | 84,602 |  | $ | 87,206 |  | $ | 85,946 |  | $ | 85,379 |  | $ | 83,961 |
Allowance on accruing PCD loans | — |  | — |  | — |  | — |  | — |
Specific reserves on individually evaluated loans | 3,422 |  | 4,132 |  | 4,318 |  | 3,566 |  | 1,750 |
General reserves on collectively evaluated loans | $ | 81,180 |  | $ | 83,074 |  | $ | 81,628 |  | $ | 81,813 |  | $ | 82,211 |
Total loans | $ | 7,349,745 |  | $ | 7,208,109 |  | $ | 7,093,857 |  | $ | 7,141,891 |  | $ | 7,103,246 |
Accruing PCD loans | 3,807 |  | 4,455 |  | 4,555 |  | 4,653 |  | 4,867 |
Individually evaluated loans (1) | 40,839 |  | 43,887 |  | 59,384 |  | 78,341 |  | 43,670 |
Collectively evaluated loans | $ | 7,305,099 |  | $ | 7,159,767 |  | $ | 7,029,918 |  | $ | 7,058,897 |  | $ | 7,054,709 |
Allowance for credit losses as a % of period end loans | 1.15 | % | 1.21 | % | 1.21 | % | 1.20 | % | 1.18 | %
General reserve as a % of collectively evaluated loans | 1.11 | % | 1.16 | % | 1.16 | % | 1.16 | % | 1.17 | %

(1) 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.
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The allowance for credit losses of $84.6 million at September 30, 2023 represented a $2.6 million, or 3.0%, decrease compared to $87.2 million at June 30, 2023. The decrease was largely due to a $1.9 million decrease in general reserves, reflecting an improvement in economic forecasts, particularly in the adverse scenario, along with a reduction in special mention loans during the quarter. Also contributing to the decline was a decrease of $710,000 in specific reserves.
The allowance for credit losses of $84.6 million at September 30, 2023 represented a $777,000, or 0.9%, decrease compared to $85.4 million at December 31, 2022. The decrease was due to a $633,000 decrease in general reserves and a decline of $144,000 in specific reserves.
Generally, valuations for all nonperforming loans are updated at least annually, either through independent valuations by a licensed appraiser or a 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. As new valuation information is received, management performs an evaluation and applies a discount for anticipated disposition costs to determine the net realizable value of the collateral, which is compared against the outstanding principal balance to determine if additional write-downs are necessary.
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; and (3) OREO which results from taking possession of property that served as collateral for a defaulted loan. 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.
The following table compares Park’s nonperforming assets at September 30, 2023, December 31, 2022 and September 30, 2022.

(In thousands) |  | September 30, 2023 |  | December 31, 2022 |  | September 30, 2022
Nonaccrual loans |  | $ | 55,008 |  |  | $ | 79,696 |  |  | $ | 44,612 |
Accruing TDRs (for years 2022 and prior) (1) |  | — |  |  | 20,134 |  |  | 19,831 |
Loans past due 90 days or more |  | 627 |  |  | 1,281 |  |  | 790 |
Total nonperforming loans |  | $ | 55,635 |  |  | $ | 101,111 |  |  | $ | 65,233 |
OREO |  | 1,354 |  |  | 1,354 |  |  | 1,354 |
Total nonperforming assets |  | $ | 56,989 |  |  | $ | 102,465 |  |  | $ | 66,587 |
Percentage of nonaccrual loans to total loans |  | 0.75 | % |  | 1.12 | % |  | 0.63 | %
Percentage of nonperforming loans to total loans (1) |  | 0.76 | % |  | 1.42 | % |  | 0.92 | %
Percentage of nonperforming assets to total loans (1) |  | 0.78 | % |  | 1.43 | % |  | 0.94 | %
Percentage of nonperforming assets to total assets (1) |  | 0.57 | % |  | 1.04 | % |  | 0.68 | %

(1) Effective January 1, 2023, Park adopted ASU 2022-02. Among other things, this ASU eliminated the concept of TDRs.
Included in the OREO totals above were $1.4 million of SEPH OREO at September 30, 2023, December 31, 2022, and September 30, 2022.
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Park classifies loans as nonaccrual when a loan (1) is maintained on a cash basis because of deterioration in the financial condition of the borrower, (2) payment in full of principal or interest is not expected, or (3) principal or interest has been in default for a period of 90 days for commercial loans and 120 days for all other loans. As a result, loans may be classified as nonaccrual despite being current with their contractual terms. The following table details the delinquency status of nonaccrual loans at September 30, 2023, December 31, 2022 and September 30, 2022. Loans are classified as current if they are less than 30 days past due.

|  | September 30, 2023 |  | December 31, 2022 |  | September 30, 2022
(In thousands) |  | Balance |  | Percent of Total Loans |  | Balance |  | Percent of Total Loans |  | Balance |  | Percent of Total Loans
Nonaccrual loans - current |  | $ | 33,470 |  |  | 0.46 | % |  | $ | 58,893 |  |  | 0.83 | % | 1 | $ | 28,472 |  |  | 0.40 | %
Nonaccrual loans - past due |  | 21,538 |  |  | 0.29 | % |  | 20,803 |  |  | 0.29 | % |  | 16,140 |  |  | 0.23 | %
Total nonaccrual loans |  | $ | 55,008 |  |  | 0.75 | % |  | $ | 79,696 |  |  | 1.12 | % |  | $ | 44,612 |  |  | 0.63 | %

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

Commercial loans * (In thousands) |  | September 30, 2023 |  | December 31, 2022 |  | September 30, 2022
Pass-rated |  | $ | 3,774,839 |  |  | $ | 3,709,065 |  |  | $ | 3,694,468 |
Special mention |  | 84,517 |  |  | 79,855 |  |  | 77,156 |
Substandard |  | 3,170 |  |  | 1,965 |  |  | 2,224 |
Individually evaluated for impairment (1) |  | 40,839 |  |  | 78,341 |  |  | 43,670 |
Accruing PCD |  | 3,728 |  |  | 4,563 |  |  | 4,648 |
Total |  | $ | 3,907,093 |  |  | $ | 3,873,789 |  |  | $ | 3,822,166 |

(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 real estate 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 $87.7 million of collectively evaluated commercial loans included on the watch list at September 30, 2023, compared to $81.8 million at December 31, 2022, and $79.4 million at September 30, 2022. The existing conditions of these loans do not warrant classification as nonaccrual. However, these loans have shown some weakness and management performs additional analysis regarding each borrower's ability to comply with payment terms.
The increase in watch list credits during the first nine months of 2023 was largely due to a $16.8 million hotel loan which was downgraded to special mention and a $7.3 million loan to a non-bank consumer finance company which was downgraded to special mention, partially offset by problem loan resolutions, including the upgrade to pass-rated of a $8.9 million hotel relationship. These two downgraded loans were both current in respect to their contractual terms at September 30, 2023. Park considers a loan delinquent when it reaches 30 days past due. Delinquent and accruing loans were $16.3 million, or 0.22%, of total loans at September 30, 2023, compared to $18.9 million, or 0.26% of total loans at December 31, 2022, and $15.4 million or 0.22% of total loans at September 30, 2022.
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 specific reserve for loans in scope. Specific reserves on individually evaluated commercial loans are typically based on management’s best estimate of the fair value of collateral securing these loans. The amount ultimately charged off for these loans may be different from the specific reserve as the ultimate liquidation of the collateral may be for an
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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 $40.8 million at September 30, 2023, a decrease of $37.5 million, compared to $78.3 million at December 31, 2022 and a decrease of $2.8 million, compared to $43.7 million at September 30, 2022. 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 ter ms, up from $10.9 mil lion at September 30, 2022.
At September 30, 2023, Park had taken partial charge-offs of $2.1 million related to the $40.8 million of 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.
Loans Acquired with Deteriorated Credit Quality: In conjunction with the NewDominion acquisition, Park acquired loans with a book value of $277.9 million as of the July 1, 2018 acquisition date. These loans were recorded at the initial fair value of $272.8 million. Loans acquired with deteriorated credit quality (ASC 310-30) with a book value of $5.1 million were recorded at the initial fair value of $4.9 million. In conjunction with the Carolina Alliance acquisition, Park acquired loans and leases with a book value of $589.7 million as of the April 1, 2019 acquisition date. These loans and leases were recorded at the initial fair value of $578.6 million. Loans and leases acquired with deteriorated credit quality (ASC 310-30) with a book value of $19.9 million were recorded at the initial fair value of $18.4 million.
Upon Park's adoption of CECL on January 1, 2021, $52,000 of the credit discount on PCD loans was reclassified to the allowance for credit losses. PCD loans are individually evaluated on a quarterly basis to determine if a specific reserve is necessary. At September 30, 2023 and at December 31, 2022, there was no allowance for credit losses on PCD loans. The carrying amount of accruing loans acquired with deteriorated credit quality at September 30, 2023 and at December 31, 2022 was $3.8 million and $4.7 million, respectively. The carrying amount of nonaccrual loans acquired with deteriorated credit quality was $549,000 at September 30, 2023. There were no nonaccrual loans acquired with deteriorated quality at December 31, 2022.
Allowance for Credit Losses: The allowance for credit losses is calculated on a quarterly basis. The methodology for calculating the ACL and assumptions made as of September 30, 2023 are detailed below.
Quantitative Considerations
The ACL is primarily calculated utilizing a DCF model. Key inputs and assumptions used in this model are discussed below:
•Forecast model - For each portfolio segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized Park's own FFIEC Call Report data for the commercial, financial and agricultural loan and the residential real estate loan portfolio segments. Peer data was incorporated into the analysis for the commercial real estate loan, the construction real estate loan, and the consumer portfolio loan segments. Park updated the LDA in the fourth quarter of 2022 with data through September 30, 2022. After considering the impact of the inclusion of periods impacted by COVID, as well as analysis of the ongoing applicability of the selected peer group, management decided it was appropriate to continue to utilize the LDA analysis from the fourth quarter of 2019 as the correlation of the LDA was higher.
•Probability of default – PD is the probability that an asset will be in default within a given time frame. Park has defined default to be when a charge-off has occurred, a loan is placed on nonaccrual, or a loan is greater than 90 days past due. Whenever possible, Park utilizes its own loan-level PDs for the reasonable and supportable forecast period. When loan-level data is not available reflecting the forecasted economic conditions, a forecast model is utilized to estimate PDs.
•Loss given default – LGD is the percentage of the asset not expected to be collected due to default. Whenever possible, Park utilizes its own loan-level LGDs for the reasonable and supportable forecast period. When it is not possible to use Park's own LGDs, the LGD is derived using a method referred to as Frye Jacobs.
•Prepayments and curtailments – Prepayments and curtailments are calculated based on Park’s own data utilizing a three-year average. This analysis is updated annually in the fourth quarter and was last updated in the fourth quarter of 2022.
•Forecast and reversion – Park has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.
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•Economic forecast - Park utilizes a third party to provide economic forecasts under various scenarios, which are weighted in order to reflect model risk in the current economic environment. The scenario weighting is evaluated by management on a quarterly basis.
◦A s of December 31, 2022, the "most likely" scenario forecasted Ohio unemployment between 4.14% and 4.36% during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2022, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued high level of inflation, historically low consumer confidence, rising interest rates, geopolitical conflict (including the conflict between Russia and Ukraine), and workforce and supply chain challenges continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 20 22.
◦A s of March 31, 2023, the "most likely" scenario forecasted Ohio unemployment between 4.15% and 4.51% during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2023, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued high level of inflation, historically low consumer confidence, rising interest rates, financial system stress related to recent bank failures, geopolitical conflict, and workforce challenges continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at March 31, 2023.
◦A s of June 30, 2023, the "most likely" scenario forecasted Ohio unemployment between 4.01% and 4.62% during the next four quarters. In determining the appropriate weighting of scenarios at June 30, 2023, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued elevated levels of inflation, volatile levels of consumer confidence, the likelihood of interest rates increasing, financial system stress and geopolitical conflict continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at June 30, 2023.
◦As of September 30, 2023, the "most likely" scenario forecasted Ohio unemployment between 4.07% and 4.66% during the next four quarters. In determining the appropriate weighting of scenarios at September 30, 2023, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued elevated levels of inflation, volatile levels of consumer confidence, continued elevated interest rates, financial system stress and geopolitical conflict (including the conflicts between Russia and Ukraine and between Israel and Hamas), continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at September 30, 2023.
Qualitative Considerations
Park reviews various internal and external factors to consider the need for any qualitative adjustments to the quantitative model. Factors considered include the following:
•The nature and volume of Park’s financial assets; the existence, growth, and effect of any concentrations of credit and the volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets. Specifically, management considers:
◦Trends (e.g., growth, reduction) in specific categories of the loan portfolio, as well as adjustments to the types of loans offered by Park.
◦Level of and trend in loan delinquencies, troubled loans, commercial watch list loans and nonperforming loans.
◦Level of and trend in new nonaccrual loans.
◦Level of and trend in loan charge-offs and recoveries.
•Park's lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, charge-offs, and recoveries.
•The quality of Park’s credit review function.
•The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff.
•The effect of other external factors such as the regulatory, legal and technological environments; competition; geopolitical conflict; and events such as natural disasters or pandemics.
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in the markets in which Park operates that affect the collectability of financial assets.
•Where the U.S. economy is within a given credit cycle.
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•The extent that there is government assistance (stimulus).
At September 30, 2023 and at December 31, 2022, Park had $2.4 million and $4.2 million, respectively, of PPP loans which were included in the commercial, financial and agricultural loan portfolio segment. These loans are guaranteed by the SBA and thus have not been reserved for using the same methodology as the rest of Park’s loan portfolio. A 10 basis point reserve at each of September 30, 2023 and December 31, 2022 was calculated for these loans to reflect minimal credit risk.
Additional Considerations
As part of its quarterly allowance process, Park evaluates certain industries which are more likely to be under economic stress in the current environment. The office sector continues to face challenges as it adjusts to the new normal of work from home brought on by the pandemic. Nationally, office properties in downtown and urban business districts are seeing the most stress. As of September 30, 2023, Park had $212.7 million of loans which were fully or partially secured by non-owner-occupied office space. Of the $212.7 million in loans collateralized by non-owner-occupied office space, $210.1 million were accruing. This portfolio is not currently exhibiting signs of stress, but Park continues to monitor this portfolio, and others, for signs of deterioration.
Other Income
Other income decreased by $19.0 million to $27.7 million for the quarter ended September 30, 2023, compared to $46.7 million for the third quarter of 2022 and decreased $32.4 million to $77.1 million for the first nine months of 2023, compared to $109.5 million for the first nine months of 2022.
The decrease for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 was primarily due to decreases in service charges on deposit accounts, other service income, (loss) gain on sale of OREO, net, OREO valuation markup, other components of net periodic pension benefit income, and miscellaneous income, partially offset by increases in income from fiduciary activities, debit card fee income, bank owned life insurance income, and gain on equity securities, net.
The decrease for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily due to decreases in service charges on deposit accounts, other service income, bank owned life insurance income, (loss) gain on sale of OREO, net, OREO valuation markup, gain on equity securities net, other components of net periodic pension benefit income, and miscellaneous income, partially offset by increases in income from fiduciary activities and debit card fee income.
The following table provides a summary of the changes in the components of other income:

| Three months ended September 30, |  | Nine months ended September 30,
(In thousands) | 2023 |  | 2022 |  | Change |  | 2023 |  | 2022 |  | Change
Income from fiduciary activities | $ | 9,100 |  |  | $ | 8,216 |  |  | $ | 884 |  |  | $ | 26,531 |  |  | $ | 25,872 |  |  | $ | 659 |
Service charges on deposit accounts | 2,109 |  |  | 2,859 |  |  | (750) |  |  | 6,391 |  |  | 7,496 |  |  | (1,105) |
Other service income | 2,615 |  |  | 2,956 |  |  | (341) |  |  | 7,951 |  |  | 12,715 |  |  | (4,764) |
Debit card fee income | 6,652 |  |  | 6,514 |  |  | 138 |  |  | 19,939 |  |  | 19,371 |  |  | 568 |
Bank owned life insurance income | 1,448 |  |  | 1,185 |  |  | 263 |  |  | 3,965 |  |  | 4,734 |  |  | (769) |
ATM fees | 575 |  |  | 610 |  |  | (35) |  |  | 1,661 |  |  | 1,725 |  |  | (64) |
(Loss) gain on sale of OREO, net | (6) |  |  | 5,607 |  |  | (5,613) |  |  | (3) |  |  | 5,611 |  |  | (5,614) |
OREO valuation markup | — |  |  | 12,009 |  |  | (12,009) |  |  | 15 |  |  | 12,039 |  |  | (12,024) |
Gain on equity securities, net | 998 |  |  | 58 |  |  | 940 |  |  | 618 |  |  | 3,120 |  |  | (2,502) |
Other components of net periodic pension benefit income | 1,893 |  |  | 3,027 |  |  | (1,134) |  |  | 5,679 |  |  | 9,081 |  |  | (3,402) |
Miscellaneous | 2,329 |  |  | 3,653 |  |  | (1,324) |  |  | 4,368 |  |  | 7,779 |  |  | (3,411) |
Total other income | $ | 27,713 |  |  | $ | 46,694 |  |  | $ | (18,981) |  |  | $ | 77,115 |  |  | $ | 109,543 |  |  | $ | (32,428) |

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Income from fiduciary activities increased by $884,000, or 10.8%, to $9.1 million for the three months ended September 30, 2023, compared to $8.2 million for the same period of 2022 and increased $659,000, or 2.5%, to $26.5 million for the nine months ended September 30, 2023 compared to $25.9 million for the same period in 2022. 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 assets under management for the three months ended September 30, 2023 was $7,797 million compared to $7,062 million for the same period in 2022. The average market value for the first nine months of 2023 was $7,635 million compared to $7,216 million for the same period in 2022.
Service charges on deposit accounts decreased by $750,000, or 26.2%, to $2.1 million for the three months ended September 30, 2023, compared to $2.9 million for the same period of 2022 and decreased $1.1 million, or 14.7%, to $6.4 million for the nine months ended September 30, 2023 compared to $7.5 million for the same period of 2022. The decreases for both the three-month and nine-month periods ended September 30, 2023 compared to the same periods in September 30, 2022 were primarily due to a decrease in NSF income, partially offset by an increase in account maintenance fees.
Other service income decreased by $341,000, or 11.5%, to $2.6 million for the three months ended September 30, 2023, compared to $3.0 million for the same period of 2022. The primary reasons for the decrease for the three months ended September 30, 2023 compared to the same period of 2022 were a decrease in fee income related to mortgage loan originations to be sold in the secondary market of $287,000 and a decrease in commercial loan fee income of $128,000, partially offset by an increase in investor rate locks and mortgage loans held for sale of $54,000 and an increase in other consumer real estate fees of $121,000. Mortgage origination volume decreased by $26.8 million, or 17.4%, to $127.4 million for the three months ended September 30, 2023 from $154.1 million for the three months ended September 30, 2022.
Other service income decreased by $4.8 million, or 37.5%, to $7.9 million for the nine months ended September 30, 2023, compared to $12.7 million for the same period of 2022. The primary reasons for the decrease for the nine months ended September 30, 2023 compared to the same period of 2022 were a decrease in fee income related to mortgage loan originations to be sold in the secondary market of $2.9 million, a decrease in mortgage servicing rights income of $1.8 million, and a decrease in commercial loan fee income of $578,000, partially offset by an increase in investor rate locks and mortgage loans held for sale of $359,000 and an increase in other consumer real estate fees of $297,000. Mortgage origination volume decreased by $174.1 million, or 37.4%, to $291.9 million for the nine months ended September 30, 2023 from $466.0 million for the nine months ended September 30, 2022.
Bank owned life insurance income increased by $263,000, or 22.2%, to $1.4 million for the three months ended September 30, 2023, compared to $1.2 million for the same period of 2022 and decreased $769,000, or 16.2%, to $4.0 million for the nine months ended September 30, 2023, compared to $4.7 million for the same period of 2022. The increase for the three-month period ended September 30, 2023 compared to September 30, 2022 was due to an increase in received death benefits. The decrease for the nine-month period ended September 30, 2023 compared to September 30, 2022 was due to a decrease in received death benefits.
(Loss) gain on sale of OREO, net decreased by $5.6 million to a net loss on sale of OREO of $6,000 for the three months ended September 30, 2023 compared to a net gain on sale of OREO of $5.6 million for the three months ended September 30, 2022 and decreased $5.6 million to a loss gain on sale of OREO of $3,000 for the nine months ended September 30, 2023 compared to a net gain on the sale of OREO of $5.6 million for the same period in 2022. A $5.6 million gain on the sale of OREO, net, was recognized during the three months and the nine months ended September 30, 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 three months and the nine months ended September 30, 2023.
There was no OREO valuation markup income recognized in the three months ended September 30, 2023 compared to $12.0 million recognized during the three months ended September 30, 2022. OREO valuation markup income decreased by $12.0 million to $15,000 for the nine months ended September 30, 2023 compared to $12.0 million for the nine months ended September 30, 2022. The $12.0 million OREO valuation markup during the three months and the nine months ended September 30, 2022 related to the foreclosure and subsequent sale of a property collateralizing a former Vision Bank relationship. There was no OREO valuation markup related to former Vision Bank relationships during the three months and the nine months ended September 30, 2023.
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Gain on equity securities, net, increased by $940,000, to a net gain of $998,000 for the three months ended September 30, 2023, compared to a net gain of $58,000 for the same period in 2022. The $940,000 increase for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 was related to a $113,000 change in the gain (loss) on other equity securities which went from a net loss of $39,000 for the three months ended September 30, 2022 to a net gain of $74,000 for the three months ended September 30, 2023, and a $827,000 increase in the gain on equity securities held at NAV, which went from a $97,000 net gain for the three months ended September 30, 2022 to a $924,000 net gain for the three months ended September 30, 2023.
Gain on equity securities, net, decreased by $2.5 million, to a net gain of $618,000 for the nine months ended September 30, 2023, compared to a net gain of $3.1 million for the same period in 2022. The $2.5 million change for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was related to a $553,000 change in gain (loss) on other equity securities which went from a $488,000 net gain for the nine months ended September 30, 2022 to a $65,000 net loss for the nine months ended September 30, 2023, and a $1.9 million decrease in the gain on equity securities held at NAV, which went from a $2.6 million net gain for the nine months ended September 30, 2022 to a $683,000 net gain for the nine months ended September 30, 2023.
Other components of net periodic pension benefit income decreased $1.1 million to $1.9 million for the three months ended September 30, 2023 compared to $3.0 million for the same period in 2022 and decreased $3.4 million to $5.7 million for the nine months ended September 30, 2023 compared to $9.1 million for the same period in 2022. The decrease was largely due to a decrease in the expected return on plan assets and an increase in interest cost.
Miscellaneous income decreased $1.3 million, or 36.2%, to $2.3 million for the three months ended September 30, 2023 compared to $3.7 million for the same period of 2022. The decrease for the three-month period ended September 30, 2023 compared to the same period of 2022 was primarily a result of decreases in gains on sales of loans and other assets and settlement income and fees earned on off-balance sheet deposit accounts, partially offset by miscellaneous income received as a part of an investment fund liquidation.
Miscellaneous income decreased $3.4 million, or 43.8% to $4.4 million for the nine months ended September 30, 2023 compared to $7.8 million for the same period of 2022. The decrease for the nine-month period ended September 30, 2023 compared to the same period of 2022 was primarily a result of decreases in (i) brokerage income; (ii) operating lease income; (iii) wire transfer and ACH fees as a result of the reclassification of these fees to service charges on deposit accounts; (iv) settlement income and fees earned on off-balance sheet deposit accounts; and (v) gains on sales of loans and other assets; partially offset by a decrease in OREO devaluations and miscellaneous income received as a part of an investment fund liquidation.
Other Expense
Other expense decreased by $5.1 million to $77.8 million for the three months ended September 30, 2023 compared to $82.9 million for the same period of 2022 and increased by $9.9 million to $230.2 million for the nine months ended September 30, 2023 compared to $220.3 million for the nine months ended September 30, 2022.
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The following table is a summary of the changes in the components of other expense:

| Three months ended September 30, |  | Nine months ended September 30,
(In thousands) | 2023 |  | 2022 |  | Change |  | 2023 |  | 2022 |  | Change
Salaries | $ | 34,525 |  |  | $ | 37,889 |  |  | $ | (3,364) |  |  | $ | 103,045 |  |  | $ | 99,462 |  |  | $ | 3,583 |
Employee benefits | 10,822 |  |  | 9,897 |  |  | 925 |  |  | 32,176 |  |  | 30,595 |  |  | 1,581 |
Occupancy expense | 3,203 |  |  | 3,455 |  |  | (252) |  |  | 9,770 |  |  | 9,709 |  |  | 61 |
Furniture and equipment expense | 3,060 |  |  | 2,912 |  |  | 148 |  |  | 9,409 |  |  | 8,783 |  |  | 626 |
Data processing fees | 9,700 |  |  | 8,170 |  |  | 1,530 |  |  | 28,032 |  |  | 24,090 |  |  | 3,942 |
Professional fees and services | 7,572 |  |  | 8,359 |  |  | (787) |  |  | 22,158 |  |  | 20,992 |  |  | 1,166 |
Marketing | 1,197 |  |  | 1,595 |  |  | (398) |  |  | 3,755 |  |  | 3,931 |  |  | (176) |
Insurance | 2,158 |  |  | 1,237 |  |  | 921 |  |  | 5,932 |  |  | 3,887 |  |  | 2,045 |
Communication | 1,135 |  |  | 1,098 |  |  | 37 |  |  | 3,217 |  |  | 2,923 |  |  | 294 |
State tax expense | 1,125 |  |  | 1,186 |  |  | (61) |  |  | 3,499 |  |  | 3,545 |  |  | (46) |
Amortization of intangible assets | 334 |  |  | 341 |  |  | (7) |  |  | 989 |  |  | 1,146 |  |  | (157) |
Foundation contribution | — |  |  | 4,000 |  |  | (4,000) |  |  | — |  |  | 4,000 |  |  | (4,000) |
Miscellaneous | 2,977 |  |  | 2,764 |  |  | 213 |  |  | 8,214 |  |  | 7,261 |  |  | 953 |
Total other expense | $ | 77,808 |  |  | $ | 82,903 |  |  | $ | (5,095) |  |  | $ | 230,196 |  |  | $ | 220,324 |  |  | $ | 9,872 |

Salaries decreased by $3.4 million, or 8.9%, to $34.5 million for the three months ended September 30, 2023, compared to $37.9 million for the same period in 2022. The decrease for the three months ended September 30, 2023 compared to the same period of 2022 was due to a decrease of $3.7 million in additional compensation expense, a decrease of $2.2 million in officer incentive compensation, and a decrease in long-term incentive expense of $170,000. These decreases were partially offset by an increase in base salary expense of $2.6 million.
Salaries increased by $3.6 million, or 3.6%, to $103.0 million for the nine months ended September 30, 2023, compared to $99.5 million for the same period in 2022. The increase for the nine months ended September 30, 2023 compared to the same period of 2022 was due to an increase of $9.3 million in base salary expense as full-time equivalent employees increased from 1,711 at September 30, 2022 to 1,794 at September 30, 2023. Also contributing to the increase in the first nine months of 2023 compared to the first nine months of 2022 was an increase in long-term incentive expense of $559,000. These increases were partially offset by a decrease in additional compensation expense of $4.4 million and a decrease of $2.0 million in officer incentive compensation expense.
Employee benefits increased $925,000, or 9.3%, to $10.8 million for the three months ended September 30, 2023, compared to $9.9 million for the same period in 2022 and increased $1.6 million, or 5.2%, to $32.2 million for the nine months ended September 30, 2023 compared to $30.6 million for the same period. The $925,000 increase for the three months ended September 30, 2023 compared to the same period in 2022 was primarily due to an increase in group insurance costs of $1.3 million and an increase in payroll tax expense of $262,000, partially offset by decreased pension plan expense of $878,000. The $1.6 million increase for the nine months ended September 30, 2023 compared to the same period in 2022 was primarily due to an increase in group insurance costs of $2.9 million, an increase in payroll tax expense of $815,000, and an increase in company match KSOP contributions of $247,000, partially offset by a decrease in pension plan expense of $2.6 million.
Furniture and equipment expense increased $148,000, or 5.1%, to $3.1 million for the three months ended September 30, 2023 compared to $2.9 million for the same period in 2022, and increased $626,000, or 7.1%, to $9.4 million for the nine months ended September 30, 2023 from $8.8 million for the same period in 2022. The increase for both the three-month and the nine-month periods ended September 30, 2023 compared to the same periods in 2022 related to an increase in depreciation expense.
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Data processing expense increased $1.5 million, or 18.7%, to $9.7 million for the three months ended September 30, 2023 compared to $8.2 million for the same period in 2022, and increased $3.9 million, or 16.4%, to $28.0 million for the nine months ended September 30, 2023 from $24.1 million for the same period in 2022. The increase for both the three-month and the nine-month periods ended September 30, 2023 compared to the same periods in 2022 related to an increase in software expense and debit card processing costs.
Professional fees and services expense decreased $787,000, or 9.4%, to $7.6 million for the three months ended September 30, 2023 compared to $8.4 million for the same period in 2022. The decrease for the three-month period ended September 30, 2023 compared to the same period in 2022 related to (i) a $1.0 million decrease in management consulting fees with the elevated 2022 amount due to direct expenses related to the collection of payments on former Vision Bank loan relationships; (ii) a decrease of $280,000 in recruiting expenses; and (iii) a decrease of $387,000 in audit and supervisory exam expense, partially offset by a $310,000 increase in legal fees and a $266,000 increase in down payment assistance costs.
Professional fees and services expense increased $1.2 million, or 5.6%, to $22.2 million for the nine months ended September 30, 2023 compared to $21.0 million for the same period in 2022. The increase for the nine-month period ended September 30, 2023 compared to the same period in 2022 related to (i) a $252,000 increase in directors fees; (ii) a $527,000 increase in ICS fees; (iii) a $633,000 increase in legal expenses; (iv) a $300,000 increase in down payment assistance costs; (v) a $462,000 increase in other fees; and (vi) a $403,000 increase in temporary wages; partially offset by a $694,000 decrease in management consulting fees, a $374,000 decrease in recruiting expenses, and a $513,000 decrease in audit and supervisory exam expense.
Insurance expense increased $921,000 or 74.5%, to $2.2 million for the three months ended September 30, 2023 compared to $1.2 million for the same period in 2022 and increased $2.0 million, or 52.6%, to $5.9 million for the nine months ended September 30, 2023 compared to $3.9 million for the same period in 2022. The increase for both the three-month and the nine-month periods ended September 30, 2023 compared to the periods ended September 30, 2022 related to an increase in FDIC insurance assessment expense.
The Foundation contribution decrease for the three months and the nine months ended September 30, 2023, compared to the same periods of 2022, was due to a $4.0 million contribution being made to Park's charitable foundation during the three months and the nine months ended September 30, 2022. There was no contribution made by Park to its charitable foundation during the three months and the nine months ended September 30, 2023.
The subcategory "miscellaneous" other expense includes expenses for supplies, travel and other miscellaneous expense. The subcategory miscellaneous other expense increased $213,000, or 7.7%, to $3.0 million for the three-month period ended September 30, 2023, compared to $2.8 million for the same period in 2022. The $213,000 increase in expense for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 was primarily related to an increase in non-loan related losses of $248,000 and the accrual of a potential tax penalty of $592,000, partially offset by a decrease of $571,000 in the provision for unfunded credit losses.
The subcategory "miscellaneous" other expense increased $953,000, or 13.1%, to $8.2 million for the nine-month period ended September 30, 2023 compared to $7.3 million for the same period in 2022. The $953,000 increase in expense for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily related to an increase in non-loan related losses of $268,000, the accrual of a potential tax penalty of $592,000, an increase in travel expense of $329,000, and an increase of $419,000 in training expenses, partially offset by a $385,000 decrease in operating lease deprecation and a decrease of $181,000 in the provision for unfunded credit losses.
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Items Impacting Comparability
From time to time, revenue, expenses, and/or taxes are impacted by items judged by management of Park to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by management of Park at that time to be infrequent or short-term in nature. Most often, these items impacting comparability of period results relate to merger and acquisition activities and revenue and expenses related to former Vision Bank loan relationships. In other cases, they may result from management's decisions associated with significant corporate actions outside of the ordinary course of business.
The following table details those items which management believes impact the comparability of current and prior period amounts.

| THREE MONTHS ENDED |  | NINE MONTHS ENDED |  |
(in thousands except per common share data) | September 30, 2023 | September 30, 2022 |  | September 30, 2023 | September 30, 2022 |  | Affected Line Item
Net interest income | $ | 94,269 |  | $ | 90,828 |  |  | $ | 278,039 |  | $ | 252,453 |  |  |
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions | 145 |  | 494 |  |  | 509 |  | 1,516 |  |  | Interest and fees on loans
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions | — |  | 1 |  |  | — |  | 6 |  |  | Interest on deposits
less interest income on former Vision Bank relationships | 9 |  | 649 |  |  | 596 |  | 2,996 |  |  | Interest and fees on loans
Net interest income - adjusted | $ | 94,115 |  | $ | 89,684 |  |  | $ | 276,934 |  | $ | 247,935 |  |  |
(Recovery of) provision for credit losses | $ | (1,580) |  | $ | 3,190 |  |  | $ | 1,095 |  | $ | 1,576 |  |  |
less recoveries on former Vision Bank relationships | (40) |  | (20) |  |  | (788) |  | (527) |  |  | (Recovery of) provision for credit losses
(Recovery of) provision for credit losses - adjusted | $ | (1,540) |  | $ | 3,210 |  |  | $ | 1,883 |  | $ | 2,103 |  |  |
Total other income | $ | 27,713 |  | $ | 46,694 |  |  | $ | 77,115 |  | $ | 109,543 |  |  |
less other service income related to former Vision Bank relationships | — |  | 3 |  |  | 135 |  | 503 |  |  | Other service income
less Vision Bank related gain on the sale of OREO, net | — |  | 5,607 |  |  | — |  | 5,607 |  |  | (Loss) gain on the sale of OREO, net
less Vision Bank related OREO valuation markup | — |  | 12,009 |  |  | — |  | 12,009 |  |  | OREO valuation markup
Total other income - adjusted | $ | 27,713 |  | $ | 29,075 |  |  | $ | 76,980 |  | $ | 91,424 |  |  |
Total other expense | $ | 77,808 |  | $ | 82,903 |  |  | $ | 230,196 |  | $ | 220,324 |  |  |
less direct expenses related to collection of payments on former Vision Bank loan relationships | — |  | 1,295 |  |  | 100 |  | 1,661 |  |  | Professional fees and services
less core deposit intangible amortization related to NewDominion and Carolina Alliance acquisitions | 334 |  | 341 |  |  | 989 |  | 1,146 |  |  | Amortization of intangible assets
less Foundation contribution | — |  | 4,000 |  |  | — |  | 4,000 |  |  | Foundation contribution
Total other expense - adjusted | $ | 77,474 |  | $ | 77,267 |  |  | $ | 229,107 |  | $ | 213,517 |  |  |
Tax effect of adjustments to net income identified above (7) | $ | 29 |  | $ | (2,761) |  |  | $ | (197) |  | $ | (3,435) |  |  |
Net income - reported | $ | 36,917 |  | $ | 42,068 |  |  | $ | 102,234 |  | $ | 115,267 |  |  |
Net income - adjusted (6) | $ | 37,028 |  | $ | 31,682 |  |  | $ | 101,492 |  | $ | 102,345 |  |  |
Diluted EPS | $ | 2.28 |  | $ | 2.57 |  |  | $ | 6.29 |  | $ | 7.05 |  |  |
Diluted EPS- adjusted (6) | $ | 2.28 |  | $ | 1.93 |  |  | $ | 6.24 |  | $ | 6.26 |  |  |
Annualized return on average assets (1)(2) | 1.47 | % | 1.61 | % |  | 1.37 | % | 1.55 | % |  |
Annualized return on average assets- adjusted (1)(2)(6) | 1.47 | % | 1.21 | % |  | 1.36 | % | 1.37 | % |  |
Annualized return on average tangible assets (1)(2)(4) | 1.49 | % | 1.63 | % |  | 1.39 | % | 1.57 | % |  |
Annualized return on average tangible assets- adjusted (1)(2)(4)(6) | 1.50 | % | 1.23 | % |  | 1.38 | % | 1.40 | % |  |

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| THREE MONTHS ENDED |  | NINE MONTHS ENDED |  |
(in thousands except per common share data) | September 30, 2023 | September 30, 2022 |  | September 30, 2023 | September 30, 2022 |  |
Annualized return on average shareholders' equity (1)(2) | 13.28 | % | 15.50 | % |  | 12.48 | % | 14.22 | % |  |
Annualized return on average shareholders' equity- adjusted (1)(2)(6) | 13.32 | % | 11.68 | % |  | 12.39 | % | 12.62 | % |  |
Annualized return on average tangible equity (1)(2)(3) | 15.62 | % | 18.33 | % |  | 14.70 | % | 16.80 | % |  |
Annualized return on average tangible equity- adjusted (1)(2)(3)(6) | 15.66 | % | 13.81 | % |  | 14.59 | % | 14.91 | % |  |
Efficiency ratio (5) | 63.25 | % | 59.88 | % |  | 64.29 | % | 60.43 | % |  |
Efficiency ratio- adjusted (5)(6) | 63.05 | % | 64.56 | % |  | 64.21 | % | 62.44 | % |  |
Annualized net interest margin (5) | 4.12 | % | 3.81 | % |  | 4.09 | % | 3.74 | % |  |
Annualized net interest margin- adjusted (5)(6) | 4.11 | % | 3.76 | % |  | 4.07 | % | 3.67 | % |  |

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Financial Reconciliations |  |  |  |  |
(1) Reported measure uses net income.
(2) Averages are for the three months and the nine months ended September 30, 2023 and September 30, 2022, 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 TO AVERAGE SHAREHOLDERS' EQUITY OF AVERAGE TANGIBLE EQUITY:
| THREE MONTHS ENDED |  | NINE MONTHS ENDED
| September 30, 2023 | September 30, 2022 |  | September 30, 2023 | September 30, 2022
AVERAGE SHAREHOLDERS' EQUITY | $ | 1,102,677 |  | $ | 1,076,526 |  |  | $ | 1,094,924 |  | $ | 1,084,080 |
Less: Average goodwill and other intangible assets | 164,801 |  | 166,136 |  |  | 165,127 |  | 166,521 |
AVERAGE TANGIBLE EQUITY | $ | 937,876 |  | $ | 910,390 |  |  | $ | 929,797 |  | $ | 917,559 |
(4) Net income for each period divided by average tangible assets during the period. Average tangible assets equals average assets less average goodwill and other intangible assets, in each case during the applicable period.
RECONCILIATION TO AVERAGE ASSETS OF AVERAGE TANGIBLE ASSETS
| THREE MONTHS ENDED |  | NINE MONTHS ENDED
| September 30, 2023 | September 30, 2022 |  | September 30, 2023 | September 30, 2022
AVERAGE ASSETS | $ | 9,965,114 |  | $ | 10,384,049 |  |  | $ | 9,980,256 |  | $ | 9,964,863 |
Less: Average goodwill and other intangible assets | 164,801 |  | 166,136 |  |  | 165,127 |  | 166,521 |
AVERAGE TANGIBLE ASSETS | $ | 9,800,313 |  | $ | 10,217,913 |  |  | $ | 9,815,129 |  | $ | 9,798,342 |
(5) 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 TO FTE NET INTEREST INCOME OF NET INTEREST INCOME
| THREE MONTHS ENDED |  | NINE MONTHS ENDED
| September 30, 2023 | September 30, 2022 |  | September 30, 2023 | September 30, 2022
Interest income | $ | 120,889 |  | $ | 99,944 |  |  | $ | 346,464 |  | $ | 269,437 |
FTE adjustment | 1,042 |  | 932 |  |  | 2,888 |  | 2,623 |
FTE interest income | $ | 121,931 |  | $ | 100,876 |  |  | $ | 349,352 |  | $ | 272,060 |
Interest expense | 26,620 |  | 9,116 |  |  | 68,425 |  | 16,984 |
FTE net interest income | $ | 95,311 |  | $ | 91,760 |  |  | $ | 280,927 |  | $ | 255,076 |
(6) Adjustments to net income for each period presented are detailed in the non-GAAP reconciliations of net interest income, (recovery of) provision for 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."
(7) The tax effect of adjustments to net income was calculated assuming a 21% federal corporate income tax rate.
(8) Pre-tax, pre-provision ("PTPP") net income is calculated as net income, plus income taxes, plus the (recovery of) provision for 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 TO NET INCOME OF PRE-TAX, PRE-PROVISION NET INCOME
| THREE MONTHS ENDED |  | NINE MONTHS ENDED
| September 30, 2023 | September 30, 2022 |  | September 30, 2023 | September 30, 2022
Net income | $ | 36,917 |  | $ | 42,068 |  |  | $ | 102,234 |  | $ | 115,267 |
Plus: Income taxes | 8,837 |  | 9,361 |  |  | 21,629 |  | 24,829 |
Plus: (Recovery of) provision for credit losses | (1,580) |  | 3,190 |  |  | 1,095 |  | 1,576 |
Pre-tax, pre-provision net income | $ | 44,174 |  | $ | 54,619 |  |  | $ | 124,958 |  | $ | 141,672 |

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Income Tax
Income tax expense was $8.8 million for the third quarter of 2023 and consisted of federal income tax expense of $7.9 million and state income tax expense of $920,000. This compares to income tax expense of $9.4 million for the third quarter of 2022, which consisted of federal income tax expense of $9.0 million and state income tax expense of $341,000. The effective income tax rate for the third quarter of 2023 was 19.3%, compared to 18.2% for the same period in 2022. Income tax expense was $21.6 million for the nine months ended September 30, 2023 and consisted of federal income tax expense of $20.6 million and state income tax expense of $1.0 million. This compares to income tax expense of $24.8 million for the nine months ended September 30, 2022, which consisted of federal income tax expense of $23.8 million and state income tax expense of $987,000. The effective income tax rate for the nine months ended September 30, 2023 was 17.4%, compared to 17.7% for the same period in 2022.
The difference between the statutory federal corporate income tax rate of 21% and Park's effective income tax rate reflects 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 the common shares held within Park's KSOP, offset by the impact of state income taxes. Park expects permanent federal income tax differences for the 2023 year will be approximately $6.9 million.
Comparison of Financial Condition
At September 30, 2023 and at December 31, 2022
Changes in Financial Condition
Total assets increased by $145.9 million during the first nine months of 2023 to $10,001 million at September 30, 2023, compared to $9,855 million at December 31, 2022. This increase was primarily due to the following:
•Cash and cash equivalents increased by $33.9 million, or 17.9%, to $223.6 million at September 30, 2023, compared to $189.7 million at December 31, 2022. Money market instruments increased by $50.4 million and cash and due from banks decreased by $16.5 million.
•Loans increased by $207.9 million, or 2.9%, to $7,350 million at September 30, 2023, compared to $7,142 million at December 31, 2022.
•Total investment securities decreased by $112.0 million, or 6.1%, to $1,709 million at September 30, 2023, compared to $1,821 million at December 31, 2022.
Total liabilities increased by $129.6 million, or 1.5%, during the first nine months of 2023 to $8,915 million at September 30, 2023, compared to $8,786 million at December 31, 2022. This increase was primarily due to the following:
•Total deposits increased by $10.0 million, or 0.1%, to $8,245 million at September 30, 2023, compared to $8,235 million at December 31, 2022. During 2020, Park made the decision to participate in an OWS program in order to manage the balance sheet. At September 30, 2023 and at December 31, 2022, Park had $763,000 and $195.9 million, respectively, in off-balance sheet deposits.
•Short-term borrowings increased by $125.4 million, or 55.2%, to $352.8 million at September 30, 2023, compared to $227.3 million at December 31, 2022.
•Other liabilities decreased by $7.6 million, or 9.6%, to $71.4 million at September 30, 2023, compared to $78.9 million at December 31, 2022.
Total shareholders’ equity increased by $16.3 million, or 1.5%, to $1,086 million at September 30, 2023, from $1,069 million at December 31, 2022. This increase was primarily due to the following:
•Retained earnings increased by $49.4 million during the period primarily as a result of net income of $102.2 million, partially offset by cash dividends on common shares of $51.6 million.
•Treasury shares increased by $19.0 million during the period as a result of the repurchase of an aggregate of 199,000 common shares to be held in treasury, partially offset by the issuance of treasury shares under share-based compensation awards (net of common shares withheld to pay employee income taxes).
•The increases noted above were partially offset by a $13.5 million change in accumulated other comprehensive loss, net of taxes, from a negative $102.4 million at December 31, 2022, to a negative $115.9 million at September 30, 2023, and was largely comprised of unrealized net holding losses on debt securities AFS, net of taxes, of $109.2
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million at September 30, 2023 compared to unrealized net holding losses on debt securities AFS, net of taxes of $95.7 million at December 31, 2022.
Increases or decreases in the investment securities portfolio, short-term borrowings and long-term debt are greatly dependent upon the growth in loans and deposits. The primary objective of management is to grow loan and deposit totals. To the extent that management is unable to grow loan totals at a desired growth rate, additional investment securities may be acquired. Likewise, both short-term borrowings and long-term debt are utilized to fund the growth in earning assets if the growth in deposits and cash flow from operations are not sufficient to do so.
Liquidity
Cash provided by operating activities was $96.9 million and $89.6 million for the nine months ended September 30, 2023 and 2022, respectively. Net income was the primary source of cash from operating activities for each of the nine-month periods ended September 30, 2023 and 2022.
Cash used in investing activities was $120.5 million and $403.2 million for the nine months ended September 30, 2023 and 2022, respectively. 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 $95.1 million for the nine months ended September 30, 2023 and used cash of $175.2 million for the nine months ended September 30, 2022. Another major use or source of cash in investing activities is the net increase or decrease in the loan portfolio. Cash used by the net increase in the loan portfolio was $203.3 million and $234.2 million for the nine months ended September 30, 2023 and 2022, respectively.
Cash provided by financing activities was $57.6 million and $301.8 million for the nine months ended September 30, 2023 and 2022, respectively. A major source of cash for financing activities is the net change in deposits. Deposits (net of off-balance sheet deposits) increased and provided $10.0 million and $405.4 million of cash for the nine months ended September 30, 2023 and 2022, respectively. Another major source/use of cash from financing activities is borrowings in the form of short-term borrowings, long-term debt and subordinated notes. For the nine months ended September 30, 2023, net short-term borrowings increased and provided $125.4 million in cash. For the nine months ended September 30, 2022, net short-term borrowings decreased and used $49.3 million in cash. For the nine months ended September 30, 2023, cash declined by $23.0 million due to the repurchase of common shares to be held as treasury shares; while there were no repurchases of common shares during the nine months ended September 30, 2022. Finally, cash declined by $52.0 million and $51.6 million for the nine months ended September 30, 2023 and 2022, respectively, from the payment of 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. The most easily accessible forms of liquidity, Fed Funds Sold, unpledged investment securities and available FHLB borrowing capacity, totaled $2.17 billion at September 30, 2023. The Corporation’s loan to asset ratio was 73.49% at September 30, 2023, compared to 72.47% at December 31, 2022 and 71.23% at September 30, 2022. Cash and cash equivalents were $223.6 million at September 30, 2023, compared to $189.7 million at December 31, 2022 and $207.4 million at September 30, 2022. Management believes that the present funding sources provide more than adequate liquidity for the Corporation to meet its cash flow needs.
Capital Resources
Total shareholders’ equity at September 30, 2023 was $1,085.6 million, or 10.9% of total assets, compared to $1,069.2 million, or 10.9% of total assets, at December 31, 2022 and $1,036.2 million, or 10.5% of total assets, at September 30, 2022.
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.
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Park and PNB met each of the well capitalized ratio guidelines applicable to them at September 30, 2023. The following table indicates the capital ratios for PNB and Park at September 30, 2023 and December 31, 2022.

| At September 30, 2023
| Leverage |  | Tier 1 Risk-Based |  | Common Equity Tier 1 |  | Total Risk-Based
The Park National Bank | 8.96 | % |  | 10.92 | % |  | 10.92 | % |  | 12.34 | %
Park National Corporation | 10.56 | % |  | 12.92 | % |  | 12.73 | % |  | 16.16 | %
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 | %

| At December 31, 2022
| Leverage |  | Tier 1 Risk-Based |  | Common Equity Tier 1 |  | Total Risk-Based
The Park National Bank | 8.34 | % |  | 10.69 | % |  | 10.69 | % |  | 12.15 | %
Park National Corporation | 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 | %

Contractual Obligations and Commitments
In the ordinary course of operations, Park enters into certain contractual obligations. Such obligations include the funding of operations through debt issuances as well as leases for premises. See page 79 of Park’s 2022 Form 10-K (Table 39) for disclosure concerning contractual obligations and commitments at December 31, 2022. There were no significant changes in contractual obligations and commitments during the first nine months of 2023.
Financial Instruments with Off-Balance Sheet Risk
PNB is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements.
The exposure to credit loss (for PNB) in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. PNB uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.
The total amounts of off-balance sheet financial instruments with credit risk were as follows:

(In thousands) |  | September 30, 2023 |  | December 31, 2022
Loan commitments |  | $ | 1,537,815 |  |  | $ | 1,416,699 |
Standby letters of credit |  | $ | 31,241 |  |  | $ | 30,468 |

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management reviews interest rate sensitivity on a quarterly basis by modeling the consolidated financial statements under various interest rate scenarios. The primary reason for these efforts is to guard Park from adverse impacts of unforeseen changes in interest rates. With the shift in deposit mix and other balance sheet composition changes, Park has experienced a moderation in earnings risk exposure to either rising or falling interest rate environments, and management views its risk profile as being relatively interest rate risk neutral. Management actively monitors changes in the sensitivity position and has ample tools to adjust exposure as needed. As a result, management expects further changes in interest rates to have a modest impact on net income.
On page 78 (Table 38) of Park’s 2022 Form 10-K, management reported that Park’s twelve-month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $1,087 million or 11.9% of total interest earning assets at December 31, 2022. At September 30, 2023, Park’s twelve-month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $394.3 million or 4.25% of total interest earning assets.
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. 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.
On page 79 of Park’s 2022 Form 10-K, management reported that at December 31, 2022, the earnings simulation model projected that net income would increase by 3.7% using a rising interest rate scenario and decrease by 5.4% using a declining interest rate scenario over the next year. At September 30, 2023, the earnings simulation model projected that net income would decrease by 3.0% using a rising interest rate scenario and would increase by 2.6% in a declining interest rate scenario. At September 30, 2023, management continues to believe that it has the tools necessary to mitigate gradual changes in interest rates (50 basis points per quarter for a total of 200 basis points per year) such that the overall impact to net income will be modest.
ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
With the participation of the Chairman of the Board and Chief Executive Officer (the principal executive officer) and the Chief Financial Officer, Secretary and Treasurer (the principal financial officer) of Park, Park’s management has evaluated the effectiveness of Park’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2023 (the end of the quarterly period covered by this Quarterly Report on Form 10-Q). Based on that evaluation, Park’s Chairman of the Board and Chief Executive Officer and Park’s Chief Financial Officer, Secretary and Treasurer have concluded that:
•information required to be disclosed by Park in this Quarterly Report on Form 10-Q and the other reports that Park files or submits under the Exchange Act would be accumulated and communicated to Park’s management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure;
•information required to be disclosed by Park in this Quarterly Report on Form 10-Q and the other reports that Park files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and
•Park’s disclosure controls and procedures were effective as of September 30, 2023 (the end of the quarterly period covered by this Quarterly Report on Form 10-Q).
Changes in Internal Control Over Financial Reporting
There were no changes in Park's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Park's fiscal quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, Park's internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are routinely engaged in various litigation and other legal matters. These include defending against claims of improper loan, deposit account, and other banking practices, as well as trust and investment, intellectual property, contract, and other legal matters, and we have a number of unresolved lawsuits and open matters pending resolution. In addition, we are parties to litigation involving the collection of delinquent accounts, challenges to security interests in collateral, foreclosure lawsuits, and similar matters which are part of, or incidental to, our ordinary course of business. While the ultimate liability with respect to these matters and claims cannot be determined at this time, we believe that losses, damages, or liabilities, if any, and other amounts relating to pending matters are not likely to be material to our consolidated financial position or results of operations. Reserves are established for these various litigation and other legal matters, when appropriate under FASB ASC Topic 450, Contingencies, based in part upon the advice of legal counsel.
Item 1A. Risk Factors
There are certain risks and uncertainties in our business that could cause Park's actual results to differ materially from those anticipated. In “ITEM 1A. RISK FACTORS” of Part I of Park’s 2022 Form 10-K, we included a detailed discussion of our risk factors. In the first quarter of 2023, we identified one additional risk factor and updated an existing risk factor, which continue to apply to the third quarter of 2023. All of these risk factors should be read carefully in connection with evaluating Park's business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described in Park's 2022 Form 10-K or in this Quarterly Report on Form 10-Q could materially adversely affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
The impact of larger or similar-sized financial institutions encountering problems may adversely affect Park's business, earnings and financial condition.
Park is exposed to the risk that when a peer financial institution experiences financial difficulties, there could be an adverse impact on the regional banking industry and the business environment in which Park operates. The recent bank failures of Silicon Valley Bank in California, Signature Bank in New York, First Republic Bank in California, and Heartland Tri-State Bank in Kansas, during the first, second, and third quarters of 2023 have caused a degree of panic and uncertainty in the investor community and among bank customers generally. While Park does not believe that the circumstances of these four banks' failures are indicators of broader issues with the banking system, the failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational ramification for the financial services industry, including Park. Park will continue to monitor the ongoing events concerning these four banks as well as any future potential bank failures and volatility within the financial services industry generally, together with any responsive measures taken by the banking regulators to mitigate or manage potential turmoil in the financial services industry.
We may become subject to additional requirements and restrictions imposed by the U.S. Department of Justice (the "DOJ").
On February 28, 2023, Park National Bank reached an agreement with the DOJ to increase the efforts of Park National Bank to promote home lending in the Columbus, Ohio market. The agreement, which is reflected in the consent order filed on February 28, 2023, in the U.S. District Court for the Southern District of Ohio, Western Division (the “DOJ Consent Order”) and approved on March 2, 2023 by that Court, serves to voluntarily resolve all claims of the U.S. alleging that Park National Bank’s mortgage lending practices within the Columbus, Ohio Metropolitan Statistical Area violated the Fair Housing Act and the Equal Credit Opportunity Act.
In accordance with the terms of the DOJ Consent Order, Park National Bank will invest a minimum of $7.75 million over five years in a loan subsidy fund to increase credit opportunities for home mortgage loans, home improvement loans, home refinance loans and home equity loans and lines of credit for consumers applying for loans in majority-minority census tracts ("MCTS") in Fairfield, Franklin, Hocking, Licking, Morrow and Perry counties in Ohio (the “Columbus Lending Area”). Park National Bank will also devote a minimum of $500,000 over five years toward one or more community development partnership programs that provide services to residents of MCTS in the Columbus Lending Area related to credit, financial education, homeownership and foreclosure prevention; and at least $750,000 over five years toward advertising, community
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outreach, consumer financial education and credit counseling in the Columbus Lending Area. Park National Bank will also establish one new mortgage loan production office and one new full-service branch in MCTS in the Columbus Lending Area and has hired four lenders, one of whom is Spanish-speaking, focused on serving these communities. In addition, Park National Bank will continue to maintain, throughout the term of the DOJ Consent Order, Park National Bank’s full-time Director of Community Home Lending and Development position, who will oversee Park National Bank’s lending in MCTS in the Columbus Lending Area.
Park is committed to investing at least $9.0 million over five years and will record the related expenses incurred in the
period in which the associated activities occur.
Although Park and Park National Bank are committed to full compliance with the DOJ Consent Order, achieving such compliance will require significant management attention from Park and may cause Park to incur unanticipated costs and expenses. Actions taken to achieve compliance with the DOJ Consent Order may affect Park’s financial performance and may require us to reallocate resources away from existing businesses or to undertake significant changes to our businesses, operations, products and services, and risk management practices. In addition, Park and Park National Bank could be subject to other enforcement actions relating to the alleged violations resolved by the DOJ Consent Order.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
(a)Not applicable
(b)Not applicable
(c)The following table provides information concerning purchases of Park’s common shares ("Common Shares") made by or on behalf of Park or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Exchange Act, during the three months ended September 30, 2023, as well as the maximum number of Common Shares that may be purchased under Park’s previously announced stock repurchase authorizations to fund the 2017 Long-Term Incentive Plan for Employees (the "2017 Employees LTIP") and the 2017 Long-Term Incentive Plan for Non-Employee Directors (the "2017 Non-Employee Directors LTIP") and Park's previously announced 2017 and 2019 stock repurchase authorizations:

Period |  | Total number of Common Shares purchased |  | Average price paid per Common Share |  | Total number of Common Shares purchased as part of publicly announced plans or programs |  | Maximum number of Common Shares that may yet be purchased under the plans or programs (1)
July 1 through July 31, 2023 |  | — |  |  | $ | — |  |  | — |  |  | 1,046,088 |
August 1 through August 31, 2023 |  | 38,678 |  |  | 103.58 |  |  | 38,678 |  |  | 1,007,410 |
September 1 through September 30, 2023 |  | 11,322 |  |  | 101.67 |  |  | 11,322 |  |  | 996,088 |
Total |  | 50,000 |  |  | $ | 103.14 |  |  | 50,000 |  |  | 996,088 |

(1)The number shown represents, as of the end of each period, the maximum number of Common Shares that may yet be purchased as part of Park’s publicly announced stock repurchase authorizations to fund the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP, both of which became effective on April 24, 2017; Park's publicly announced stock repurchase authorization covering 500,000 Common Shares which was announced on January 23, 2017; and Park's stock repurchase authorization covering 500,000 Common Shares which was announced on January 28, 2019 and as to which approval from the Federal Reserve was obtained in the form of correspondence from the Federal Reserve Bank of Cleveland dated April 19, 2019.
At the 2017 Annual Meeting of Shareholders held on April 24, 2017, Park's shareholders approved the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP. The Common Shares to be issued and delivered under the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP may consist of either Common Shares currently held or Common Shares subsequently acquired by Park as treasury shares. No newly-issued Common Shares will be delivered under the 2017 Employees LTIP or the 2017 Non-Employee Directors LTIP. On April 24, 2017, Park's Board of Directors authorized the purchase, from time to time, of up to 750,000 Park Common Shares and 150,000 Park Common Shares, respectively, to be held as treasury shares for subsequent issuance and delivery under the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP.
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On January 23, 2017, Park announced that on that same day, the Park Board of Directors authorized Park to purchase, from time to time, up to an aggregate of 500,000 Park Common Shares. On January 28, 2019, Park announced that on that same day, the Park Board of Directors authorized Park to repurchase, from time to time following receipt of any required approval from the Federal Reserve, up to 500,000 Park Common Shares in addition to the 500,000 Park Common Shares which had been authorized for repurchase by the Park Board of Directors on January 23, 2017 and remained available for repurchase as of January 28, 2019. The required approval was received by Park in the form of correspondence from the Federal Reserve Bank of Cleveland dated April 19, 2019.
Purchases may be made through NYSE American, in the over-the-counter market or in privately negotiated transactions, in each case in compliance with the Ohio General Corporation Law, applicable federal and state securities laws, the rules applicable to issuers having securities listed on NYSE American, regulations promulgated by the Federal Reserve Board and all other applicable laws and regulations, each as in effect at the time of each such purchase. Purchases will be made upon such terms and conditions and at such times and in such amounts as any one or more of the authorized officers of Park deem to be appropriate, subject to market conditions, regulatory requirements, any contractual obligations of Park and Park's subsidiaries and other factors, and in the best interest of Park and Park's shareholders. The January 23, 2017 stock repurchase authorization and the January 28, 2019 stock repurchase authorization are distinct from the stock repurchase authorizations to fund the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP.
Item 3. Defaults Upon Senior Securities
(a), (b) Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a)Not applicable
(b)As previously reported in "Item 5.03 - Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year" of the Current Report on Form 8-K filed by Park with the SEC on October 27, 2023, on October 23, 2023, the Park Board of Directors adopted and approved the amendment of Section 2.03 of Park's Regulations which addresses the requirements to be satisfied by a shareholder who wishes to nominate candidates for election as directors at an annual meeting of shareholders or at any special meeting of shareholders called for the purpose of electing directors.
The amendment to Section 2.03 of Park's Regulations:
•revise and enhance the procedures and disclosure requirements set forth in the advance notice provisions for director nominations made by shareholders, including (i) requiring specified information, representations, disclosures, and supplements regarding nominating shareholders, proposed nominees, and other persons related to, and acting in concert with, a shareholder and the shareholder’s solicitation of proxies; (ii) requiring a nominating shareholder to continue holding Park's common shares on the record date and at the time of the meeting of shareholders, in addition to at the time of giving notice of the nomination; (iii) clarifying that shareholders are not entitled to make additional or substitute nominations after the submission deadline and may only nominate a number of candidates to the Park Board of Directors that does not exceed the number of directors to be elected at such meeting; (iv) clarifying the authority of the Secretary of Park, the Park Board of Directors, or any committee of the Park Board of Directors to request additional information or written verification to demonstrate the accuracy of previously-provided information with respect to nominating shareholders and proposed nominees; (v) clarifying that a shareholder’s notice must include explicit cross-references (where relevant) and requiring that responses be explicitly set forth in the notice and not incorporated by reference; (vi) clarifying that a shareholder’s notice must provide all information required by Park's Regulations; and (vii) clarifying that a nomination may not be brought before a meeting of the shareholders if the notice contains untrue, incorrect, or incomplete information, or is not updated as relevant, and requiring a representation that information is true, accurate, and complete;
•provide that a shareholder's notice with respect to the proposed nomination of a director at an annual meeting of shareholders must be delivered to or mailed and received at the principal executive offices of Park not less than 60 days nor more than 90 days prior to the anniversary date of the previous year's annual meeting of
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shareholders provided, however, that if the date of the annual meeting of shareholders is held on a date more than 30 days before or more than 60 days after such anniversary date, to be timely notice must be delivered, or mailed and received, not earlier than the 90th day prior to such annual meeting of shareholders and not later than the 60th day prior to such annual meeting of shareholders;
•require that the information provided include the disclosure of all synthetic equity positions and short interests held by the nominating shareholder and such shareholder's affiliates and associates as well as by any proposed nominee; and
•address matters relating to Rule 14a-19 (the "Universal Proxy Rule") under the Exchange Act including (i) requiring that any shareholder submitting a nomination notice make a representation as to whether such shareholder intends to solicit proxies in support of director nominees other than Park's nominees in accordance with the Universal Proxy Rule, and if so, agree in writing that such shareholder will comply with the requirements of the Universal Proxy Rule; (ii) providing Park a remedy if a shareholder fails to satisfy the Universal Proxy Rule requirements; (iii) requiring that a shareholder inform Park if such shareholder no longer plans to solicit proxies in accordance with the Universal Proxy Rule; and (iv) requiring shareholders intending to use the Universal Proxy Rule to provide reasonable evidence of the satisfaction of the requirements under the Universal Proxy Rule at least five business days before the applicable meeting of shareholders upon request by Park;
The foregoing description of amended Section 2.03 of Park's Regulations does not purport to be complete and is qualified in its entirety by reference to the full text of Section 2.03 of Park's Regulations, which is included in Exhibit 3.1(a) and Exhibit 3.1(b) to Park's Current Report on Form 8-K filed with the SEC on October 27, 2023 and incorporated by reference into Exhibit 3.2(g) and Exhibit 3.2(h), respectively, to this Quarterly Report on Form 10-Q.
(c)During the three months (the quarterly period) ended September 30, 2023, no director and no officer of Park (as defined in Rule 16a-1(f) under the Exchange Act) of Park adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of SEC Regulation S-K.
Item 6. Exhibits

| 3.1(a) | Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on March 24, 1992 (Incorporated herein by reference to Exhibit 3(a) to Park National Corporation’s Form 8-B, filed on May 20, 1992 (File No. 0-18772) (“Park’s Form 8-B”)) P
| 3.1(b) | Certificate of Amendment to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on May 6, 1993 (Incorporated herein by reference to Exhibit 3(b) to Park National Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772)) P
| 3.1(c) | Certificate of Amendment to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on April 16, 1996 (Incorporated herein by reference to Exhibit 3(a) to Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996 (File No. 1-13006))
| 3.1(d) | Certificate of Amendment by Shareholders to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on April 22, 1997 (Incorporated herein by reference to Exhibit 3(a)(1) to Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 1-13006) (“Park’s June 30, 1997 Form 10-Q”))
| 3.1(e) | Certificate of Amendment by Shareholders as filed with the Ohio Secretary of State on December 18, 2008 in order to evidence the adoption by the shareholders of Park National Corporation on December 18, 2008 of an amendment to Article FOURTH of Park National Corporation’s Articles of Incorporation to authorize Park National Corporation to issue up to 200,000 preferred shares, without par value (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed December 19, 2008 (File No. 1-13006))

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| 3.1(f) | Certificate of Amendment by Directors to Articles as filed with the Ohio Secretary of State on December 19, 2008, evidencing the adoption of an amendment by the Board of Directors of Park National Corporation to Article FOURTH of Park National Corporation's Articles of Incorporation to establish the express terms of Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value, of Park National Corporation (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed December 23, 2008 (File No. 1-13006))
| 3.1(g) | Certificate of Amendment by Shareholders as filed with the Ohio Secretary of State on April 18, 2011 in order to evidence the adoption by Park National Corporation’s shareholders of an amendment to Article SIXTH of Park National Corporation’s Articles of Incorporation in order to provide that shareholders do not have preemptive rights (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed April 19, 2011 (File No. 1-13006))
| 3.1(h) | Certificate of Amendment as filed with the Ohio Secretary of State on April 26, 2022 in order to evidence the adoption by Park National Corporation's shareholders of an amendment to Park National Corporation's Articles of Incorporation to add a new Article NINTH to eliminate cumulative voting rights in the election of directors (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation's Current Report on Form 8-K dated and filed April 27, 2022 (File No. 1-13006) ("Park's April 27, 2022 Form 8-K"))
| 3.1(i) | Articles of Incorporation of Park National Corporation [This document represents the Articles of Incorporation of Park National Corporation in compiled form incorporating all amendments. This compiled document has not been filed with the Ohio Secretary of State.] (Incorporated herein by reference to Exhibit 3.1(i) to Park National Corporation's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (File No. 1-13006))
| 3.2(a) | Regulations of Park National Corporation (Incorporated herein by reference to Exhibit 3(b) to Park’s Form 8-B) P
| 3.2(b) | Certified Resolution regarding Adoption of Amendment to Subsection 2.02(A) of the Regulations of Park National Corporation by Shareholders on April 21, 1997 (Incorporated herein by reference to Exhibit 3(b)(1) to Park’s June 30, 1997 Form 10-Q)
| 3.2(c) | Certificate Regarding Adoption of Amendments to Sections 1.04 and 1.11 of Park National Corporation’s Regulations by the Shareholders on April 17, 2006 (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed April 18, 2006 (File No. 1-13006))
| 3.2(d) | Certificate Regarding Adoption by the Shareholders of Park National Corporation on April 21, 2008 of Amendment to Regulations to Add New Section 5.10 to Article Five (Incorporated herein by reference to Exhibit 3.2(d) to Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 (File No. 1-13006))
| 3.2(e) | Certificate Regarding Adoption by the Shareholders of Park National Corporation on April 25, 2022 of Amendments to Section 1.10 and Section 2.04 of Park National Corporation's Regulations to eliminate the textual references to the right of Park National Corporation's shareholders to have cumulative voting apply in the election of directors (Incorporated herein by reference to Exhibit 3.2 to Park's April 27, 2022 Form-8-K)
| 3.2(f) | Certificate Regarding Adoption by the Shareholders of Park National Corporation on April 24, 2023 of an Amendment to Section 6.01of Park National Corporation's Regulations to grant the Board of Directors the power to make limited future amendments to Park National Corporation's Regulations to the extent permitted by the Ohio General Corporation Law (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation's Current Report on Form 8-K dated and filed April 25, 2023 (File No. 1-13006))

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| 3.2 (g) | Certificate Regarding Adoption and Approval by the Board of Directors of Park National Corporation on October 23, 2023 of Amendments to Section 1.08 and Section 2.03 of Park National Corporation's Regulations (Incorporated herein by reference to Exhibit 3.1(a) to Park National Corporation's Current Report on Form 8-K dated and filed October 27, 2023 (File No. 1-13006))
| 3.2(h) | Regulations of Park National Corporation [This document represents the Regulations of Park National Corporation in compiled form incorporating all amendments, including the amendments adopted and approved by the Board of Directors of Park National Corporation on October 23, 2023] (Incorporated herein by reference to Exhibit 3.1(b) to Park National Corporation's Current Report on Form 8-K dated and filed October 27, 2023 (File No. 1-13006))
| 31.1 | Rule 13a – 14(a) / 15d – 14(a) Certifications (Principal Executive Officer) (Filed herewith)
| 31.2 | Rule 13a – 14(a) / 15d – 14(a) Certifications (Principal Financial Officer) (Filed herewith)
| 32.1 | Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Principal Executive Officer) (Filed herewith)
| 32.2 | Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Principal Financial Officer) (Filed here with)
| 101 | The following information from Park National Corporation's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 formatted in Inline XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Condensed Balance Sheets as of September 30, 2023 and December 31, 2022 (unaudited); (ii) the Consolidated Condensed Statements of Income for the three months and the nine months ended September 30, 2023 and 2022 (unaudited); (iii) the Consolidated Condensed Statements of Comprehensive Income (Loss) for the three months and the nine months ended September 30, 2023 and 2022 (unaudited); (iv) the Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three months and the nine months ended September 30, 2023 and 2022 (unaudited); (v) the Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited); and (vi) the Notes to Unaudited Consolidated Condensed Financial Statements (electronically submitted herewith). *
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document with applicable taxonomy extension information contained in Exhibit 101)

______________________________________
* The instance document does not appear in the interactive data file because its XBRL tags are imbedded within the Inline XBRL document.
P Park National Corporation filed this exhibit with the SEC in paper form originally and this exhibit has not been filed with the SEC in electronic format.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | PARK NATIONAL CORPORATION
November 1, 2023 |  | /s/ David L. Trautman
|  | David L. Trautman
|  | Chairman of the Board and Chief Executive Officer
|  | (Principal Executive Officer and Duly Authorized Officer)
November 1, 2023 |  | /s/ Brady T. Burt
|  | Brady T. Burt
|  | Chief Financial Officer, Secretary and Treasurer
|  | (Principal Financial Officer and Duly Authorized Officer)

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