Companies: 10,793     total market cap: $139.375 T
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Park National Corp
PRK
#3974
Rank
$3.11 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$172.67
Share price
-1.20%
Change (1 day)
23.36%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Park National Corp
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2023 Q2

Park National Corp - 10-Q quarterly report FY2023 Q2


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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 June 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 Number1-13006
 
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 3500Newark,Ohio43058-3500
(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 classTrading Symbol(s)Name of each exchange on which registered
Common shares, without par valuePRKNYSE 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: 16,153,425 Common Shares, no par value per share, outstanding at July 31, 2023.



PARK NATIONAL CORPORATION
 
CONTENTS
 Page
PART I.   FINANCIAL INFORMATION 
  
Item 1.  Financial Statements 
  
Consolidated Condensed Balance Sheets at June 30, 2023 and December 31, 2022 (unaudited)
5
  
Consolidated Condensed Statements of Income for the three months and the six months ended June 30, 2023 and 2022 (unaudited)
7
  
Consolidated Condensed Statements of Comprehensive Income (Loss) for the three months and the six months ended June 30, 2023 and 2022 (unaudited)
9
  
Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three and the six months ended June 30, 2023 and 2022 (unaudited)
10
  
Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)
12
  
Notes to Unaudited Consolidated Condensed Financial Statements
14
  
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
69
  
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
102
  
Item 4.  Controls and Procedures
102
  
103 
  
Item 1.  Legal Proceedings
103
  
Item 1A. Risk Factors
103
  
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
104
  
Item 3.  Defaults Upon Senior Securities
105
  
Item 4.  Mine Safety Disclosures
105
  
Item 5.  Other Information
105
  
Item 6.  Exhibits
105
  
108

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.

ACLAllowance for credit lossesMSRsMortgage servicing rights
AFSAvailable-for-saleNAVNet asset value
AllowanceAllowance for credit lossesNewDominionNewDominion Bank
ASCAccounting Standards CodificationOREOOther real estate owned
ASUAccounting Standards UpdateOWSOne-way sell
ATMAutomated teller machineParkPark National Corporation and its subsidiaries
CARES ActCoronavirus Aid, Relief, and Economic Security ActPark National BankThe Park National Bank
Carolina AllianceCAB Financial Corporation and its subsidiariesPBRSUsPerformance-based restricted stock units
CECLCurrent expected credit lossPCDPurchased credit deteriorated
CompanyPark National Corporation and its subsidiariesPDProbability of default
CorporationPark National Corporation and its subsidiariesPNBThe Park National Bank
COVIDNovel coronavirusPPPCARES Act Paycheck Protection Program
DCFDiscounted cash flowPTPPPre-tax, pre-provision
EPSEarnings per common shareRegistrantPark National Corporation
FASBFinancial Accounting Standards BoardROURight-of-use
FHLBFederal Home Loan BankSARsStock appreciation rights
FRBFederal Reserve BankSBASmall Business Administration
FTEFully taxable equivalentSECU.S. Securities and Exchange Commission
GDPGross domestic productSEPHSE Property Holdings, LLC
GFSCGuardian Financial Services CompanyTBRSUsTime-based restricted stock units
HELOCHome equity line of creditTDRsTroubled debt restructurings
HPIHome price indexU.S.United States of America
IRLCInterest rate lock commitmentU.S. GAAPUnited States Generally Accepted Accounting Principles
KSOPPark's qualified retirement plan that combines an employee stock ownership plan (ESOP) with a 401(k) planUnited StatesUnited States of America
LDALoss driver analysisVisionVision Bancshares, Inc.
LGDLoss given defaultVOVVerification of value
LIBORLondon Inter-Bank Offered Rate

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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)    
                
June 30,
2023		December 31, 2022
Assets:  
Cash and due from banks$159,552 $156,750 
Money market instruments70,845 32,978 
Cash and cash equivalents230,397 189,728 
Investment securities:  
Debt securities available-for-sale, at fair value (amortized cost of $1,782,922 and $1,854,852 at June 30, 2023 and December 31, 2022, respectively, and no allowance for credit losses at June 30, 2023 or at December 31, 2022)
1,668,864 1,733,696 
Other investment securities88,089 87,091 
Total investment securities1,756,953 1,820,787 
Loans7,208,109 7,141,891 
Allowance for credit losses(87,206)(85,379)
Net loans7,120,903 7,056,512 
Bank owned life insurance224,248 220,072 
Prepaid assets158,482 153,579 
Goodwill159,595 159,595 
Other intangible assets5,320 5,975 
Premises and equipment, net78,933 82,126 
Affordable housing tax credit investments56,774 60,968 
OREO2,267 1,354 
Accrued interest receivable36,416 34,704 
Operating lease ROU asset16,609 17,600 
Mortgage loan servicing rights15,237 15,792 
Other37,417 36,201 
Total assets$9,899,551 $9,854,993 

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

June 30,
2023		December 31, 2022
Liabilities and Shareholders' Equity:  
Deposits:  
Non-interest bearing$2,796,009 $3,074,276 
Interest bearing5,562,967 5,160,439 
Total deposits8,358,976 8,234,715 
Short-term borrowings143,914 227,342 
Subordinated notes188,904 188,667 
Unfunded commitments in affordable housing tax credit investments22,556 28,132 
Operating lease liability17,917 19,291 
Allowance for credit losses on off-balance sheet commitments5,452 5,214 
Accrued interest payable4,048 3,486 
Other69,027 78,920 
Total liabilities$8,810,794 $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 June 30, 2023 and at December 31, 2022)
460,578 462,404 
Retained earnings876,830 847,235 
Treasury shares (1,469,679 common shares at June 30, 2023 and 1,359,521 common shares at December 31, 2022)
(151,865)(138,019)
Accumulated other comprehensive loss, net of taxes(96,786)(102,394)
Total shareholders' equity1,088,757 1,069,226 
Total liabilities and shareholders’ equity$9,899,551 $9,854,993 

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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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
June 30,		Six Months Ended
June 30,
 2023202220232022
Interest and dividend income:  
Interest and fees on loans$96,428 $77,787 $188,042 $150,203 
Interest and dividends on:  
Debt securities - taxable13,431 7,624 26,410 13,754 
Debt securities - tax-exempt2,906 2,676 5,818 5,123 
Other interest income1,909 260 5,305 413 
Total interest and dividend income114,674 88,347 225,575 169,493 
Interest expense:  
Interest on deposits:  
Demand and savings deposits18,068 1,333 32,280 1,684 
Time deposits1,966 708 3,313 1,428 
Interest on borrowings:  
Short-term borrowings728 190 1,552 434 
Subordinated notes and long-term debt2,340 2,177 4,660 4,322 
Total interest expense23,102 4,408 41,805 7,868 
Net interest income91,572 83,939 183,770 161,625 
Provision for (recovery of) credit losses2,492 2,991 2,675 (1,614)
Net interest income after provision for (recovery of) credit losses$89,080 $80,948 $181,095 $163,239 
Other income:  
Income from fiduciary activities$8,816 $8,859 $17,431 $17,656 
Service charges on deposit accounts2,041 2,563 4,282 4,637 
Other service income2,639 4,940 5,336 9,759 
Debit card fee income6,830 6,731 13,287 12,857 
Bank owned life insurance income1,332 2,374 2,517 3,549 
ATM fees553 583 1,086 1,115 
Gain on the sale of OREO, net12 4 3 4 
OREO valuation markup— — 15 30 
Gain (loss) on equity securities, net25 709 (380)3,062 
Other components of net periodic pension benefit income1,893 3,027 3,786 6,054 
Miscellaneous874 1,403 2,039 4,126 
Total other income$25,015 $31,193 $49,402 $62,849 
 

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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
June 30,		Six Months Ended
June 30,
 2023202220232022
Other expense:  
Salaries$33,649 $31,052 $68,520 $61,573 
Employee benefits10,538 10,199 21,354 20,698 
Occupancy expense3,214 3,040 6,567 6,254 
Furniture and equipment expense3,103 2,934 6,349 5,871 
Data processing fees9,582 8,416 18,332 15,920 
Professional fees and services7,365 6,775 14,586 12,633 
Marketing1,239 1,019 2,558 2,336 
Insurance1,960 1,245 3,774 2,650 
Communication1,045 935 2,082 1,825 
State tax expense1,096 1,167 2,374 2,359 
Amortization of intangible assets328 403 655 805 
Miscellaneous2,766 2,863 5,237 4,497 
Total other expense$75,885 $70,048 $152,388 $137,421 
Income before income taxes$38,210 $42,093 78,109 88,667 
Income taxes6,626 7,769 12,792 15,468 
Net income$31,584 $34,324 $65,317 $73,199 
Earnings per common share:
Basic$1.95 $2.11 $4.03 $4.51 
Diluted$1.94 $2.10 $4.01 $4.48 
Weighted average common shares outstanding:  
Basic16,165,119 16,249,307 16,203,736 16,234,598 
Diluted16,240,600 16,361,246 16,282,693 16,346,141 
Regular cash dividends declared per common share$1.05 $1.04 $2.10 $2.08 
 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 


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

Three Months Ended
June 30,		Six Months Ended
June 30,
 2023202220232022
Net income$31,584 $34,324 $65,317 $73,199 
Other comprehensive (loss) income, net of tax:
Unrealized net holding (loss) gain on debt securities available-for-sale, net of income tax effect of $(1,795) and $(11,963) for the three months ended June 30, 2023 and 2022, respectively, and $1,490 and $(26,786) for the six months ended June 30, 2023 and 2022, respectively.
(6,753)(45,002)5,608 (100,765)
Reclassification adjustment for losses included in net income on cash flow hedging derivatives, net of income tax effect of $14 for both the three months and six months ended June 30, 2022.
— 52 — 52 
Unrealized gain on cash flow hedging derivatives, net of income tax effect of $4 for the three months ended June 30, 2022 and $41 for the six months ended June 30, 2022.
— 15 — 154 
Other comprehensive (loss) income$(6,753)$(44,935)$5,608 $(100,559)
Comprehensive income (loss)$24,831 $(10,611)$70,925 $(27,360)
 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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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 income33,733 
Other comprehensive income, net of tax12,361 
Dividends on common shares at $1.05 per common share
(17,285)
Issuance of 34,484 common shares under share-based compensation awards, net of 21,981 common shares withheld to pay employee income taxes
(5,309)(862)3,564 
Share-based compensation expense2,336 
Repurchase of 124,000 common shares to be held as treasury shares
(15,308)
Balance at March 31, 2023$— $459,431 $862,518 $(149,763)$(90,033)
Net income31,584 
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)$450 
Share-based compensation expense1,749 
Repurchase of 25,000 common shares to be held as treasury shares
(2,552)
Balance at June 30, 2023$— $460,578 $876,830 $(151,865)$(96,786)

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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 $1.04 per common share
  (17,172)
Cash payment for fractional common shares in dividend reinvestment plan (2) 
Issuance of 29,757 common shares under share-based compensation awards, net of 18,658 common shares withheld to pay employee income taxes
(4,508)(964)3,021 
Share-based compensation expense1,981 
Balance at March 31, 2022$— $459,271 $797,033 $(139,469)$(40,469)
Net income34,324 
Other comprehensive loss, net of tax(44,935)
Dividends on common shares at $1.04 per common share
(17,116)
Share-based compensation expense1,374 
Balance at June 30, 2022$— $460,645 $814,241 $(139,469)$(85,404)

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
(in thousands)
Six Months Ended
June 30,
 20232022
Operating activities:  
Net income$65,317 $73,199 
Adjustments to reconcile net income to net cash provided by operating activities:  
Provision for (recovery of) credit losses2,675 (1,614)
Accretion of loan fees and costs, net(4,400)(7,132)
Depreciation of premises and equipment7,122 6,943 
Amortization of investment securities, net1,722 1,704 
Net amortization (accretion) of purchase accounting adjustments263 (241)
Loss (gain) on equity securities, net380 (3,062)
Loan originations to be sold in secondary market(32,720)(128,306)
Proceeds from sale of loans in secondary market32,008 135,241 
Gain on sale of loans in secondary market(625)(3,227)
Share-based compensation expense4,085 3,355 
Gain on sale of OREO, net(3)(4)
OREO valuation markup(15)(30)
Bank owned life insurance income(2,517)(3,549)
Investment in qualified affordable housing tax credits amortization4,194 3,960 
Changes in assets and liabilities:
Increase in prepaid dealer premiums(244)(4,795)
Increase in other assets(7,312)(2,178)
Decrease in other liabilities(12,261)(13,802)
Net cash provided by operating activities$57,669 $56,462 
Investing activities:  
Proceeds from the redemption/repurchase of Federal Home Loan Bank stock$3,605 $— 
Proceeds from calls and maturities of:  
Debt securities AFS71,116 102,660 
Purchases of:  
Debt securities AFS(908)(316,878)
Equity securities(2,195)(2,630)
FHLB stock(1,407)— 
Net decrease in other investments1,114 339 
Net loan originations, portfolio loans(62,384)(90,952)
Investment in qualified affordable housing tax credits(5,576)(7,252)
Proceeds from the sale of OREO57 67 
Bank owned life insurance death benefits1,104 7,525 
Purchases of bank owned life insurance(2,500)(7,500)
Purchases of premises and equipment(4,047)(3,740)
Net cash used in investing activities$(2,021)$(318,361)
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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued)
(in thousands)
Six Months Ended
June 30,
 20232022
Financing activities:  
Net (decrease) increase in deposits$(70,909)$219,870 
Net decrease in off-balance sheet deposits195,170 173,261 
Net decrease in short-term borrowings(83,428)(66,987)
Value of common shares withheld to pay employee income taxes(2,844)(2,451)
Repurchase of common shares to be held as treasury shares(17,860)— 
Cash dividends paid(35,108)(34,533)
Net cash (used in) provided by financing activities$(14,979)$289,160 
Increase in cash and cash equivalents40,669 27,261 
Cash and cash equivalents at beginning of year189,728 219,180 
Cash and cash equivalents at end of period$230,397 $246,441 
Supplemental disclosures of cash flow information:  
Cash paid for:  
Interest$41,243 $7,904 
Federal income tax7,35010,500
Non-cash items:
Loans transferred to OREO$1,051 $1,409 
Transfers from loans to commercial loans held for sale— 6,321 
ROU assets obtained in exchange for lease obligations179 4,182 
New commitments in other investment securities2,495 15,000 

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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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 six-month periods ended June 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.

Recent bank failures have called into question the stability of the financial services industry. While Park is well capitalized and has significant available liquidity, the effects of these failures and potential future failures may meaningfully impact significant estimates such as the allowance for credit losses, goodwill, and pension plan obligations and related expenses.

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 Restructuring 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 a borrower is 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

There are no issued but not yet effective accounting standards that are significant to Park.

Note 3 – Investment Securities
 
Investment securities at June 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
June 30, 2023:
Obligations of U.S. Government sponsored entities$39,000 $— $1,887 $37,113 
Obligations of states and political subdivisions421,479 1,718 15,733 407,464 
U.S. Government sponsored entities' asset-backed securities769,715 — 82,337 687,378 
Collateralized loan obligations534,166 — 12,765 521,401 
Corporate debt securities18,562 — 3,054 15,508 
Total$1,782,922 $1,718 $115,776 $1,668,864 
 
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 subdivisions423,285 1,620 18,194 406,711 
U.S. Government sponsored entities' asset-backed securities839,399 — 82,638 756,761 
Collateralized loan obligations535,518 — 18,979 516,539 
Corporate debt securities17,650 — 1,178 16,472 
Total$1,854,852 $1,620 $122,776 $1,733,696 

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

Unrealized loss position for less than 12 monthsUnrealized loss position for 12 months or longerTotal
(In thousands)Fair valueUnrealized
losses		Fair valueUnrealized
losses		Fair
value		Unrealized
losses
Debt securities AFS:
Obligations of U.S. Government sponsored entities$— $— $37,113 $1,887 $37,113 $1,887 
Obligations of states and political subdivisions124,659 1,017 98,181 14,716 222,840 15,733 
U.S. Government sponsored entities' asset-backed securities72,961 3,726 614,417 78,611 687,378 82,337 
Collateralized loan obligations— — 521,401 12,765 521,401 12,765 
Corporate debt securities7,391 921 8,117 2,133 15,508 3,054 
Total$205,011 $5,664 $1,279,229 $110,112 $1,484,240 $115,776 
 
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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 monthsUnrealized loss position for 12 months or longerTotal
(In thousands)Fair valueUnrealized
losses		Fair valueUnrealized
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 subdivisions270,905 18,194 — — 270,905 18,194 
U.S. Government sponsored entities' asset-backed securities446,423 27,507 310,338 55,131 756,761 82,638 
Collateralized loan obligations415,491 15,446 101,048 3,533 516,539 18,979 
Corporate debt securities7,388 862 1,684 316 9,072 1,178 
Total$1,177,420 $63,796 $413,070 $58,980 $1,590,490 $122,776 

At June 30, 2023, Park’s debt securities portfolio consisted of $1.7 billion of securities, $1.5 billion of which were in an unrealized loss position with unrealized losses of $115.8 million. Of the $1.5 billion of securities in an unrealized loss position, $1.3 billion were in an unrealized loss position for 12 months or longer. Of the $115.8 million in unrealized losses, an aggregate of $84.2 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 June 30, 2023 or December 31, 2022. Additionally, for the three months and the six months ended June 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 June 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 $37,113 2.37 %
Obligations of state and political subdivisions:
Due one through five years$2,271 $2,260 2.97 %
Due five through ten years276,070 276,715 3.69 %
Due over ten years143,138 128,489 3.11 %
Total (1)
$421,479 $407,464 3.49 %
U.S. Government sponsored entities' asset-backed securities$769,715 $687,378 1.90 %
Collateralized loan obligations$534,166 $521,401 7.04 %
Corporate debt securities
Due one through five years$912 $899 9.67 %
Due five through ten years17,650 14,609 3.89 %
Total$18,562 $15,508 4.17 %
(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 six-month periods ended June 30, 2023 or 2022.

Investment securities having a fair value of $722.6 million and $753.6 million at June 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 June 30, 2023 and December 31, 2022 were as follows:
 
(In thousands)June 30, 2023December 31, 2022
FHLB stock$8,999 $11,197 
FRB stock14,653 14,653 
Equity investments carried at fair value2,720 1,859 
Equity investments carried at modified cost (1)
15,921 14,725 
Equity investments carried at NAV45,796 44,657 
Total other investment securities$88,089 $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 three months and the six months ended June 30, 2022 as a result of observable price changes. There were no adjustments recorded during the three months or the six months ended June 30, 2023 as a result of observable price changes.

During the three months and the six months ended June 30, 2023, Park purchased 14,075 shares of FHLB stock with a book value of $1.4 million. During the three months ended June 30, 2023, the FHLB repurchased 5,114 shares of FHLB stock with a book value of $511,000. During the six months ended June 30, 2023, the FHLB repurchased 36,052 shares of FHLB stock with a book value of $3.6 million. No shares of FHLB stock were repurchased during the three months or the six months ended June 30, 2022. No shares of FRB stock were purchased or sold during the three months or the six months ended June 30, 2023 or 2022.

During the three months ended June 30, 2023 and 2022, $(112,000) and $619,000, respectively, of (losses) gains on equity investments carried at fair value were recorded within "Gain (loss) on equity securities, net" on the Consolidated Condensed Statements of Income. During the six months ended June 30, 2023 and 2022, $(139,000) and $527,000, respectively, of (losses) gains on equity investments carried at fair value were recorded within "Gain (loss) on equity securities, net" on the Consolidated Condensed Statements of Income.

During the three months ended June 30, 2023 and 2022, $137,000 and $90,000, respectively, of gains on equity investments carried at NAV were recorded within “Gain (loss) on equity securities, net” on the Consolidated Condensed Statements of Income. During the six months ended June 30, 2023 and 2022, $(241,000) and $2.5 million, respectively, of (losses) gains on equity investments carried at NAV were recorded within “Gain (loss) 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 June 30, 2023 and at December 31, 2022 was as follows:
 
June 30, 2023December 31, 2022
(In thousands)Amortized CostAmortized Cost
Commercial, financial and agricultural: (1)
Commercial, financial and agricultural (1)
$1,282,329 $1,295,238 
PPP loans3,078 4,206 
Overdrafts1,596 1,489 
Commercial real estate (1)
1,799,440 1,794,054 
Construction real estate:  
Commercial160,344 208,982 
Retail114,362 116,433 
Residential real estate:  
Commercial580,445 550,183 
Mortgage1,133,676 1,075,446 
HELOC167,940 167,151 
Installment4,262 4,091 
Consumer:
Consumer1,940,148 1,902,557 
GFSC65 274 
Check loans2,044 2,150 
Leases18,380 19,637 
Total$7,208,109 $7,141,891 
Allowance for credit losses(87,206)(85,379)
Net loans$7,120,903 $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 June 30, 2023 and June 30, 2022, $7,000 and $989,000, respectively, of PPP fee income was recognized within loan interest income. During the six months ended June 30, 2023 and June 30, 2022, $25,000 and $2.5 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 $18.4 million at June 30, 2023, and of $18.2 million at December 31, 2022, which represented a net deferred income position at both dates. At June 30, 2023 and December 31, 2022, loans included purchase accounting adjustments of $2.1 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 $1.6 million and $1.5 million were reclassified to loans at June 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 June 30, 2023.
 
 June 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$22,553 $— $22,553 
PPP loans— — — 
Overdrafts— — — 
Commercial real estate17,651 — 17,651 
Construction real estate:   
Commercial987 — 987 
Retail— — — 
Residential real estate:   
Commercial2,331 — 2,331 
Mortgage10,588 550 11,138 
HELOC1,031 — 1,031 
Installment37 — 37 
Consumer:
Consumer1,609 400 2,009 
GFSC6 — 6 
Check loans— — — 
Leases486 — 486 
Total loans$57,279 $950 $58,229 
 

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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 AccruingTotal
Nonperforming
Loans
Commercial, financial and agricultural
Commercial, financial and agricultural$38,158 $3,261 $— $41,419 
PPP loans— — 389 389 
Overdrafts— — — — 
Commercial real estate24,504 7,919 — 32,423 
Construction real estate:   
Commercial1,712 — — 1,712 
Retail1,254 12 — 1,266 
Residential real estate:    
Commercial1,894 298 — 2,192 
Mortgage9,260 6,750 182 16,192 
HELOC1,133 187 7 1,327 
Installment51 1,037 — 1,088 
Consumer
Consumer1,012 670 703 2,385 
GFSC10 — — 10 
Check loans— — — — 
Leases708 — — 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 June 30, 2023 and December 31, 2022:

June 30, 2023
(In thousands)Nonaccrual Loans With No ACLNonaccrual Loans With an ACLRelated ACL
Commercial, financial and agricultural:
Commercial, financial and agricultural$11,635 $10,918 $3,911 
PPP loans— — — 
Overdrafts— — — 
Commercial real estate16,354 1,297 233 
Construction real estate:
Commercial987 — — 
Retail— — — 
Residential real estate:
Commercial2,331 — — 
Mortgage— 10,588 102 
HELOC— 1,031 122 
Installment— 37 18 
Consumer
Consumer— 1,609 403 
GFSC— 6 1 
Check loans— — — 
Leases486 — — 
Total loans$31,793 $25,486 $4,790 



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December 31, 2022
(In thousands)Nonaccrual Loans With No ACLNonaccrual Loans With an ACLRelated ACL
Commercial, financial and agricultural:
Commercial, financial and agricultural$28,291 $9,867 $3,440 
PPP loans— — — 
Overdrafts— — — 
Commercial real estate22,965 1,539 130 
Construction real estate:— 
Commercial1,712 — — 
Retail— 1,254 19 
Residential real estate:
Commercial1,894 — — 
Mortgage— 9,260 85 
HELOC— 1,133 191 
Installment— 51 17 
Consumer
Consumer— 1,012 283 
GFSC— 10 1 
Check loans— — — 
Leases680 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, as of June 30, 2023 and December 31, 2022:

 June 30, 2023
(In thousands)Real EstateBusiness AssetsOtherTotal
Commercial, financial and agricultural
Commercial, financial and agricultural$8,120 $6,631 $7,775 $22,526 
Commercial real estate20,877 145 — 21,022 
Construction real estate:
Commercial1,629 — — 1,629 
Residential real estate:
Commercial2,597 — — 2,597 
Mortgage82 — — 82 
Leases— 486 — 486 
Total loans$33,305 $7,262 $7,775 $48,342 

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 December 31, 2022
(In thousands)Real EstateBusiness AssetsOtherTotal
Commercial, financial and agricultural
Commercial, financial and agricultural$8,242 $7,788 $23,125 $39,155 
Commercial real estate35,908 28 — 35,936 
Construction real estate:
Commercial2,372 — — 2,372 
Residential real estate:
Commercial2,479 — — 2,479 
Mortgage90 — — 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 six-month periods ended June 30, 2023 and 2022:

Interest Income Recognized
(In thousands)Three Months Ended
June 30, 2023		Three Months Ended
June 30, 2022		Six Months Ended
June 30, 2023		Six Months Ended
June 30, 2022
Commercial, financial and agricultural:
Commercial, financial and agricultural$722 $13 $1,327 $30 
PPP loans— — — — 
Overdrafts— — — — 
Commercial real estate200 257 360 514 
Construction real estate:
Commercial22 3 54 4 
Retail— — — 4 
Residential real estate:
Commercial37 20 63 40 
Mortgage53 36 102 69 
HELOC7 2 15 6 
Installment1 — 2 2 
Consumer:
Consumer21 14 40 28 
GFSC— 1 — 3 
Check loans— — — — 
Leases— 10 — 24
Total loans$1,063 $356 $1,963 $724 




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

 June 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$2,780 $12,569 $15,349 $1,266,980 $1,282,329 
PPP loans132 — 132 2,946 3,078 
Overdrafts— — — 1,596 1,596 
Commercial real estate1,330 1,805 3,135 1,796,305 1,799,440 
Construction real estate:
Commercial549 — 549 159,795 160,344 
Retail724 — 724 113,638 114,362 
Residential real estate:
Commercial— 369 369 580,076 580,445 
Mortgage5,872 5,645 11,517 1,122,159 1,133,676 
HELOC1,008 682 1,690 166,250 167,940 
Installment19 1 20 4,242 4,262 
Consumer:
Consumer5,286 535 5,821 1,934,327 1,940,148 
GFSC13 5 18 47 65 
Check loans4 — 4 2,040 2,044 
Leases24 — 24 18,356 18,380 
Total loans$17,741 $21,611 $39,352 $7,168,757 $7,208,109 
(1) Includes an aggregate of $1.0 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes an aggregate of $36.6 million of nonaccrual loans which were current in regards 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 loans155 389 544 3,662 4,206 
Overdrafts— — — 1,489 1,489 
Commercial real estate737 4,738 5,475 1,788,579 1,794,054 
Construction real estate:
Commercial751 — 751 208,231 208,982 
Retail1,035 523 1,558 114,875 116,433 
Residential real estate:
Commercial519 477 996 549,187 550,183 
Mortgage7,630 5,157 12,787 1,062,659 1,075,446 
HELOC832 587 1,419 165,732 167,151 
Installment57 4 61 4,030 4,091 
Consumer
Consumer5,451 964 6,415 1,896,142 1,902,557 
GFSC48 — 48 226 274 
Check loans2 — 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 in regards to contractual principal and interest payments.

Credit Quality Indicators
Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information at June 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, GFSC loans, and check loans in the consumer portfolio segment. The primary credit indicator for commercial loans is based on an internal grading system that grades all commercial loans on a scale from 1 to 8. Credit grades are continuously monitored by the responsible loan officer and adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded 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
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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.

Based on the most recent analysis performed, the risk category of commercial loans by class of loans as of June 30, 2023 and as of December 31, 2022 were as follows:

June 30, 2023Term Loans Amortized Cost Basis by Origination Year
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
Commercial, financial and agricultural: Commercial, financial and agricultural (1)
Risk rating
Pass$85,021 $176,716 $178,204 $125,837 $49,993 $66,187 $543,596 $1,225,554 
Special Mention109 737 305 314 191 80 30,689 32,425 
Substandard107 248 203 2,261 145 3,372 8,254 14,590 
Doubtful229 731 — 418 127 8,187 68 9,760 
Total $85,466 $178,432 $178,712 $128,830 $50,456 $77,826 $582,607 $1,282,329 
Current period gross charge-offs$— $— $— $— $— $51 $— $51 
Commercial, financial and agricultural: PPP
Risk rating
Pass$— $— $1,223 $1,855 $— $— $— $3,078 
Special Mention— — — — — — — — 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total$— $— $1,223 $1,855 $— $— $— $3,078 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Commercial real estate (1)
Risk rating
Pass$128,701 $312,673 $348,940 $336,994 $213,873 $362,880 $12,965 $1,717,026 
Special Mention— 17,051 5,472 5,530 516 34,558 1,636 64,763 
Substandard— 895 3,014 3,175 2,595 6,282 1,181 17,142 
Doubtful— — — — 122 387 — 509 
Total$128,701 $330,619 $357,426 $345,699 $217,106 $404,107 $15,782 $1,799,440 
Current period gross charge-offs$— $— $— $— $— $530 $— $530 
Construction real estate: Commercial
Risk rating
Pass$45,776 $74,790 $8,899 $18,470 $1,992 $3,075 $5,486 $158,488 
Special Mention— — — 226 — — — 226 
Substandard621 275 91 — — 643 — 1,630 
Doubtful— — — — — — — — 
Total$46,397 $75,065 $8,990 $18,696 $1,992 $3,718 $5,486 $160,344 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
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June 30, 2023Term Loans Amortized Cost Basis by Origination Year
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
Residential Real Estate: Commercial
Risk rating
Pass$59,812 $112,416 $112,594 $131,522 $53,112 $85,264 $19,744 $574,464 
Special Mention— 340 467 1,358 419 822 — 3,406 
Substandard54 586 340 258 34 964 339 2,575 
Doubtful— — — — — — — — 
Total$59,866 $113,342 $113,401 $133,138 $53,565 $87,050 $20,083 $580,445 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Leases
Risk rating
Pass$2,785 $6,216 $2,693 $2,513 $641 $1,129 $— $15,977 
Special Mention596 789 475 40 16 1 — 1,917 
Substandard— — — 302 142 20 — 464 
Doubtful— — — — 22 — — 22 
Total$3,381 $7,005 $3,168 $2,855 $821 $1,150 $— $18,380 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Total Commercial Loans
Risk rating
Pass$322,095 $682,811 $652,553 $617,191 $319,611 $518,535 $581,791 $3,694,587 
Special Mention705 18,917 6,719 7,468 1,142 35,461 32,325 102,737 
Substandard782 2,004 3,648 5,996 2,916 11,281 9,774 36,401 
Doubtful229 731 — 418 271 8,574 68 10,291 
Total$323,811 $704,463 $662,920 $631,073 $323,940 $573,851 $623,958 $3,844,016 
Current period gross charge-offs$— $— $— $— $— $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, 2022Term Loans Amortized Cost Basis by Origination Year
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
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 Mention700 313 918 315 4 35 25,536 27,821 
Substandard1,101 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 Mention199 3,256 3,388 5,863 16,059 22,220 150 51,135 
Substandard7,856 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 
Substandard652 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 
Substandard610 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, 2022Term Loans Amortized Cost Basis by Origination Year
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
Leases
Risk rating
Pass$7,629 $3,310 $3,347 $1,167 $981 $605 $— $17,039 
Special Mention1,085 614 130 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 Mention1,984 4,275 6,145 6,678 16,063 23,880 25,686 84,711 
Substandard10,219 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. 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.

June 30, 2023Term Loans Amortized Cost Basis by Origination Year
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
Commercial, financial and agricultural: Overdrafts
Performing$1,596 $— $— $— $— $— $— $1,596 
Nonperforming
— — — — — — — — 
Total $1,596 $— $— $— $— $— $— $1,596 
Current period gross charge-offs$486 $— $— $— $— $— $— $486 
Construction Real Estate: Retail
Performing$16,380 $72,444 $13,107 $4,818 $4,029 $3,273 $311 $114,362 
Nonperforming
— — — — — — — — 
Total $16,380 $72,444 $13,107 $4,818 $4,029 $3,273 $311 $114,362 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
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June 30, 2023Term Loans Amortized Cost Basis by Origination Year
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
Residential Real Estate: Mortgage
Performing$84,568 $219,933 $227,477 $185,093 $86,061 $319,406 $— $1,122,538 
Nonperforming
— 800 594 779 547 8,418 — 11,138 
Total $84,568 $220,733 $228,071 $185,872 $86,608 $327,824 $— $1,133,676 
Current period gross charge-offs$— $— $— $— $— $35 $— $35 
Residential Real Estate: HELOC
Performing$12 $140 $299 $105 $179 $1,964 $164,210 $166,909 
Nonperforming
— — — — 99 684 248 1,031 
Total $12 $140 $299 $105 $278 $2,648 $164,458 $167,940 
Current period gross charge-offs$— $— $— $— $— $8 $— $8 
Residential Real Estate: Installment
Performing$674 $174 $— $5 $185 $3,187 $— $4,225 
Nonperforming
— — — — — 37 — 37 
Total $674 $174 $— $5 $185 $3,224 $— $4,262 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Consumer: Consumer
Performing$341,371 $716,915 $384,552 $267,877 $111,626 $98,446 $17,352 $1,938,139 
Nonperforming— 426 500 354 285 444 — 2,009 
Total $341,371 $717,341 $385,052 $268,231 $111,911 $98,890 $17,352 $1,940,148 
Current period gross charge-offs$55 $1,449 $1,192 $466 $345 $280 $— $3,787 
Consumer: GFSC
Performing$— $— $— $23 $2 $6 $28 $59 
Nonperforming— — — — 6 — — 6 
Total $— $— $— $23 $8 $6 $28 $65 
Current period gross charge-offs$— $— $— $— $2 $— $1 $3 
Consumer: Check loans
Performing$— $— $— $— $— $— $2,044 $2,044 
Nonperforming
— — — — — — — — 
Total $— $— $— $— $— $— $2,044 $2,044 
Current period gross charge-offs$— $— $— $— $— $— $20 $20 
Total Consumer Loans
Performing$444,601 $1,009,606 $625,435 $457,921 $202,082 $426,282 $183,945 $3,349,872 
Nonperforming
— 1,226 1,094 1,133 937 9,583 248 14,221 
Total $444,601 $1,010,832 $626,529 $459,054 $203,019 $435,865 $184,193 $3,364,093 
Current period gross charge-offs$541 $1,449 $1,192 $466 $347 $323 $21 $4,339 

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December 31, 2022Term Loans Amortized Cost Basis by Origination Year
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
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 $333,336 $150,237 $61,174 $65,612 $4,315 $1,900,172 
Nonperforming
440 489 424 355 157 520 — 2,385 
Total $823,924 $462,503 $333,760 $150,592 $61,331 $66,132 $4,315 $1,902,557 
Consumer: GFSC
Performing$— $— $55 $111 $45 $2 $51 $264 
Nonperforming— — — 10 — — — 10 
Total $— $— $55 $121 $45 $2 $51 $274 
Consumer: Check loans
Performing$— $— $— $— $— $— $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 June 30, 2023 and at December 31, 2022, there was no allowance for credit losses on PCD loans. The carrying amount of loans acquired with deteriorated credit quality at June 30, 2023 and at December 31, 2022 was $4.5 million and $4.7 million, respectively.

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 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 June 30, 2023 that were both experiencing financial difficulty and modified during the three months and the six months ended June 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
June 30, 2023
(Dollars in thousands)Principal ForgivenessPayment DelayTerm ExtensionInterest Rate AdjustmentCombination Term Extension and Interest Rate AdjustmentOtherTotalPercent of Total Class of Financing Receivable
Commercial, financial and agricultural:
Commercial, financial and agricultural $— $— $147 $— $10,223 $12 $10,382 0.81 %
PPP loans— — — — — — — — %
Overdrafts— — — — — — — — %
Commercial real estate — — 836 — — — 836 0.05 %
Construction real estate:
Commercial— — 366 — — — 366 0.23 %
Retail— — — — — — — — %
Residential real estate:
Commercial— — — — — — — — %
Mortgage— — — — 135 — 135 0.01 %
HELOC— — — — — — — — %
Installment— — 4 — 16 — 20 0.47 %
Consumer:
Consumer— — — 8 — — 8 — %
GFSC— — — — — — — — %
Check loans— — — — — — — — %
Leases— — — — — — — — %
Total$— $— $1,353 $8 $10,374 $12 $11,747 0.16 %
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Six Months Ended
June 30, 2023
(Dollars in thousands)Principal ForgivenessPayment DelayTerm ExtensionInterest Rate AdjustmentCombination Term Extension and Interest Rate AdjustmentOtherTotalPercent of Total Class of Financing Receivable
Commercial, financial and agricultural:
Commercial, financial and agricultural $— $— $1,189 $— $10,223 $12 $11,424 0.89 %
PPP loans— — — — — — — — %
Overdrafts— — — — — — — — %
Commercial real estate — — 836 — — — 836 0.05 %
Construction real estate:
Commercial— — 366 — — — 366 0.23 %
Retail— — — — — — — — %
Residential real estate:
Commercial— — 150 — 12 — 162 0.03 %
Mortgage— — — — 135 — 135 0.01 %
HELOC— — — — — — — — %
Installment— — 4 — 79 — 83 1.95 %
Consumer:
Consumer— — — 22 — — 22 — %
GFSC— — — — — — — — %
Check loans— — — — — — — — %
Leases— — — — — — — — %
Total$— $— $2,545 $22 $10,449 $12 $13,028 0.18 %
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Park has committed to lend additional amounts totaling $1.7 million to the borrowers included in the previous two tables as of June 30, 2023.

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months and the six months ended June 30, 2023:

Three Months Ended
June 30, 2023
(Dollars in thousands)Principal ForgivenessWeighted Average Interest Rate AdjustmentWeighted Average Term Extension (years)
Commercial, financial and agricultural:
Commercial, financial and agricultural$— 0.82 %0.6
PPP loans— — %0.0
Overdrafts— — %0.0
Commercial real estate— — %3.6
Construction real estate:
Commercial— — %1.0
Retail— — %0.0
Residential real estate:
Commercial— — %0.0
Mortgage— (1.88)%0.4
HELOC— — %0.0
Installment— (4.13)%10.0
Consumer:
Consumer— (0.69)%0.0
GFSC— — %0.0
Check loans— — %0.0
Leases— — %0.0
Total$— 0.77 %0.8

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Six Months Ended
June 30, 2023
(Dollars in thousands)Principal ForgivenessWeighted Average Interest Rate AdjustmentWeighted Average Term Extension (years)
Commercial, financial and agricultural:
Commercial, financial and agricultural$— 0.82 %0.6
PPP loans— — %0.0
Overdrafts— — %0.0
Commercial real estate— — %3.6
Construction real estate:
Commercial— — %1.0
Retail— — %0.0
Residential real estate:
Commercial— 1.43 %0.4
Mortgage— (1.88)%0.4
HELOC— — %0.0
Installment— (1.72)%10.0
Consumer:
Consumer— (2.92)%0.0
GFSC— — %0.0
Check loans— — %0.0
Leases— — %0.0
Total$— 0.75 %0.9

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 June 30, 2023 that were greater than 30 days past due as of June 30, 2023. There were $150,000 of loans modified to borrowers experiencing financial difficulty that had been modified during the six months ended June 30, 2023 that were 30-59 days past due as of June 30, 2023 in the Residential Real Estate: Commercial 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 June 30, 2023 and were modified in the six 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
June 30, 2023
(In thousands)Term ExtensionInterest Rate AdjustmentCombination Term Extension and Interest Rate AdjustmentOther
Commercial, financial and agricultural:
Commercial, financial and agricultural$— $— $— $— 
PPP loans— — — — 
Overdrafts— — — — 
Commercial real estate— — — — 
Construction real estate:
Commercial— — — — 
Retail— — — — 
Residential real estate:— — — 
Commercial150 — — — 
Mortgage— — 135 — 
HELOC— — — — 
Installment— — — — 
Consumer:
Consumer— 8 — — 
GFSC— — — — 
Check loans— — — — 
Leases— — — — 
Total loans$150 $8 $135 $— 

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The following table presents the amortized cost basis of loans that had a payment default during the six months ended June 30, 2023 and were modified in the six 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:

Six Months Ended
June 30, 2023
(In thousands)Term ExtensionInterest Rate AdjustmentCombination Term Extension and Interest Rate AdjustmentOther
Commercial, financial and agricultural:
Commercial, financial and agricultural$— $— $— $— 
PPP loans— — — — 
Overdrafts— — — — 
Commercial real estate— — — — 
Construction real estate:
Commercial— — — — 
Retail— — — — 
Residential real estate:— — — 
Commercial150 — — — 
Mortgage— — 135 — 
HELOC— — — — 
Installment— — — — 
Consumer:
Consumer— 8 — — 
GFSC— — — — 
Check loans— — — — 
Leases— — — — 
Total loans$150 $8 $135 $— 

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 and the residential real estate portfolio segments. Peer data was incorporated into the analysis for the commercial real estate, the construction real estate, and the consumer portfolio 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.
◦As 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, 2022.
◦As 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.
◦As 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.

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:
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◦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 collectibility of financial assets.
•Where the U.S. economy is within a given credit cycle.
•The extent that there is government assistance (stimulus).

As of June 30, 2023 and December 31, 2022, Park had $3.1 million and $4.2 million, respectively, of PPP loans which were included in the commercial, financial and agricultural portfolio segment. These loans are guaranteed by the SBA and thus have not been reserved for using the same methodology as the rest of Park’s loan portfolio. A 10 basis point reserve at each of June 30, 2023 and December 31, 2022 was calculated for these loans to reflect minimal credit risk.

ACL Activity
The activity in the ACL for the three-month and the six-month periods ended June 30, 2023 and June 30, 2022 is summarized in the following tables:

 Three Months Ended
June 30, 2023
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
ACL:       
Beginning balance$16,572 $17,946 $5,362 $17,889 $28,053 $124 $85,946 
Charge-offs188 530 — 14 1,953 — 2,685 
Recoveries84 — 12 114 1,243 — 1,453 
Net charge-offs/(recoveries)$104 $530 $(12)$(100)$710 $— $1,232 
(Recovery of) provision for credit losses(190)1,725 (488)430 1,027 (12)2,492 
Ending balance$16,278 $19,141 $4,886 $18,419 $28,370 $112 $87,206 
 
 Three Months Ended
June 30, 2022
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
ACL:       
Beginning balance$13,288 $23,731 $4,230 $11,584 $25,797 $231 $78,861 
Charge-offs723 598 33 46 1,002 — 2,402 
Recoveries316 540 29 54 1,058 1 1,998 
Net charge-offs/(recoveries)$407 $58 $4 $(8)$(56)$(1)$404 
(Recovery of) provision for credit losses(134)(1,334)165 2,027 2,296 (29)2,991 
Ending balance$12,747 $22,339 $4,391 $13,619 $28,149 $203 $81,448 

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 Six Months Ended
June 30, 2023
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
ACL:       
Beginning balance$16,987 $17,829 $5,550 $16,831 $28,021 $161 $85,379 
Impact of Adoption of ASU 2022-02222 181 — (20)— — 383 
Charge-offs537 530 — 43 3,810 — 4,920 
Recoveries130 232 508 471 2,348 — 3,689 
Net charge-offs/(recoveries)$407 $298 $(508)$(428)$1,462 $— $1,231 
(Recovery of) provision for credit losses(524)1,429 (1,172)1,180 1,811 (49)2,675 
Ending balance$16,278 $19,141 $4,886 $18,419 $28,370 $112 $87,206 

 Six Months Ended
June 30, 2022
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
ACL:       
Beginning balance$14,025 $25,466 $5,758 $11,424 $26,286 $238 $83,197 
Charge-offs913 598 33 81 2,118 6 3,749 
Recoveries434 588 530 86 1,975 1 3,614 
Net charge-offs/(recoveries)$479 $10 $(497)$(5)$143 $5 $135 
(Recovery of) provision for credit losses(799)(3,117)(1,864)2,190 2,006 (30)(1,614)
Ending balance$12,747 $22,339 $4,391 $13,619 $28,149 $203 $81,448 
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ACL Summary
Loans collectively evaluated for impairment in the following tables include all performing loans at June 30, 2023 and 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 June 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 June 30, 2023 and at December 31, 2022 was as follows:
 
 June 30, 2023
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
ACL:       
Ending allowance balance attributed to loans:       
Individually evaluated for impairment$3,899$233$—$—$—$—$4,132
Collectively evaluated for impairment12,37918,9084,88618,41928,37011283,074
Acquired with deteriorated credit quality———————
Total ending allowance balance$16,278$19,141$4,886$18,419$28,370$112$87,206
Loan balance:       
Loans individually evaluated for impairment$22,463$17,621$986$2,331$—$486$43,887
Loans collectively evaluated for impairment1,264,4771,778,418273,0771,883,6441,942,25717,8947,159,767
Loans acquired with deteriorated credit quality633,401643348——4,455
Total ending loan balance$1,287,003$1,799,440$274,706$1,886,323$1,942,257$18,380$7,208,109
ACL as a percentage of loan balance:       
Loans individually evaluated for impairment17.36 %1.32 %— %— %— %— %9.42 %
Loans collectively evaluated for impairment0.98 %1.06 %1.79 %0.98 %1.46 %0.63 %1.16 %
Loans acquired with deteriorated credit quality— %— %— %— %— %— %— %
Total1.26 %1.06 %1.78 %0.98 %1.46 %0.61 %1.21 %
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 December 31, 2022
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
ACL:       
Ending allowance balance attributed to loans:       
Individually evaluated for impairment$3,426$131$—$—$—$9$3,566
Collectively evaluated for impairment13,56117,6985,55016,83128,02115281,813
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 impairment1,259,5241,758,118323,0431,794,3021,904,98118,9297,058,897
Loans acquired with deteriorated credit quality
1023,513660378——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 impairment8.29 %0.40 %— %— %— %1.27 %4.55 %
Loans collectively evaluated for impairment1.08 %1.01 %1.72 %0.94 %1.47 %0.80 %1.16 %
Loans acquired with deteriorated credit quality— %— %— %— %— %— %— %
Total1.31 %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 June 30, 2023 and December 31, 2022, respectively, Park had $3.5 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 $3.4 million and $2.1 million at June 30, 2023 and December 31, 2022, respectively. The gain expected upon sale was $52,000 and $41,000 at June 30, 2023 and December 31, 2022, respectively. None of these loans were 90 days or more past due or on nonaccrual status at June 30, 2023 or December 31, 2022.

During the three months ended June 30, 2022, Park transferred certain commercial loans held for investment 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, recording a charge-off in each instance where the fair value of an individual loan was deemed to be below the carrying cost at the time the loan was moved to the held for sale portfolio.

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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 six-month periods ended June 30, 2023 and 2022.

(in thousands)GoodwillOther
intangible assets		Total
April 1, 2022$159,595 $7,060 $166,655 
Amortization— 403 403 
June 30, 2022$159,595 $6,657 $166,252 
April 1, 2023$159,595 $5,648 $165,243 
Amortization— 328 328 
June 30, 2023$159,595 $5,320 $164,915 
   
(in thousands)GoodwillOther
intangible assets		Total
December 31, 2021$159,595 $7,462 $167,057 
Amortization— 805 805 
June 30, 2022$159,595 $6,657 $166,252 
December 31, 2022$159,595 $5,975 $165,570 
Amortization— 655 655 
June 30, 2023$159,595 $5,320 $164,915 

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 June 30, 2023 and at December 31, 2022.

June 30, 2023
December 31, 2022
(in thousands)Gross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Other intangible assets:
Core deposit intangible assets$14,456 $9,136 $14,456 $8,481 
Trade name intangible assets1,300 1,300 1,300 1,300 
Total$15,756 $10,436 $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 $328,000 and $403,000 for the three months ended June 30, 2023 and 2022, respectively, and was $655,000 and $805,000 for the six months ended June 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
Six months ending December 31, 2023$668 
20241,215 
20251,042 
2026887 
2027754 

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 June 30, 2023 and December 31, 2022.

(in thousands)
June 30, 2023
December 31, 2022
Affordable housing tax credit investments$56,774 $60,968 
Unfunded commitments22,556 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 2032.

Park recognized amortization expense of $2.1 million and $2.0 million, respectively, for the three months ended June 30, 2023 and 2022, and $4.2 million and $4.0 million, respectively, for the six months ended June 30, 2023 and 2022, which was included within the provision for income taxes. Additionally, during the three months ended June 30, 2023 and 2022, Park recognized tax credits and other benefits from its affordable housing tax credit investments of $2.6 million and $2.1 million, respectively, and during six months ended June 30, 2023 and 2022, recognized $5.0 million and $4.9 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 June 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)June 30, 2023December 31, 2022
OREO:
Commercial real estate$1,354 $1,354 
Residential real estate913 — 
Total OREO$2,267 $1,354 
Loans in process of foreclosure:
Residential real estate$1,714 $1,614 

In addition to real estate, Park may also repossess different types of collateral. At June 30, 2023 and December 31, 2022, Park had $1.0 million and $0.6 million, respectively, in other repossessed assets which are included in "Other assets" on the Consolidated Condensed Balance Sheets.

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Note 11 – Loan Servicing
 
Park serviced sold mortgage loans of $1.99 billion at June 30, 2023, $2.05 billion at December 31, 2022 and $2.12 billion at June 30, 2022. At June 30, 2023, $3.1 million of the sold mortgage loans were sold with recourse, compared to $3.2 million at December 31, 2022 and $3.3 million at June 30, 2022. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. At June 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
June 30,		Six Months Ended
June 30,
(In thousands)2023202220232022
Mortgage servicing rights: 
Carrying amount, net, beginning of period$15,505 $15,704 $15,792 $15,264 
Additions144 456 268 1,082 
Amortization(479)(584)(904)(1,212)
Change in valuation allowance67 894 81 1,336 
Carrying amount, net, end of period$15,237 $16,470 $15,237 $16,470 
Valuation allowance: 
Beginning of period$168 $1,126 $182 $1,568 
Change in valuation allowance(67)(894)(81)(1,336)
End of period$101 $232 $101 $232 
 
Servicing fees included in "Other service income" were $1.3 million and $1.4 million for the three months ended June 30, 2023 and 2022, respectively, and were $2.6 million and $2.7 million for the six months ended June 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 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.

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 June 30, 2023 were $16.6 million and $17.9 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.

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Other information related to operating leases for the three-month and the six-month periods ended June 30, 2023 and 2022 follows:

Three Months EndedSix Months Ended
(in thousands)June 30, 2023June 30, 2022June 30, 2023June 30, 2022
Lease cost
Operating lease cost$728 $751 $1,460 $1,475 
Sublease income(63)(63)(126)(126)
Total lease cost$665 $688 $1,334 $1,349 
Other information
Cash paid for amounts included in the measurement of lease liabilities:
      Operating cash flows from operating leases$921 $768 $1,844 $1,541 
ROU assets obtained in exchange for new operating lease liabilities$43 $4,182 $179 $4,182 
Reductions to ROU assets resulting from reductions to lease obligations$(777)$(695)$(1,554)$(1,393)

At each of June 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 3.4% and 3.3% at June 30, 2023 and December 31, 2022, respectively.

Undiscounted cash flows included in lease liabilities have expected contractual payments as follows:

(in thousands)June 30, 2023
Six months ending December 31, 2023$1,805 
20242,538 
20252,188 
20262,140 
20272,032 
Thereafter11,020 
Total undiscounted minimum lease payments$21,723 
Present value adjustment(3,806)
Total lease liabilities$17,917 

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.

At June 30, 2023 and December 31, 2022, Park's repurchase agreement borrowings totaled $143.9 million and $227.3 million, respectively. These borrowings were collateralized with U.S. Government sponsored entities' asset-backed securities with a fair value of $235.7 million and $313.1 million at June 30, 2023 and December 31, 2022, respectively. Declines in the value of the collateral would require Park to pledge additional securities. As of June 30, 2023 and December 31, 2022, Park had $1,122 million and $1,147 million, respectively, of available unpledged securities.

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The table below shows the remaining contractual maturity of repurchase agreements by collateral pledged at June 30, 2023 and December 31, 2022:

June 30, 2023
(in thousands)Remaining Contractual Maturity of the Agreements
Overnight and ContinuousUp to 30 days30 - 90 daysGreater than 90 daysTotal
U.S. government and agency securities$143,914 $— $— $— $143,914 
December 31, 2022
(in thousands)Remaining Contractual Maturity of the Agreements
Overnight and ContinuousUp to 30 days30 - 90 daysGreater than 90 daysTotal
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 June 30, 2023 and December 31, 2022, Park had no borrowing derivatives. During the three-month and the six-month periods ended June 30, 2022, Park recognized interest expense of $23,000 and $171,000, respectively, related to borrowing swaps. Additionally, Park recognized gains of $15,000 and $154,000, net of income taxes, related to borrowing swaps that were recorded in "Other comprehensive income (loss)" on the Consolidated Condensed Statements of Comprehensive Income (Loss) during the three-month and the six-month periods ended June 30, 2022, respectively.

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 $19.8 million and $21.7 million at June 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 six-month periods ended June 30, 2023 and June 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 income (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 both the three-month and the six-month periods ended June 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. Park expects the outstanding hedges to remain fully effective during the remaining respective terms of the interest rate swaps.

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Summary information about Park's interest rate swaps at June 30, 2023 and at December 31, 2022 follows:

June 30, 2023December 31, 2022
(In thousands, except weighted average data)Loan
Derivatives		Loan
Derivatives
Notional amounts$19,807 $21,700 
Weighted average pay rates4.552 %4.553 %
Weighted average receive rates4.552 %4.553 %
Weighted average maturity (years)7.37.9
Unrealized losses$— $— 

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

(In thousands)June 30, 2023December 31, 2022
Notional AmountFair ValueNotional AmountFair Value
Included in "Other assets":
Loan derivatives - instruments associated with loans
 Matched interest rate swaps with borrower $— $— $— $— 
 Matched interest rate swaps with counterparty19,807 1,390 21,700 1,508 
   Total included in "Other assets"$19,807 $1,390 $21,700 $1,508 
Included in "Other liabilities":
Loan derivatives - instruments associated with loans
 Matched interest rate swaps with borrower $19,807 $(1,390)$21,700 $(1,508)
 Matched interest rate swaps with counterparty— — — — 
    Total included in "Other liabilities"$19,807 $(1,390)$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 June 30, 2023 and at December 31, 2022, Park had $1.8 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 $41,000 and $46,000 at June 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 June 30, 2023 and at December 31, 2022, the fair value of the swap liability of $296,000 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 six-month periods ended June 30, 2023 and 2022:


(in thousands)		Changes in pension plan assets and benefit obligationsUnrealized net holding (loss) gain on cash flow hedgeUnrealized (losses) gains on debt securities AFSTotal
Beginning balance at April 1, 2023$(6,680)$— $(83,353)$(90,033)
Other comprehensive loss before reclassifications— — (6,753)(6,753)
Net current period other comprehensive loss— — (6,753)(6,753)
Ending balance at June 30, 2023$(6,680)$— $(90,106)$(96,786)
Beginning balance at April 1, 2022$(5,792)$(67)$(34,610)$(40,469)
Other comprehensive income (loss) before reclassifications — 15 (45,002)(44,987)
Amounts reclassified from other comprehensive loss— 52 — 52 
Net current period other comprehensive income (loss)— 67 (45,002)(44,935)
Ending balance at June 30, 2022$(5,792)$— $(79,612)$(85,404)


(in thousands)		Changes in pension plan assets and benefit obligationsUnrealized net holding (loss) gain on cash flow hedgeUnrealized (losses) gains on debt securities AFSTotal
Beginning balance at January 1, 2023$(6,680)$— $(95,714)$(102,394)
Other comprehensive income before reclassifications— — 5,608 5,608 
Net current period other comprehensive income— — 5,608 5,608 
Ending balance at June 30, 2023$(6,680)$— $(90,106)$(96,786)
Beginning balance at January 1, 2022$(5,792)$(206)$21,153 $15,155 
Other comprehensive income (loss) before reclassifications — 154 (100,765)(100,611)
Amounts reclassified from other comprehensive loss— 52 — 52 
Net current period other comprehensive income (loss)— 206 (100,765)(100,559)
Ending balance at June 30, 2022$(5,792)$— $(79,612)$(85,404)

During the three-month and the six-month periods ended June 30, 2023, there were no reclassifications out of accumulated other comprehensive loss. During the three-month and the six-month periods ended June 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 six months ended June 30, 2023 and 2022.
 
Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands, except common share and per common share data)2023202220232022
Numerator:  
Net income$31,584 $34,324 $65,317 $73,199 
Denominator:  
Weighted-average common shares outstanding16,165,119 16,249,307 16,203,736 16,234,598 
Effect of dilutive PBRSUs and TBRSUs75,481 111,939 78,957 111,543 
Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs16,240,600 16,361,246 16,282,693 16,346,141 
Earnings per common share:  
Basic earnings per common share$1.95 $2.11 $4.03 $4.51 
Diluted earnings per common share$1.94 $2.10 $4.01 $4.48 

Park awarded 54,698 PBRSUs and 52,335 PBRSUs to certain employees during the six months ended June 30, 2023 and 2022, respectively. No PBRSUs were awarded during either of the three months ended June 30, 2023 or 2022.

Park repurchased an aggregate of 25,000 and 149,000 common shares during the three months and the six months ended June 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 six months ended June 30, 2022.

Note 17 – Segment Information
 
The Corporation is a financial holding company headquartered in Newark, Ohio. The reportable segment for the Corporation is its chartered national bank subsidiary, PNB (headquartered in Newark, Ohio). "All Other", which primarily consists of Park as the "Parent Company", GFSC and SEPH, is shown to reconcile the segment totals to the Consolidated Condensed Statements of Income.
 
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 one reportable segment, as: (i) discrete financial information
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is available for this reportable segment and (ii) the segment is aligned with internal reporting to Park’s Chief Executive Officer, who is the chief operating decision-maker.

 Operating Results for the three months ended June 30, 2023
(In thousands)PNBAll OtherTotal
Net interest income (expense)$93,549 $(1,977)$91,572 
Provision for (recovery of) credit losses2,524 (32)2,492 
Other income (loss)25,091 (76)25,015 
Other expense73,121 2,764 75,885 
Income (loss) before income taxes$42,995 $(4,785)$38,210 
Income tax expense (benefit)7,510 (884)6,626 
Net income (loss)$35,485 $(3,901)$31,584 
Assets (at June 30, 2023)$9,857,452 $42,099 $9,899,551 
 
 Operating Results for the three months ended June 30, 2022
(In thousands)PNBAll OtherTotal
Net interest income$83,411 $528 $83,939 
Provision for (recovery of) credit losses3,357 (366)2,991 
Other income29,255 1,938 31,193 
Other expense66,214 3,834 70,048 
Income (loss) before income taxes$43,095 $(1,002)$42,093 
Income tax expense (benefit)8,155 (386)7,769 
Net income (loss)$34,940 $(616)$34,324 
Assets (at June 30, 2022) $9,794,711 $31,959 $9,826,670 

 Operating Results for the six months ended June 30, 2023
(In thousands)PNBAll OtherTotal
Net interest income (expense)$187,138 $(3,368)$183,770 
Provision for (recovery of) credit losses3,439 (764)2,675 
Other income49,353 49 49,402 
Other expense146,118 6,270 152,388 
Income (loss) before income taxes$86,934 $(8,825)$78,109 
Income tax expense (benefit)15,180 (2,388)12,792 
Net income (loss)$71,754 $(6,437)$65,317 

 Operating Results for the six months ended June 30, 2022
(In thousands)PNBAll OtherTotal
Net interest income (expense)$162,783 $(1,158)$161,625 
Recovery of credit losses(1,190)(424)(1,614)
Other income60,502 2,347 62,849 
Other expense130,430 6,991 137,421 
Income (loss) before income taxes$94,045 $(5,378)$88,667 
Income tax expense (benefit)17,637 (2,169)15,468 
Net income (loss)$76,408 $(3,209)$73,199 
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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 six-month periods ended June 30, 2023 and 2022. The reconciling amounts for consolidated total assets for the periods ended June 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 June 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 June 30, 2023, 75,000 common shares were available for future grants under the 2017 Non-Employee Directors LTIP.

During the six months ended June 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 June 30, 2023 or 2022.

As of June 30, 2023, Park has 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 six months ended June 30, 2023 follows:

Common shares subject to PBRSUs
Nonvested at January 1, 2023199,650 
Granted54,698 
Vested(62,815)
Forfeited(1,912)
Adjustment for performance conditions of PBRSUs (1)
— 
Nonvested at June 30, 2023 (2)
189,621 
(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 June 30, 2023, an aggregate of 184,732 PBRSUs were expected to vest.

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A summary of awards vested during the three months and the six months ended June 30, 2023 and 2022 follows:

Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
PBRSUs and TBRSUs vested6,350— 62,81548,415 
Common shares withheld to satisfy employee income tax withholding obligations1,992— 23,97318,658 
Net common shares issued4,358—38,84229,757

Share-based compensation expense of $1.7 million and $1.4 million was recognized for the three-month periods ended June 30, 2023 and 2022, respectively, and share-based compensation expense of $4.1 million and $3.4 million was recognized for the six-month periods ended June 30, 2023 and 2022, respectively.

The following table details expected additional share-based compensation expense related to PBRSUs outstanding at June 30, 2023:

(In thousands)
Six months ending December 31, 2023$2,733 
20244,415 
20252,887 
20261,203 
2027193 
Total$11,431 

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 six-month periods ended June 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) expense:

Three Months Ended
June 30,		Six Months Ended
June 30, 		Affected Line Item in the Consolidated
Condensed Statements of Income
(In thousands)2023202220232022
Service cost$1,559 $2,437 $3,118 $4,874 Employee benefits
Interest cost1,631 1,426 3,262 2,852 Other components of net
periodic pension benefit income
Expected return on plan assets(3,536)(4,449)(7,072)(8,898)Other components of net
periodic pension benefit income
Recognized prior service cost (credit)12 (4)24 (8)Other components of net
periodic pension benefit income
Net periodic pension benefit income$(334)$(590)$(668)$(1,180)

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 six months ended June 30, 2023 and 2022 was as follows:

Three Months Ended
June 30,		Six Months Ended
June 30, 		Affected Line Item in the Consolidated
Condensed Statements of Income
(In thousands)2023202220232022
Service cost$234 $212 $468 $425 Employee benefits
Interest cost175 183 351 366 Miscellaneous expense
Total SERP expense$409 $395 $819 $791 

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 June 30, 2023 using:
(In thousands)Level 1Level 2Level 3Balance at June 30, 2023
Assets    
Investment securities:    
Obligations of U.S. Government sponsored entities$— $37,113 $— $37,113 
Obligations of states and political subdivisions— 407,464 — 407,464 
U.S. Government sponsored entities’ asset-backed securities— 687,378 — 687,378 
Collateralized loan obligations— 521,401 — 521,401 
Corporate debt securities— 9,392 6,116 15,508 
Equity securities2,265 — 455 2,720 
Mortgage loans held for sale— 3,486 — 3,486 
Mortgage IRLCs— 41 — 41 
Loan interest rate swaps— 1,390 — 1,390 
Liabilities    
Fair value swap$— $— $296 $296 
Loan interest rate swaps— 1,390 — 1,390 
 
Fair Value Measurements at December 31, 2022 using:
(In thousands)Level 1Level 2Level 3Balance at December 31, 2022
Assets    
Investment securities:    
Obligations of U.S. Government sponsored entities$— $37,213 $— $37,213 
Obligations of states and political subdivisions— 406,711 — 406,711 
U.S. Government sponsored entities’ asset-backed securities— 756,761 — 756,761 
Collateralized loan obligations— 516,539 — 516,539 
Corporate debt securities— 9,472 7,000 16,472 
Equity securities1,420 — 439 1,859 
Mortgage loans held for sale— 2,149 — 2,149 
Mortgage IRLCs— 46 — 46 
Loan interest rate swaps— 1,508 — 1,508 
Liabilities    
Fair value swap$— $— $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 six-month periods ended June 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 June 30, 2023 and 2022
(In thousands)Corporate Debt SecuritiesEquity securitiesFair value
swap
Balance at April 1, 2023$6,855 $449 $(121)
Transfer into (out of) level 3, net(611)— — 
Total (losses) / gains  
Included in other income / other expense— 6 (175)
    Included in other comprehensive income(128)— — 
Balance at June 30, 2023$6,116 $455 $(296)
Balance at April 1, 2022$— $491 $(226)
Total losses  
Included in other income / other expense— — (221)
Balance at June 30, 2022$— $491 $(447)

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Level 3 Fair Value Measurements
Six months ended June 30, 2023 and 2022
(In thousands)Corporate Debt SecuritiesEquity securitiesFair value
swap
Balance at January 1, 2023$7,000 $439 $(243)
Transfers into (out of) level 3, net11 — — 
Total (losses) / gains  
Included in other income / other expense— 16 (175)
    Included in other comprehensive income(895)— — 
Purchases, sales, issuances and settlements, other, net— — 122 
Balance at June 30, 2023$6,116 $455 $(296)
Balance at January 1, 2022$— $499 $(226)
Total losses  
Included in other income / other expense— (8)(221)
Balance at June 30, 2022$— $491 $(447)

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

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

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

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

The following tables present assets and liabilities measured at fair value on a nonrecurring basis. Individually evaluated collateral dependent loans secured by real estate are carried at fair value if they have been charged down to fair value or if a specific valuation allowance has been established. At June 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 June 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 June 30, 2023 using:
(In thousands)Level 1Level 2Level 3Balance at June 30, 2023
Individually evaluated collateral dependent loans recorded at fair value:    
Commercial real estate$— $— $2,767 $2,767 
Residential real estate— — 190 190 
Total individually evaluated collateral dependent loans recorded at fair value$— $— $2,957 $2,957 
MSRs$— $812 $— $812 
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Fair Value Measurements at December 31, 2022 using:
(In thousands)Level 1Level 2Level 3Balance at December 31, 2022
Individually evaluated collateral dependent loans recorded at fair value:    
Commercial real estate$— $— $5,573 $5,573 
Residential real estate— — 200 200 
Total individually evaluated collateral dependent loans recorded at fair value$— $— $5,773 $5,773 
MSRs$— $1,717 $— $1,717 

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

June 30, 2023
(In thousands)Loan BalancePrior Charge-OffsSpecific Valuation AllowanceCarrying Balance
Total individually evaluated collateral dependent loans recorded at fair value$3,190 $1,824 $233 $2,957 
Remaining individually evaluated loans 40,697 244 3,899 36,798 
Total individually evaluated loans$43,887 $2,068 $4,132 $39,755 

December 31, 2022
(In thousands)Loan BalancePrior Charge-OffsSpecific Valuation AllowanceCarrying Balance
Total individually evaluated collateral dependent loans recorded at fair value$5,903 $1,523 $130 $5,773 
Remaining individually evaluated loans72,438 252 3,436 69,002 
Total individually evaluated loans$78,341 $1,775 $3,566 $74,775 

The expense from credit adjustments related to individually evaluated loans carried at fair value was $0.6 million and $1.0 million for the three-month periods ended June 30, 2023 and 2022, respectively, and was $0.7 million and $1.0 million for the six-month periods ended June 30, 2023 and 2022, respectively.

MSRs totaled $15.2 million at June 30, 2023. Of this $15.2 million MSR carrying balance, $0.8 million were recorded at fair value and included a valuation allowance of $101,000. The remaining $14.4 million were recorded at cost, as the fair value exceeded cost at June 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 related to MSRs carried at fair value during the three-month periods ended June 30, 2023 and June 30, 2022 was $67,000 and $894,000, respectively, and was $81,000 and $1.3 million for the six-month periods ended June 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 June 30, 2023 and December 31, 2022:

June 30, 2023
(In thousands)Fair ValueValuation TechniqueUnobservable Input(s)Range
(Weighted Average)
Individually evaluated collateral dependent loans:    
Commercial real estate$2,767 Sales comparison approachAdj to comparables
3.9% - 202.0% (26.9%)
Income approachCapitalization rate
7.5% - 9.3% (8.6%)
Residential real estate$190 Sales comparison approachAdj to comparables
1.2% - 78.6% (7.8%)

December 31, 2022
(In thousands)Fair ValueValuation TechniqueUnobservable Input(s)Range
(Weighted Average)
Individually evaluated collateral dependent loans:    
Commercial real estate$5,573 Sales comparison approachAdj to comparables
0.0% - 202.0% (19.4%)
Income approachCapitalization rate
7.0% - 10.0% (7.9%)
Cost approachEntrepreneurial profit
10.0% - 12.0% (11.4%)
Cost approachAccumulated depreciation
  38.8% (38.8%)
Residential real estate$200 Sales comparison approachAdj 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 June 30, 2023 and December 31, 2022, Park had Partnership Investments with a NAV of $24.2 million and $24.4 million, respectively. At June 30, 2023 and December 31, 2022, Park had $21.6 million and $20.3 million, respectively, in unfunded commitments related to these Partnership Investments. For the three-month periods ended June 30, 2023 and 2022, Park recognized income of $137,000 and $90,000, respectively, and for the six-month periods ended June 30, 2023 and 2022, recognized (expense) income of $(241,000) and $2.5 million, respectively, related to these Partnership Investments.

The fair value of certain financial instruments at June 30, 2023 and December 31, 2022, was as follows:

June 30, 2023
  Fair Value Measurements
(In thousands)Carrying valueLevel 1Level 2Level 3Total fair value
Financial assets:
Cash and money market instruments$230,397 $230,397 $— $— $230,397 
Investment securities (1)
1,668,864 — 1,662,748 6,116 1,668,864 
Other investment securities (2)
2,720 2,265 — 455 2,720 
Mortgage loans held for sale3,486 — 3,486 — 3,486 
Mortgage IRLCs41 — 41 — 41 
Individually evaluated loans carried at fair value2,957 — — 2,957 2,957 
Other loans, net7,114,419 — — 6,976,485 6,976,485 
Loans receivable, net$7,120,903 $— $3,527 $6,979,442 $6,982,969 
Financial liabilities:     
Time deposits$568,609 $— $565,342 $— $565,342 
Other3,874 3,874 — — 3,874 
Deposits (excluding demand deposits)$572,483 $3,874 $565,342 $— $569,216 
Short-term borrowings$143,914 $— $143,914 $— $143,914 
Subordinated notes188,904 — 169,529 — 169,529 
Derivative financial instruments - assets:
Loan interest rate swaps$1,390 $— $1,390 $— $1,390 
Derivative financial instruments - liabilities:     
Fair value swap$296 $— $— $296 $296 
Loan interest rate swaps1,390 — 1,390 — 1,390 
(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 valueLevel 1Level 2Level 3Total 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 sale2,149 — 2,149 — 2,149 
Mortgage IRLCs46 — 46 — 46 
Individually evaluated loans carried at fair value5,773 — — 5,773 5,773 
Other loans, net7,048,544 — — 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 
Other1,325 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 notes188,667 — 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 swaps1,508 — 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 table presents the Corporation's sources of other income by revenue stream and operating segment for the three-month and the six-month periods ended June 30, 2023 and June 30, 2022:

Three Months Ended
June 30, 2023
Revenue by Operating Segment (in thousands)PNBAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$2,571 $— $2,571 
   Employee benefit and retirement-related accounts2,467 — 2,467 
   Investment management and investment advisory agency accounts3,273 — 3,273 
   Other505 — 505 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees860 — 860 
    Demand deposit account (DDA) charges1,069 — 1,069 
    Other112 — 112 
Other service income (1)
    Credit card730 — 730 
    HELOC108 — 108 
    Installment35 — 35 
    Real estate1,510 — 1,510 
    Commercial256 — 256 
Debit card fee income6,830 — 6,830 
Bank owned life insurance income (2)
1,279 53 1,332 
ATM fees553 — 553 
Gain on sale of OREO, net12 — 12 
OREO valuation markup— — — 
Gain (loss) on equity securities, net (2)
189 (164)25 
Other components of net periodic pension benefit income (2)
1,857 36 1,893 
Miscellaneous (3)
875 (1)874 
Total other income$25,091 $(76)$25,015 
(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 $0.9 million, all of which were within scope of ASC 606.
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Three Months Ended
June 30, 2022
Revenue by Operating Segment (in thousands)PNBAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$2,764 $— $2,764 
   Employee benefit and retirement-related accounts2,471 — 2,471 
   Investment management and investment advisory agency accounts3,143 — 3,143 
   Other481 — 481 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees1,519 — 1,519 
    Demand deposit account (DDA) charges913 — 913 
    Other131 — 131 
Other service income (1)
    Credit card715 — 715 
    HELOC105 — 105 
    Installment45 — 45 
    Real estate3,274 — 3,274 
    Commercial301 500 801 
Debit card fee income6,731 — 6,731 
Bank owned life insurance income (2)
1,130 1,244 2,374 
ATM fees583 — 583 
Gain on sale of OREO, net4 — 4 
OREO valuation markup— — — 
Gain on equity securities, net (2)
41 668 709 
Other components of net periodic pension benefit income (2)
2,954 73 3,027 
Miscellaneous (3)
1,950 (547)1,403 
Total other income$29,255 $1,938 $31,193 
(1) Of the $4.9 million of aggregate revenue included within "Other service income", approximately $1.7 million was within the scope of ASC 606, with the remaining $3.2 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 $1.4 million, all of which were within scope of ASC 606.

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Six Months Ended
June 30, 2023
Revenue by Operating Segment (in thousands)PNBAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$5,075 $— $5,075 
   Employee benefit and retirement-related accounts4,939 — 4,939 
   Investment management and investment advisory agency accounts6,435 — 6,435 
   Other982 — 982 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees1,921 — 1,921 
    Demand deposit account (DDA) charges2,107 — 2,107 
    Other254 — 254 
Other service income (1)
    Credit card1,413 — 1,413 
    HELOC197 — 197 
    Installment84 — 84 
    Real estate2,965 — 2,965 
    Commercial542 135 677 
Debit card fee income13,287 — 13,287 
Bank owned life insurance income (2)
2,413 104 2,517 
ATM fees1,086 — 1,086 
Gain on sale of OREO, net3 — 3 
OREO valuation markup15 — 15 
Loss on equity securities, net (2)
(118)(262)(380)
Other components of net periodic pension benefit income (2)
3,714 72 3,786 
Miscellaneous (3)
2,039 — 2,039 
Total other income$49,353 $49 $49,402 
(1) Of the $5.3 million of aggregate revenue included within "Other service income", approximately $2.7 million was within the scope of ASC 606, with the remaining $2.6 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 $2.0 million, all of which were within scope of ASC 606.

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Six Months Ended
June 30, 2022
Revenue by Operating Segment (in thousands)PNBAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$5,270 $— $5,270 
   Employee benefit and retirement-related accounts5,031 — 5,031 
   Investment management and investment advisory agency accounts6,403 — 6,403 
   Other952 — 952 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees2,936 — 2,936 
    Demand deposit account (DDA) charges1,429 — 1,429 
    Other272 — 272 
Other service income (1)
    Credit card1,357 — 1,357 
    HELOC194 — 194 
    Installment88 — 88 
    Real estate6,993 — 6,993 
    Commercial655 472 1,127 
Debit card fee income12,857 — 12,857 
Bank owned life insurance income (2)
2,223 1,326 3,549 
ATM fees1,115 — 1,115 
Gain on sale of OREO, net4 — 4 
OREO valuation markup30 — 30 
Gain on equity securities, net (2)
2,260 802 3,062 
Other components of net periodic pension benefit income (2)
5,909 145 6,054 
Miscellaneous (3)
4,524 (398)4,126 
Total other income$60,502 $2,347 $62,849 
(1) Of the $9.8 million of aggregate revenue included within "Other service income", approximately $3.0 million was within the scope of ASC 606, with the remaining $6.8 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 $4.1 million, all of which were within 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, ongoing interest rate increases, changes in the economy or global supply chain, supply-demand imbalances affecting local real estate prices, U.S. fiscal debt, budget and tax matters, geopolitical matters (including the impact of the Russia-Ukraine conflict and associated sanctions and export controls), and any slowdown in global economic growth, in addition to the continuing impact of the COVID-19 pandemic and recovery therefrom on our customers’ operations and financial condition, any of which may result in adverse impacts on the demand for loan, deposit and other financial services, delinquencies, defaults and counterparties' inability to meet credit and other obligations and the possible impairment of collectability of loans;
•factors that can impact the performance of our loan portfolio, including changes in real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance, including any loans acquired in acquisition transactions;
•the effect of monetary and other fiscal policies (including the impact of money supply, 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, 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;
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•Park may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;
•the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;
•the adequacy of our internal controls and risk management program in the event of changes in the market, economic, operational (including those which may result from our associates working remotely), asset/liability repricing, legal, compliance, strategic, cybersecurity, liquidity, credit and interest rate risks associated with Park's business;
•competitive pressures among financial services organizations could increase significantly, including product and pricing pressures (which could in turn impact our credit spreads), changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Park's ability to attract, develop and retain qualified banking professionals;
•uncertainty regarding the nature, timing, cost and effect of changes in banking regulations or other regulatory or legislative requirements affecting the respective businesses of Park and our subsidiaries, including major reform of the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards, securities and other aspects of the financial services industry, specifically the reforms provided for in the Coronavirus Aid, Relief and Economic Security (CARES) Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the Basel III regulatory capital reforms, as well as regulations already adopted and which may be adopted in the future by the relevant regulatory agencies, including the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve Board, to implement the provisions of the CARES Act and the follow-up legislation in the Consolidated Appropriations Act, 2021, the provisions of the American Rescue Plan Act of 2021, the provisions of the Dodd-Frank Act, and the Basel III regulatory capital reforms;
•Park's ability to meet heightened supervisory requirements and expectations;
•the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (the "FASB"), the SEC, the Public Company Accounting Oversight Board and other regulatory agencies, may adversely affect Park's reported financial condition or results of operations;
•Park's assumptions and estimates used in applying critical accounting policies and modeling, including under the CECL model, which may prove unreliable, inaccurate or not predictive of actual results;
•the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions;
•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) 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, especially in light of the COVID-19 pandemic, which may increase our healthcare and other costs and negatively impact our operations and financial results;
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•risks and uncertainties associated with Park's entry into new geographic markets with our most recent acquisitions, including expected revenue synergies and cost savings from recent acquisitions not being fully realized or realized within the expected time frame;
•uncertainty surrounding the transition from the London Inter-Bank Offered Rate (LIBOR) to an alternate reference rate;
•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 and First Republic Bank in California, 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 and in "Item 1A. Risk Factors" of Part II of this Quarter Report on Form 10-Q.

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 it to be helpful in understanding Park’s results of operations or financial position. Where non-U.S. GAAP financial measures are used, the comparable U.S. GAAP financial measure, as well as the reconciliation to the comparable U.S. GAAP financial measure, can be found herein.

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

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

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

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

Non-U.S. GAAP Financial Measures
Park's management uses certain non-U.S. GAAP financial measures to evaluate Park's performance. Specifically, management reviews the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio, 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 six months ended and at June 30 2023 and June 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
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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 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 to average shareholders' equity, average tangible assets to average assets, tangible equity to total shareholders' equity, tangible assets to total assets, and pre-tax, pre-provision net income to net income solely for the purpose of complying with SEC Regulation G and not as an indication that the 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.

Paycheck Protection Program ("PPP") Loans
Park originated an aggregate of $764.7 million in loans as part of the PPP. For its assistance in making and retaining these loans, Park received an aggregate of $33.1 million in fees from the SBA. These loans are not typical of Park's loan portfolio in that they are part of a specific government program to support businesses during the COVID pandemic and are 100% guaranteed by SBA. As such, management considers growth in the loan portfolio excluding PPP loans, the total allowance for credit losses to total loans ratio (excluding PPP loans), and general reserve on collectively evaluated loans as a percentage of total collectively evaluated loans (excluding PPP loans) in addition to the related U.S. GAAP metrics which are not adjusted for PPP loans.

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.

Recent bank failures have called into question the stability of the financial services industry. While Park is well capitalized and has significant available liquidity, the effects of these failures and potential future failures may meaningfully impact significant estimates such as the allowance for credit losses, goodwill, and pension plan obligations and related expenses.
 
Allowance for Credit Losses: Park believes the determination of the allowance for credit losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for credit losses is calculated with the
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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) the military conflict between Russia and Ukraine persists longer than anticipated worsening supply-chain conditions and weakening manufacturing; (2) 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; (3) the Federal Reserve Board initially keeps the fed funds rate elevated due to continued concerns about inflation, though a bit less than in the baseline because of weakening economic conditions; (4) recent bank failures raise fears of further collapse in the banking industry, reducing consumer confidence and causing banks to tighten lending standards; and (5) the economy falls into recession in the third quarter of 2023. The adverse scenario forecasts Ohio unemployment for the next twelve months to range from 6.2% to 9.0%. Excluding consideration of general reserve adjustments, this sensitivity analysis would result in a hypothetical increase in Park's ACL of $28.5 million as of June 30, 2023 if only the adverse scenario was used. Excluding consideration of general reserve adjustments, a corresponding $28.5 million decrease in Park's ACL would occur in a hypothetical scenario if only the baseline (most likely) scenario was used.

Refer to the "Credit Metrics and Provision for (Recovery of) Credit Losses" section 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 June 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.

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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 Six Months Ended June 30, 2023 and 2022
 
Summary Discussion of Results

Net income for the three months ended June 30, 2023 was $31.6 million, compared to $34.3 million for the second quarter of 2022. Diluted earnings per common share were $1.94 for the second quarter of 2023, compared to $2.10 for the second quarter of 2022. Weighted average diluted common shares outstanding were 16,240,600 for the second quarter of 2023, compared to 16,361,246 weighted average diluted common shares outstanding for the second quarter of 2022.

Net income for the six months ended June 30, 2023 was $65.3 million, compared to $73.2 million for the first half of 2022. Diluted earnings per common share were $4.01 for the first half of 2023, compared to $4.48 for the first half of 2022. Weighted average diluted common shares outstanding were 16,282,693 for the first half of 2023, compared to 16,346,141 weighted average diluted common shares outstanding for the first half of 2022.

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, off balance sheet deposits, unpledged investment securities and available FHLB borrowing capacity, totaled $2.53 billion at June 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 loss, net of applicable income taxes. The table below provides additional detail on Park's debt securities portfolio and capital position.

(Dollars in thousands)June 30, 2023December 31, 2022June 30, 2022% change from 12/31/22% change from 06/30/22
Net unrealized losses on debt securities114,058 121,156 100,774 (5.86)%13.18 %
Net unrealized losses on debt securities as a percentage of period end total assets1.15 %1.23 %1.03 %(6.50)%11.65 %
Total shareholders' equity / Period end total assets11.00 %10.85 %10.69 %1.38 %2.90 %
Tangible equity / Tangible assets (1)
9.49 %9.33 %9.15 %1.71 %3.72 %
(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.

Deposits

Park's deposits grew during the COVID pandemic and normalized throughout 2022. 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
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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 National Corporation.

(Dollars in thousands)June 30, 2023March 31, 2023December 31, 2022December 31, 2021December 31, 2020December 31, 2019
Retail Deposits
Non-interest bearing deposits$1,130,037 $1,176,545 $1,193,807 $1,195,530 $1,077,107 $801,035 
Transaction accounts890,317 939,026 994,717 1,004,532 900,093 760,640 
Savings1,631,772 1,702,824 1,744,713 1,669,373 1,427,687 1,461,347 
Certificates of deposit484,275 445,552 455,157 546,793 620,965 725,017 
Total retail deposits$4,136,401 $4,263,947 $4,388,394 $4,416,228 $4,025,852 $3,748,039 
$ change from prior period end$(127,546)$(124,447)$(27,834)$390,376 $277,813 
% change from prior period end(3.0)%(2.8)%(0.6)%9.7 %7.4 %
Commercial Deposits
Non-interest bearing deposits$1,665,972 $1,745,697 $1,880,469 $1,870,889 $1,649,992 $1,158,900 
Transaction accounts1,347,815 1,231,790 993,388 498,344 481,386 868,102 
Savings1,124,454 966,712 873,176 954,200 1,171,521 863,458 
Certificates of deposit84,334 86,298 99,288 164,867 243,607 414,113 
Total commercial deposits$4,222,575 $4,030,497 $3,846,321 $3,488,300 $3,546,506 $3,304,573 
$ change from prior period end$192,078 $184,176 $358,021 $(58,206)$241,933 
% change from prior period end4.8 %4.8 %10.3 %(1.6)%7.3 %
Total deposits8,358,976 8,294,444 8,234,715 7,904,528 7,572,358 7,052,612 
$ change from prior period end$64,532 $59,729 $330,187 $332,170 $519,746 
% change from prior period end0.8 %0.7 %4.2 %4.4 %7.4 %
Off balance sheet deposits767 164,600 195,937 983,053 710,101 — 
Total deposits including off balance sheet deposits$8,359,743 $8,459,044 $8,430,652 $8,887,581 $8,282,459 $7,052,612 
$ change from prior period end$(99,301)$28,392 $(456,929)$605,122 $1,229,847 
% change from prior period end(1.2)%0.3 %(5.1)%7.3 %17.4 %

During the three months ended June 30, 2023, total deposits including off balance sheet deposits decreased by $99.3 million, or 1.2%. This decrease consisted of a $127.5 million decrease in total retail deposits and a $163.8 million decrease in off balance sheet deposits, partially offset by a $192.1 million increase in total commercial deposits. During the six months ended June 30, 2023, total deposits including off balance sheet deposits decreased by $70.9 million, or 0.8%. This decrease consisted of a $252.0 million decrease in total retail deposits and a $195.2 million decrease in off balance sheet deposits, partially offset by a $376.3 million increase in total commercial deposits. The majority of off balance sheet deposits are commercial and would also impact the increase in commercial deposits, as the deposits are moved back onto the balance sheet.

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Included in total commercial deposits and off balance sheet deposits above are public fund deposits. These balances fluctuate based on seasonality and the cycle of collection and remittance of tax funds. The public fund deposit increases during the three months and the six months ended June 30, 2023 are consistent with historical seasonality. The following table details the change in public fund deposits.

(Dollars in thousands)June 30, 2023March 31, 2023December 31, 2022December 31, 2021December 31, 2020December 31, 2019
Total public fund deposits$1,429,770 $1,346,261 $1,108,055 $1,334,431 $1,088,871 $1,117,433 
$ change from prior period end$83,509 $238,206 $(226,376)$245,560 $(28,562)
% change from prior period end6.2 %21.5 %(17.0)%22.6 %(2.6)%

As of June 30, 2023, Park had approximately $1.4 billion of uninsured deposits, which represented 17.0% of total deposits. Uninsured deposits of $1.4 billion included $301 million of deposits which were over $250,000 but were fully collateralized by Park's investment securities portfolio.

Financial Results by Segment

The table below reflects the net income (loss) by segment for the first and second quarters of 2023, for the first half of each of 2023 and 2022 (the six months ended June 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)Q2 2023Q1 2023Six months YTD 2023Six months YTD 202220222021
PNB$35,485 $36,269 $71,754 $76,408 $143,243 $159,461 
All Other(3,901)(2,536)(6,437)(3,209)5,108 (5,516)
   Total Park$31,584 $33,733 $65,317 $73,199 $148,351 $153,945 

Highlights from the three-month and six-month periods ended June 30, 2023 and 2022 included:

•Net income for the three months ended June 30, 2023 of $31.6 million represented a $2.7 million, or 8.0%, decrease compared to $34.3 million for the three months ended June 30, 2022. Net income for the six months ended June 30, 2023 of $65.3 million represented a $7.9 million, or 10.8%, decrease compared to $73.2 million for the six months ended June 30, 2022.
•Pre-tax, pre-provision net income for the three months ended June 30, 2023 of $40.7 million represented a $4.4 million, or 9.7%, decrease compared to $45.1 million for the three months ended June 30, 2022. Pre-tax, pre-provision net income for the six months ended June 30, 2023 of $80.8 million represented a $6.3 million, or 7.2%, decrease compared to $87.1 million for the six months ended June 30, 2022.
•Net interest income for the three months ended June 30, 2023 of $91.6 million represented a $7.6 million, or 9.1%, increase compared to $83.9 million for the three months ended June 30, 2022. Net interest income for the six months ended June 30, 2023 of $183.8 million represented a $22.1 million, or 13.7%, increase compared to $161.6 million for the six months ended June 30, 2022.
•During the three months ended June 30, 2023, Park recorded interest income of $15,000 related to PPP loans, compared to $1.0 million for the three months ended June 30, 2022. During the six months ended June 30, 2023, Park recorded interest income of $41,000 related to PPP loans, compared to $2.6 million for the six months ended June 30, 2022.
•PNB loans outstanding at June 30, 2023 (i) increased 3.6% compared to at June 30, 2022, (ii) increased 0.9% compared to at December 31, 2022, and (iii) increased 1.6% compared to at March 31, 2023.
•Park's loan portfolio had net loan charge-offs as a percentage of average loans of 0.07% for the three months ended June 30, 2023, compared to net loan charge-offs as a percentage of average loans of 0.02% for the three months ended June 30, 2022. Park's loan portfolio had net loan charge-offs as a percentage of average loans of 0.03% for the six months ended June 30, 2023, compared to net loan charge-offs as a percentage of average loans of 0.0% for the six months ended June 30, 2022.

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Net income for each of the three months ended June 30, 2023 and June 30, 2022 and for each of the six months ended June 30, 2023 and June 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 All Other.

The Park National Bank (PNB)

The table below reflects PNB's net income for the first and second quarters of 2023, for the first half of each of 2023 and 2022 (the six months ended June 30) and for the years ended December 31, 2022 and 2021.

(In thousands)Q2 2023Q1 2023Six months YTD 2023Six months YTD 202220222021
Net interest income$93,549 $93,589 $187,138 $162,783 $350,646 $328,398 
Provision for (recovery of) credit losses 2,524 915 3,439 (1,190)5,834 (8,554)
Other income25,091 24,262 49,353 60,502 115,211 126,802 
Other expense73,121 72,997 146,118 130,430 283,670 266,678 
Income before income taxes$42,995 $43,939 $86,934 $94,045 $176,353 $197,076 
Income tax expense7,510 7,670 15,180 17,637 33,110 37,615 
Net income$35,485 $36,269 $71,754 $76,408 $143,243 $159,461 

Net interest income of $187.1 million for the six months ended June 30, 2023 represented a $24.4 million, or 15.0%, increase compared to $162.8 million for the six months ended June 30, 2022. The increase was a result of a $58.0 million increase in interest income, partially offset by a $33.6 million increase in interest expense.

The $58.0 million increase in interest income was due to a $39.7 million increase in interest income on loans and a $18.2 million increase in investment income. The $39.7 million increase in interest income on loans was primarily the result of a $281.5 million increase in average loans, from $6.83 billion for the six months ended June 30, 2022 to $7.12 billion for the six months ended June 30, 2023, as well as an increase in the yield on loans, which increased 95 basis points to 5.32% for the six months ended June 30, 2023, compared to 4.37% for the six months ended June 30, 2022. The $18.2 million increase in investment income was primarily the result of an increase in the yield on investments, which increased 180 basis points to 3.81% for the six months ended June 30, 2023, compared to 2.01% for the six months ended June 30, 2022. The increase in the yield on investments was partially offset by a decrease in average investments, including money market investments, from $2.07 billion for the six months ended June 30, 2022 to $2.06 billion for the six months ended June 30, 2023.

The $33.6 million increase in interest expense was due to a $32.5 million increase in interest expense on deposits, as well as a $1.1 million increase in interest expense on borrowings. The increase in interest expense on deposits was the result of a $398.2 million increase in average on-balance sheet interest bearing deposits from $5.09 billion for the six months ended June 30, 2022, to $5.49 billion for the six months ended June 30, 2023 as well as an increase in the cost of deposits of 119 basis points, from 0.12% for the six months ended June 30, 2022 to 1.31% for the six months ended June 30, 2023. The increase in on-balance sheet interest bearing deposits was due to an increase in transaction accounts and savings accounts, which was partially offset by a decrease in time deposits. During each of the six months ended June 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 $3.4 million for the six months ended June 30, 2023 represented a difference of $4.6 million, compared to a recovery of credit losses of $1.2 million for the six months ended June 30, 2022. Refer to the “Credit Metrics and Provision for (Recovery of) Credit Losses” section for additional details regarding the level of the provision for (recovery of) credit losses recognized in each period presented above.

Other income of $49.4 million for the six months ended June 30, 2023 represented a decrease of $11.1 million, or 18.4%, compared to $60.5 million for the six months ended June 30, 2022. The $11.1 million decrease was primarily related to (i) a $4.1 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 $2.5 million decrease in other miscellaneous income, which was primarily due to decreases in the net gain on the sale of
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other assets and in other fee income; (iii) a $2.4 million change in (loss) gain on equity securities, net, from a $2.3 million gain for the six months ended June 30, 2022 to a $118,000 loss for the six months ended June 30, 2023; and (iv) a $2.2 million decrease in other components of net periodic benefit income. These decreases were partially offset by a $430,000 increase in debit card fee income.

A summary of mortgage loan originations for the first and second quarters of 2023 and 2022 and the years ended December 31, 2022 and 2021 follows.

(In thousands)Q2 2023Q1 2023Q2 2022Q1 202220222021
Mortgage Loan Origination Volume
Sold$15,805$13,756$50,013$69,053$159,142$555,278
Portfolio65,25232,74363,10453,498263,287284,686
Construction20,65913,12434,04432,928120,794119,555
Service released1,5831,5764,5804,66014,73813,802
Total mortgage loan originations$103,299$61,199$151,741$160,139$557,961$973,321
Refinances as a % of Total Mortgage Loan Originations19.1 %24.7 %25.9 %41.7 %29.4 %54.2 %

Total mortgage loan originations decreased $147.4 million, or 47.3%, to $164.5 million for the six months ended June 30, 2023 compared to $311.9 million for the six months ended June 30, 2022.

The table below reflects PNB's total other expense for the six months ended June 30, 2023 and 2022.

(Dollars in thousands)20232022$ change% change
Other expense:
Salaries$66,604 $59,459 $7,145 12.0 %
Employee benefits21,234 20,467 767 3.7 %
Occupancy expense6,549 6,255 294 4.7 %
Furniture and equipment expense6,348 5,870 478 8.1 %
Data processing fees18,163 15,757 2,406 15.3 %
Professional fees and services12,153 9,553 2,600 27.2 %
Marketing2,512 2,335 177 7.6 %
Insurance3,766 2,642 1,124 42.5 %
Communication2,021 1,800 221 12.3 %
State tax expense2,145 2,216 (71)(3.2)%
Amortization of intangible assets655 805 (150)(18.6)%
Miscellaneous3,968 3,271 697 21.3 %
Total other expense$146,118 $130,430 $15,688 12.0 %

Total other expense of $146.1 million for the six months ended June 30, 2023 represented an increase of $15.7 million, or 12.0%, compared to $130.4 million for the six months ended June 30, 2022. The increase in salaries expense was primarily related to increases in base salary expense and share-based compensation expense, partially offset by a decrease in additional 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, temporary wages, legal expense, IntraFi insured deposit fees 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
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expense for the allowance for unfunded lines of credit, other miscellaneous expense and increased training and travel-related expenses, which were partially offset by a decrease in operating lease depreciation expense.

The table below provides certain balance sheet information and financial ratios for PNB as of or for the six months ended June 30, 2023 and 2022 and as of or for the year ended December 31, 2022.

(Dollars in thousands)June 30, 2023December 31, 2022June 30, 2022% change from 12/31/22% change from 06/30/22
Loans (1)
7,207,862 7,141,362 6,957,611 0.93 %3.60 %
Loans less PPP loans (2)
7,204,784 7,137,156 6,944,183 0.95 %3.75 %
Allowance for credit losses87,204 85,370 81,415 2.15 %7.11 %
Net loans7,120,658 7,055,992 6,876,196 0.92 %3.56 %
Investment securities1,730,814 1,796,613 1,904,387 (3.66)%(9.11)%
Total assets9,857,452 9,815,951 9,794,711 0.42 %0.64 %
Total deposits8,656,161 8,534,320 8,575,310 1.43 %0.94 %
Average assets (3)
9,950,119 10,011,932 9,723,664 (0.62)%2.33 %
Efficiency ratio (4)
61.31 %60.43 %57.98 %1.46 %5.74 %
Return on average assets (5)
1.45 %1.43 %1.58 %1.40 %(8.23)%
(1) Excluded from total loans at June 30, 2022 were $6.3 million in commercial loans held for sale. There were no similar exclusions at June 30, 2023 or December 31, 2022.
(2) Excludes $3.1 million, $4.2 million and $13.4 million of PPP loans at June 30, 2023, December 31, 2022 and June 30, 2022.
(3) Average assets for the six months ended June 30, 2023 and 2022 and for the year ended December 31, 2022.
(4) Efficiency ratio is calculated by dividing total other expense by the sum of FTE net interest income and other income. FTE net interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustments were $1.8 million for the six months ended June 30, 2023, $3.5 million for the year ended December 31 2022 and $1.7 million for the six months ended June 30 2022.
(5) Annualized for the six months ended June 30, 2023 and 2022.

Loans outstanding at June 30, 2023 were $7.21 billion, compared to (i) $7.14 billion at December 31, 2022, an increase of $66.5 million, and (ii) $6.96 billion at June 30, 2022, an increase of $250.3 million. Excluding $3.0 million, $4.2 million and $13.4 million of PPP loans at June 30, 2023, December 31, 2022 and June 30, 2022, respectively, loans outstanding were $7.20 billion at June 30, 2023, compared to (i) $7.14 billion at December 31, 2022, an increase of $67.6 million, and (ii) $6.94 billion at June 30, 2022, an increase of $260.6 million. The table below breaks out the change in loans outstanding, by loan type.

(Dollars in thousands)June 30, 2023December 31, 2022June 30, 2022$ change from 12/31/22% change from 12/31/22$ change from 6/30/22% change from 6/30/22
Home equity$168,256 $167,232 $162,616 $1,024 0.6 %$5,640 3.5 %
Installment1,945,125 1,921,059 1,820,500 24,066 1.3 %124,625 6.8 %
Real estate1,252,243 1,195,037 1,134,763 57,206 4.8 %117,480 10.4 %
Commercial (excluding PPP loans) (1)(2)
3,835,058 3,850,477 3,821,686 (15,419)(0.4)%13,372 0.3 %
PPP loans3,078 4,206 13,428 (1,128)(26.8)%(10,350)(77.1)%
Other4,102 3,351 4,618 751 22.4 %(516)(11.2)%
Total loans (2)
$7,207,862 $7,141,362 $6,957,611 $66,500 0.9 %$250,251 3.6 %
Total loans (excluding PPP loans) (1)(2)
$7,204,784 $7,137,156 $6,944,183 $67,628 0.9 %$260,601 3.8 %
(1) Excludes $3.1 million of PPP loans at June 30, 2023, $4.2 million of PPP loans at December 31, 2022, and $13.4 million of PPP loans at June 30, 2022.
(2) Excluded from commercial (excluding PPP loans), total loans, and total loans (excluding PPP loans) at June 30, 2022 were $6.3 million in commercial loans held for sale.

Loans outstanding at June 30, 2023 were $7.21 billion, compared to $7.09 billion at March 31, 2023, an increase of $114.4 million. The $114.4 million increase represented a 1.6% (6.5% annualized) increase during the three months ended June 30, 2023. Excluding $3.1 million and $3.4 million of PPP loans at June 30, 2023 and March 31, 2023, respectively, loans outstanding were $7.20 billion at June 30, 2023, compared to $7.09 billion at March 31, 2023, an increase of $114.7 million.
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The $114.7 million increase represented a 1.6% (6.5% annualized) increase during the three months ended June 30, 2023.
The table below breaks out the change in loans outstanding, by loan type.

(Dollars in thousands)June 30, 2023March 31, 2023$ change from 3/31/23% change from 3/31/23
Home equity$168,256 $164,736 $3,520 2.1 %
Installment1,945,125 1,914,781 30,344 1.6 %
Real estate1,252,243 1,210,045 42,198 3.5 %
Commercial (excluding PPP loans) (1)
3,835,058 3,800,284 34,774 0.9 %
PPP loans3,078 3,445 (367)(10.7)%
Other4,102 207 3,895 N.M.
Total loans$7,207,862 $7,093,498 $114,364 1.6 %
Total loans (excluding PPP loans) (1)
$7,204,784 $7,090,053 $114,731 1.6 %
(1) Excludes $3.1 million of PPP loans at June 30, 2023 and $3.4 million of PPP loans at March 31, 2023.

PNB's allowance for credit losses was $87.2 million at June 30, 2023, compared to (i) $85.4 million at December 31, 2022, an increase of $1.8 million, or 2.1%, and (ii) $81.4 million at June 30, 2022, an increase of $5.8 million, or 7.1%. Net charge-offs were $2.0 million, or 0.06% of total average loans, for the six months ended June 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 $506,000, or 0.01% of total average loans, for the six months ended June 30, 2022. Refer to the “Credit Metrics and Provision for (Recovery of) Credit Losses” section for additional information regarding PNB's loan portfolio and the level of provision for (recovery of) credit losses recognized in each period presented.

Total deposits at June 30, 2023 were $8.66 billion, compared to (i) $8.53 billion at December 31, 2022, an increase of $121.8 million, or 1.4%, and (ii) $8.58 billion at June 30, 2022, an increase of $80.9 million, or 0.9%. During the six months ended June 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 June 30, 2023, December 31, 2022 and June 30, 2022, Park had $767,000, $195.9 million, and $809.8 million, respectively, in deposits which were off-balance sheet. Total deposits would have decreased $73.3 million, or 0.8%, compared to December 31, 2022 had the $767,000 and $195.9 million in deposits remained on the balance sheet at the respective dates. Total deposits would have decreased $728.2 million, or 7.8%, compared to June 30, 2022 had the $767,000 and $809.8 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)June 30, 2023December 31, 2022June 30, 2022$ change from 12/31/22% change from 12/31/22$ change from 6/30/22% change from 6/30/22
Non-interest bearing deposits$3,093,460 $3,374,269 $3,336,212 $(280,809)(8.3)%$(242,752)(7.3)%
Transaction accounts2,238,131 1,988,106 1,845,379 250,025 12.6 %392,752 21.3 %
Savings2,755,961 2,617,500 2,719,526 138,461 5.3 %36,435 1.3 %
Certificates of deposit568,609 554,445 674,193 14,164 2.6 %(105,584)(15.7)%
Total deposits$8,656,161 $8,534,320 $8,575,310 $121,841 1.4 %$80,851 0.9 %
Off balance sheet deposits767 195,937 809,792 (195,170)N.M.(809,025)N.M.
Total deposits including off balance sheet deposits$8,656,928 $8,730,257 $9,385,102 $(73,329)(0.8)%$(728,174)(7.8)%

Total deposits at June 30, 2023 were $8.66 billion, compared to $8.58 billion at March 31, 2023, an increase of $73.0 million, or 0.8%. During the six months ended June 30, 2023, 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 June 30, 2023 and March 31, 2023, Park had $767,000 and $164.6 million, respectively, in deposits which were off-balance sheet. Total deposits would have decreased $90.9 million, or 1.0%, compared to March 31, 2023 had
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the $767,000 and $164.6 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)June 30, 2023March 31, 2023$ change from 3/31/23% change from 3/31/23
Non-interest bearing deposits$3,093,460 $3,211,327 $(117,867)(3.7)%
Transaction accounts2,238,131 2,170,814 67,317 3.1 %
Savings2,755,961 2,669,212 86,749 3.2 %
Certificates of deposit568,609 531,851 36,758 6.9 %
Total deposits$8,656,161 $8,583,204 $72,957 0.8 %
Off balance sheet deposits767 164,600 (163,833)N.M.
Total deposits including off balance sheet deposits$8,656,928 $8,747,804 $(90,876)(1.0)%

All Other

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

(In thousands)Q2 2023Q1 2023Six months YTD 2023Six months YTD 202220222021
Net interest (expense) income$(1,977)$(1,391)$(3,368)$(1,158)$(3,587)$1,495 
Recovery of credit losses (32)(732)(764)(424)(1,277)(3,362)
Other income(76)125 49 2,347 20,724 3,142 
Other expense2,764 3,506 6,270 6,991 14,308 16,840 
Net (loss) income before income tax benefit$(4,785)$(4,040)$(8,825)$(5,378)$4,106 $(8,841)
    Income tax benefit(884)(1,504)(2,388)(2,169)(1,002)(3,325)
Net (loss) income$(3,901)$(2,536)$(6,437)$(3,209)$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 National Corporation totals, as well as interest income on GFSC loans and SEPH impaired loan relationships. The net interest (expense) income for All Other also included interest expense on $175.0 million aggregate principal amount of 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030 issued by Park in August 2020 (the "Park Subordinated Notes").

Net interest (expense) income reflected net interest expense of $3.4 million for the six months ended June 30, 2023, compared to net interest expense of $1.2 million for the six months ended June 30, 2022. The change was largely the result of a decrease of $1.7 million in loan interest income related to payment collections at SEPH, a decrease of $157,000 in net interest income from GFSC and an increase in interest expense on borrowings of $338,000 as the result of an increase in average rate.

Refer to the “Credit Metrics and Provision for (Recovery of) Credit Losses” section for additional information regarding the All Other loan portfolio and the level of recovery of credit losses recognized in each period presented.

All Other had other income of $49,000 for the six months ended June 30, 2023, compared to $2.3 million for the six months ended June 30, 2022. The decrease was due to 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 $1.1 million decrease in gain (loss) on equity securities, net.

All Other had other expense of $6.3 million for the six months ended June 30, 2023, compared to $7.0 million for the six months ended June 30, 2022. The decrease was largely due to a $648,000 decrease in professional fees and services expense and a $198,000 decrease in salaries expense.
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Park National Corporation

The table below reflects Park's consolidated net income for the first and second quarters of 2023, for the first half of each of 2023 and 2022 (the six months ended June 30) and for the years ended December 31, 2022, and 2021.

(In thousands)Q2 2023Q1 2023Six months YTD 2023Six months YTD 202220222021
Net interest income$91,572 $92,198 $183,770 $161,625 $347,059 $329,893 
Provision for (recovery of) credit losses 2,492 183 2,675 (1,614)4,557 (11,916)
Other income25,015 24,387 49,402 62,849 135,935 129,944 
Other expense75,885 76,503 152,388 137,421 297,978 283,518 
Income before income taxes$38,210 $39,899 $78,109 $88,667 $180,459 $188,235 
    Income tax expense6,626 6,166 12,792 15,468 32,108 34,290 
Net income$31,584 $33,733 $65,317 $73,199 $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 Second Quarters of 2023 and 2022
 
Net interest income increased by $7.6 million, or 9.1%, to $91.6 million for the second quarter of 2023, compared to $83.9 million for the second quarter of 2022. See the discussion under the table below.
 
Three months ended 
June 30, 2023		Three months ended 
June 30, 2022
(Dollars in thousands)Average
balance		InterestTax
equivalent 
yield/cost		Average
balance		InterestTax
equivalent 
yield/cost
Loans (1)
$7,132,025 $96,575 5.43 %$6,841,376 $77,948 4.57 %
Taxable investments1,418,617 13,431 3.80 %1,481,186 7,624 2.06 %
Tax-exempt investments (2)
421,936 3,679 3.50 %398,295 3,387 3.41 %
Money market instruments149,745 1,909 5.11 %136,232 260 0.77 %
Interest earning assets$9,122,323 $115,594 5.08 %$8,857,089 $89,219 4.04 %
Interest bearing deposits$5,509,022 20,034 1.46 %$5,020,698 2,041 0.16 %
Short-term borrowings158,345 728 1.84 %191,981 190 0.40 %
Long-term debt188,846 2,340 4.97 %188,380 2,177 4.63 %
Interest bearing liabilities$5,856,213 $23,102 1.58 %$5,401,059 $4,408 0.33 %
Excess interest earning assets$3,266,110 $3,456,030  
Tax equivalent net interest income$92,492 $84,811 
Net interest spread 3.50 % 3.71 %
Net interest margin 4.07 % 3.84 %
(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $147,000 for the three months ended June 30, 2023 and $161,000 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 $773,000 for the three months ended June 30, 2023 and $711,000 for the same period of 2022.
 
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Average interest earning assets for the second quarter of 2023 increased by $265.2 million, or 3.0%, to $9,122 million for the second quarter of 2023, compared to $8,857 million for the second quarter of 2022. The average yield on interest earning assets increased by 104 basis points to 5.08% for the second quarter of 2023, compared to 4.04% for the second quarter of 2022.

Interest income for the three months ended June 30, 2023 and 2022 included purchase accounting accretion of $164,000 and $545,000, respectively, related to the acquisitions of NewDominion and Carolina Alliance, as well as $13,000 and $2.3 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 three months ended June 30, 2023 and 2022 also included $15,000 and $1.0 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 4.36% for the three months ended June 30, 2023 and 2022, respectively, and the yield on earning assets was 5.08% and 3.88% for the three months ended June 30, 2023 and 2022, respectively.

Average interest bearing liabilities for the second quarter of 2023 increased by $455.2 million, or 8.4%, to $5,856 million, compared to $5,401 million for the second quarter of 2022. The average cost of interest bearing liabilities increased by 125 basis points to 1.58% for the second quarter of 2023, compared to 0.33% for the second quarter of 2022. During the three months ended June 30, 2023 and 2022, Park continued to participate in a OWS program in order to manage growth of the balance sheet. At June 30, 2023 and 2022, Park had $767,000 and $809.8 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 4.06% and 3.68% for the three months ended June 30, 2023 and 2022, respectively.

Yield on Loans: Average loan balances increased $290.6 million, or 4.2%, to $7,132 million for the second quarter of 2023, compared to $6,841 million for the second quarter of 2022. The average yield on the loan portfolio increased by 86 basis points to 5.43% for the second quarter of 2023, compared to 4.57% for the second quarter of 2022. Average loans for the second quarters of 2023 and 2022 included $3.3 million and $27.8 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 June 30, 2023 and 2022.
Three months ended 
June 30, 2023		Three months ended 
June 30, 2022
(Dollars in thousands)Average
balance		Tax
equivalent 
yield		Average
balance		Tax
equivalent 
yield
Home equity loans$166,806 8.20 %$160,486 4.10 %
Installment loans1,926,504 5.26 %1,738,493 4.64 %
Real estate loans1,228,725 4.27 %1,121,377 3.73 %
Commercial loans (1)
3,806,110 5.77 %3,816,374 4.80 %
Other3,880 9.17 %4,646 7.05 %
Total loans before allowance$7,132,025 5.43 %$6,841,376 4.57 %
(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 $147,000 for the three months ended June 30, 2023 and $161,000 for the same period of 2022.

Loan interest income for the three months ended June 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 8.16%, the yield on installment loans was unchanged at 5.26%, the yield on real estate loans was unchanged at 4.27%, the yield on commercial loans was 5.75% and the yield on total loans before allowance was 5.42% for the three months ended June 30, 2023; and (b) the yield on home equity loans was 3.96%, the yield on installment loans was unchanged at 4.64%, the yield on real estate loans was 3.72%, the yield on
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commercial loans was 4.44% and the yield on total loans before allowance was 4.36% for the three months ended June 30, 2022.

Cost of Deposits: Average interest bearing deposit balances increased $488.3 million, or 9.7%, to $5,509 million for the second quarter of 2023, compared to $5,021 million for the second quarter of 2022. The average cost of funds on deposit balances increased by 130 basis points to 1.46% for the second quarter of 2023, compared to 0.16% for the second quarter of 2022. The table below shows for the three months ended June 30, 2023 and 2022, the average balance and cost of funds by type of deposit.

Three months ended 
June 30, 2023		Three months ended 
June 30, 2022
(Dollars in thousands)Average
balance		Cost of fundsAverage
balance		Cost of funds
Transaction accounts$2,212,568 1.47 %$1,703,192 0.09 %
Savings deposits and clubs2,754,020 1.45 %2,633,478 0.14 %
Time deposits542,434 1.45 %684,028 0.42 %
Total interest bearing deposits$5,509,022 1.46 %$5,020,698 0.16 %

Comparison for the First Half of 2023 and 2022
 
Net interest income increased by $22.1 million, or 13.7%, to $183.8 million for the first half of 2023, compared to $161.6 million for the first half of 2022. See the discussion under the table below.
 
Six months ended 
June 30, 2023		Six months ended 
June 30, 2022
(Dollars in thousands)Average
balance		InterestTax
equivalent 
yield/cost		Average
balance		InterestTax
equivalent 
yield/cost
Loans (1)
$7,115,723 $188,342 5.34 %$6,835,389 $150,532 4.44 %
Taxable investments1,435,414 26,410 3.71 %1,439,811 13,754 1.93 %
Tax-exempt investments (2)
422,381 7,364 3.52 %385,068 6,485 3.40 %
Money market instruments220,951 5,305 4.84 %247,549 413 0.34 %
Interest earning assets$9,194,469 $227,421 4.99 %$8,907,817 $171,184 3.88 %
Interest bearing deposits$5,492,931 35,593 1.31 %$5,095,085 3,112 0.12 %
Short-term borrowings181,280 1,552 1.73 %207,482 434 0.42 %
Long-term debt188,787 4,660 4.98 %188,324 4,322 4.63 %
Interest bearing liabilities$5,862,998 $41,805 1.44 %$5,490,891 $7,868 0.29 %
Excess interest earning assets$3,331,471 $3,416,926  
Tax equivalent net interest income$185,616 $163,316 
Net interest spread 3.55 % 3.59 %
Net interest margin 4.07 % 3.70 %
(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $300,000 for the six months ended June 30, 2023 and $329,000 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 $1.5 million for the six months ended June 30, 2023 and $1.4 million for the same period of 2022.
 
Average interest earning assets for the first half of 2023 increased by $286.7 million, or 3.2%, to $9,194 million for the first half of 2023, compared to $8,908 million for the first half of 2022. The average yield on interest earning assets increased by 111 basis points to 4.99% for the first half of 2023, compared to 3.88% for the first half of 2022.

Interest income for the six months ended June 30, 2023 and 2022 included purchase accounting accretion of $364,000 and $1.0 million, respectively, related to the acquisitions of NewDominion and Carolina Alliance, as well as $587,000 and $2.3 million, respectively, of interest income related to payments received on certain SEPH nonaccrual loan relationships, some of which are
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participated with PNB. Interest income for the six months ended June 30, 2023 and 2022 also included $41,000 and $2.6 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 5.31% and 4.29% for the six months ended June 30, 2023 and 2022, respectively, and the yield on earning assets was 4.97% and 3.76% for the six months ended June 30, 2023 and 2022, respectively.

Average interest bearing liabilities for the first half of 2023 increased by $372.1 million, or 6.8%, to $5,863 million, compared to $5,491 million for the first half of 2022. The average cost of interest bearing liabilities increased by 115 basis points to 1.44% for the first half of 2023, compared to 0.29% for the first half of 2022. During the six months ended June 30, 2023 and 2022, Park continued to participate in a OWS program in order to manage growth of the balance sheet. At June 30, 2023 and 2022, Park had $767,000 and $809.8 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 4.05% and 3.58% for the six months ended June 30, 2023 and 2022, respectively.

Yield on Loans: Average loan balances increased $280.3 million, or 4.1%, to $7,116 million for the first half of 2023, compared to $6,835 million for the first half of 2022. The average yield on the loan portfolio increased by 90 basis points to 5.34% for the first half of 2023, compared to 4.44% for the first half of 2022. Average loans for the first halves of 2023 and 2022 included $3.6 million and $43.8 million, respectively, of PPP loans.

The table below shows the average balance and tax equivalent yield by type of loan for the six months ended June 30, 2023 and 2022.
Six months ended 
June 30, 2023		Six months ended 
June 30, 2022
(Dollars in thousands)Average
balance		Tax
equivalent 
yield		Average
balance		Tax
equivalent 
yield
Home equity loans$166,728 7.97 %$161,153 3.82 %
Installment loans1,919,147 5.15 %1,709,775 4.65 %
Real estate loans1,213,362 4.20 %1,125,980 3.71 %
Commercial loans (1)
3,812,390 5.68 %3,834,736 4.58 %
Other4,096 8.75 %3,745 8.81 %
Total loans before allowance$7,115,723 5.34 %$6,835,389 4.44 %
(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 $300,000 for the six months ended June 30, 2023 and $329,000 for the same period of 2022.

Loan interest income for the six months ended June 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 7.91%, the yield on installment loans was unchanged at 5.15%, the yield on real estate loans was unchanged at 4.20%, the yield on commercial loans was 5.63% and the yield on total loans before allowance was 5.31% for the six months ended June 30, 2023; and (b) the yield on home equity loans was 3.68%, the yield on installment loans was unchanged at 4.65%, the yield on real estate loans was 3.69%, the yield on commercial loans was 4.32% and the yield on total loans before allowance was 4.29% for the six months ended June 30, 2022.

Cost of Deposits: Average interest bearing deposit balances increased $397.8 million, or 7.8%, to $5,493 million for the first half of 2023, compared to $5,095 million for the first half of 2022. The average cost of funds on deposit balances increased by
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119 basis points to 1.31% for the first half of 2023, compared to 0.12% for the first half of 2022. The table below shows for the six months ended June 30, 2023 and 2022, the average balance and cost of funds by type of deposit.

Six months ended 
June 30, 2023		Six months ended 
June 30, 2022
(Dollars in thousands)Average
balance		Cost of fundsAverage
balance		Cost of funds
Transaction accounts$2,184,675 1.31 %$1,671,685 0.06 %
Savings deposits and clubs2,765,704 1.32 %2,730,864 0.09 %
Time deposits542,552 1.23 %692,536 0.42 %
Total interest bearing deposits$5,492,931 1.31 %$5,095,085 0.12 %

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

Loans (1) (3)
Investments (2)
Money Market
Instruments
Total(3)
2020 - year4.71 %2.66 %0.26 %4.28 %
2021 - year4.53 %2.22 %0.13 %3.86 %
2022 - year4.65 %2.66 %2.07 %4.14 %
2023 - first six months5.34 %3.67 %4.84 %4.99 %
(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $300,000 for the six months ended June 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 $1.5 million for the six months ended June 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 six months ended June 30, 2023 and for the years ended December 31, 2022, 2021 and 2020 included $587,000, $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 $364,000, $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 six months ended June 30, 2023 and for the years ended December 31, 2022 2021, and 2020 included $41,000, $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 5.31%, 4.55%, 4.27%, and 4.63% for the six months ended June 30, 2023, and for the years ended December 31, 2022, 2021 and 2020, respectively, and the yield on total earning assets was 4.97%, 4.06%, 3.64%, and 4.20% for the six months ended June 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 six months ended June 30, 2023 and for the years ended December 31, 2022, 2021 and 2020.

Interest bearing deposits (1)
Short-term borrowingsLong-term debt
Total (1)
2020 - year0.41 %0.40 %3.55 %0.52 %
2021 - year0.12 %0.27 %4.32 %0.28 %
2022 - year0.39 %0.67 %4.69 %0.54 %
2023 - first six months1.31 %1.73 %4.98 %1.44 %
(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 six months ended June 30, 2023.


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Credit Metrics and Provision for (Recovery of) Credit Losses

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

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 provision for (recovery of) credit losses for the three-month and six-month periods ended June 30, 2023 and 2022.

Three Months Ended
June 30,		Six Months Ended
June 30,
(Dollars in thousands)2023202220232022
Allowance for credit losses:
Beginning balance$85,946 $78,861 $85,379 $83,197 
Cumulative change in accounting principle; adoption of ASU 2022-02— — 383 — 
Charge-offs
2,685 2,402 4,920 3,749 
Recoveries1,453 1,998 3,689 3,614 
Net charge-offs1,232 404 1,231 135 
Provision for (recovery of) credit losses2,492 2,991 2,675 (1,614)
Ending balance$87,206 $81,448 $87,206 $81,448 
Net charge-offs as a % of average loans (annualized)0.07 %0.02 %0.03 %— %

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 June 30, 2023, March 31, 2023, December 31, 2022, and June 30, 2022.

(Dollars in thousands)6/30/20233/31/202312/31/20226/30/2022
Total allowance for credit losses$87,206 $85,946 $85,379 $81,448 
Allowance on PCD loans — — — — 
Specific reserves on individually evaluated loans4,132 4,318 3,566 1,874 
General reserves on collectively evaluated loans$83,074 $81,628 $81,813 $79,574 
Total loans$7,208,109 $7,093,857 $7,141,891 $6,958,685 
PCD loans 4,455 4,555 4,653 5,934 
Individually evaluated loans (1)
43,887 59,384 78,341 42,523 
Collectively evaluated loans$7,159,767 $7,029,918 $7,058,897 $6,910,228 
Allowance for credit losses as a % of period end loans1.21 %1.21 %1.20 %1.17 %
General reserve as a % of collectively evaluated loans 1.16 %1.16 %1.16 %1.15 %
(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.

The allowance for credit losses of $87.2 million at June 30, 2023 represented a $1.3 million, or 1.5%, increase compared to
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$85.9 million at March 31, 2023. The increase was largely due to a $1.4 million increase in general reserves, offset by a decline of $186,000 in specific reserves.

The allowance for credit losses of $85.9 million at March 31, 2023 represented a $567,000, or 0.7%, increase compared to $85.4 million at December 31, 2022, The increase was largely due to a $752,000 increase in specific reserves, offset by a decline of $185,000 in general 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; (4) commercial loans held for sale that were previously nonperforming; and (5) 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 June 30, 2023, December 31, 2022 and June 30, 2022.
 
(In thousands)June 30, 2023December 31, 2022June 30, 2022
Nonaccrual loans$57,279 $79,696 $44,374 
Accruing TDRs (for years 2022 and prior) (1)
N.A. 20,134 19,746 
Loans past due 90 days or more950 1,281 507 
Total nonperforming loans$58,229 $101,111 $64,627 
Commercial loans held for sale, previously nonperforming— — 5,619 
Total nonperforming loans, including commercial loans held for sale$58,229 $101,111 $70,246 
OREO2,267 1,354 1,354 
Total nonperforming assets$60,496 $102,465 $71,600 
Percentage of nonaccrual loans to total loans0.79 %1.12 %0.64 %
Percentage of nonperforming loans to total loans (1)
0.81 %1.42 %0.93 %
Percentage of nonperforming assets to total loans (1)
0.84 %1.43 %1.03 %
Percentage of nonperforming assets to total assets (1)
0.61 %1.04 %0.73 %
 (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 June 30, 2023, December 31, 2022, and June 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 June 30, 2023, December 31, 2022 and June 30, 2022. Loans are classified as current if they are less than 30 days past due.

June 30, 2023December 31, 2022June 30, 2022
(In thousands)BalancePercent of Total LoansBalancePercent of Total LoansBalancePercent of Total Loans
Nonaccrual loans - current$36,618 0.51 %$58,893 0.83 %1$28,144 0.41 %
Nonaccrual loans - past due20,661 0.28 %20,803 0.29 %16,230 0.23 %
Total nonaccrual loans$57,279 0.79 %$79,696 1.12 %$44,374 0.64 %

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)June 30, 2023December 31, 2022June 30, 2022
Pass-rated$3,694,097 $3,709,065 $3,737,354 
Special mention101,387 79,855 64,876 
Substandard1,868 1,965 84 
Individually evaluated for impairment (1)
43,887 78,341 42,523 
Accruing PCD4,373 4,563 5,449 
Total $3,845,612 $3,873,789 $3,850,286 
(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 $103.3 million of collectively evaluated commercial loans included on the watch list at June 30, 2023, compared to $81.8 million at December 31, 2022, and $65.0 million at June 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 six months of 2023 was largely due to a $16.9 million hotel loan which was downgraded to special mention and a $8.8 million loan to a non-bank consumer finance company which was downgraded to special mention, partially offset by problem loan resolutions. These two downgraded loans were both current in respect to their contractual terms at June 30, 2023. Delinquent and accruing loans were $18.7 million, or 0.26%, of total loans at June 30, 2023, compared to $18.9 million, or 0.26% of total loans at December 31, 2022, and $14.0 million or 0.20% of total loans at June 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 $43.9 million at June 30, 2023, a decrease of $34.4 million, compared to $78.3 million at December 31, 2022 and an increase of $1.4 million, compared to $42.5 million at June 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 terms, up from $10.5 million at June 30, 2022.
At June 30, 2023, Park had taken partial charge-offs of $2.1 million related to the $43.9 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 June 30, 2023 and at December 31, 2022, there was no allowance for credit losses on PCD loans. The carrying amount of loans acquired with deteriorated credit quality at June 30, 2023 and at December 31, 2022 was $4.5 million and $4.7 million, respectively.

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 June 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 and the residential real estate portfolio segments. Peer data was incorporated into the analysis for the commercial real estate, the construction real estate, and the consumer portfolio 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.
◦As 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
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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, 2022.
◦As 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.
◦As 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.

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 collectibility of financial assets.
•Where the U.S. economy is within a given credit cycle.
•The extent that there is government assistance (stimulus).

As of June 30, 2023 and December 31, 2022, Park had $3.1 million and $4.2 million, respectively, of PPP loans which were included in the commercial, financial and agricultural portfolio segment. These loans are guaranteed by the SBA and thus have not been reserved for using the same methodology as the rest of Park’s loan portfolio. A 10 basis point reserve at each of June 30, 2023 and December 31, 2022 was calculated for these loans to reflect minimal credit risk.

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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 June 30, 2023, Park had $206.2 million of loans which were fully or partially secured by non-owner-occupied office space. Of the $206.2 million in loans collateralized by non-owner-occupied office space, $202.9 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 $6.2 million to $25.0 million for the quarter ended June 30, 2023, compared to $31.2 million for the second quarter of 2022 and decreased $13.4 million to $49.4 million for the first half of 2023, compared to $62.8 million for the first half of 2022.

The decrease for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was primarily due to decreases in other service income, other components of net periodic pension benefit income, bank owned life insurance income, service charges on deposit accounts, a change in gain (loss) on equity securities, net, and miscellaneous income.

The decrease for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to decreases in other service income, a change in gain (loss) on equity securities net, other components of net periodic pension benefit income, miscellaneous income, bank owned life insurance income, service charges on deposit accounts, and income from fiduciary activities, partially offset by an increase in debit card fee income.

The following table provides a summary of the changes in the components of other income:

Three months ended
June 30, 		Six months ended
June 30,
(In thousands)20232022Change20232022Change
Income from fiduciary activities$8,816 $8,859 $(43)$17,431 $17,656 $(225)
Service charges on deposit accounts2,041 2,563 (522)4,282 4,637 (355)
Other service income2,639 4,940 (2,301)5,336 9,759 (4,423)
Debit card fee income6,830 6,731 99 13,287 12,857 430 
Bank owned life insurance income1,332 2,374 (1,042)2,517 3,549 (1,032)
ATM fees553 583 (30)1,086 1,115 (29)
Gain on sale of OREO, net12 4 8 3 4 (1)
OREO valuation markup— — — 15 30 (15)
Gain (loss) on equity securities, net25 709 (684)(380)3,062 (3,442)
Other components of net periodic pension benefit income1,893 3,027 (1,134)3,786 6,054 (2,268)
Miscellaneous874 1,403 (529)2,039 4,126 (2,087)
Total other income$25,015 $31,193 $(6,178)$49,402 $62,849 $(13,447)
 
Service charges on deposit accounts decreased by $522,000, or 20.4%, to $2.0 million for the three months ended June 30, 2023, compared to $2.6 million for the same period of 2022 and decreased $355,000, or 7.7%, to $4.3 million for the six months ended June 30, 2023 compared to $4.6 million for the same period of 2022. The decreases for both the three-month and six-month periods ended June 30, 2023 compared to June 30, 2022 were primarily due to a decrease in NSF income, partially offset by an increase in account maintenance fees.

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Other service income decreased by $2.3 million, or 46.6%, to $2.7 million for the three months ended June 30, 2023, compared to $4.9 million for the same period of 2022. The primary reasons for the decrease for the three months ended June 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 $985,000, a decrease in mortgage servicing rights income of $1.0 million, and a decrease in commercial loan fee income of $545,000, partially offset by an increase in investor rate locks and mortgage loans held for sale of $214,000. Mortgage origination volume decreased by $48.4 million, or 31.9%, to $103.3 million for the three months ended June 30, 2023 from $151.7 million for the three months ended June 30, 2022. Other service income decreased by $4.4 million, or 45.3%, to $5.3 million for the six months ended June 30, 2023, compared to $9.8 million for the same period of 2022. The primary reasons for the decrease for the six months ended June 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 $2.6 million, a decrease in mortgage servicing rights income of $1.8 million, and a decrease in commercial loan fee income of $450,000, partially offset by an increase in investor rate locks and mortgage loans held for sale of $305,000. Mortgage origination volume decreased by $147.4 million, or 47.3%, to $164.5 million for the six months ended June 30, 2023 from $311.9 million for the six months ended June 30, 2022.

Bank owned life insurance income decreased by $1.0 million, or 43.9%, to $1.3 million for the three months ended June 30, 2023, compared to $2.4 million for the same period of 2022 and decreased $1.0 million, or 29.1%, to $2.5 million for the six months ended June 30, 2023, compared to $3.5 million for the same period of 2022. The decreases for both the three-month and six-month periods ended June 30, 2023 compared to June 30, 2022 were due to a decrease in received death benefits.

Gain (loss) on equity securities, net, decreased by $684,000, to a net gain of $25,000 for the three months ended June 30, 2023, compared to a net gain of $709,000 for the same period in 2022. The $684,000 change for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was related to a $731,000 change in the gain (loss) on other equity securities which went from a net gain of $619,000 for the three months ended June 30, 2022 to a net loss of $112,000 for the three months ended June 30, 2023. Gain (loss) on equity securities, net, changed by $3.4 million, to a net loss of $380,000 for the six months ended June 30, 2023, compared to a net gain of $3.1 million for the same period in 2022. The $3.4 million change for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was related to a $666,000 decrease in gain (loss) on other equity securities which went from a $527,000 net gain for the six months ended June 30, 2022 to a $139,000 net loss for the six months ended June 30, 2023, and a $2.8 million decrease in the gain (loss) on equity securities held at NAV, which went from a $2.5 million net gain for the six months ended June 30, 2022 to a $241,000 net loss for the six months ended June 30, 2023.

Other components of net periodic pension benefit income decreased $1.1 million to $1.9 million for the three months ended June 30, 2023 compared to $3.0 million for the same period in 2022 and decreased $2.3 million to $3.8 million for the six months ended June 30, 2023 compared to $6.1 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 $529,000, or 37.7%, to $874,000 for the three months ended June 30, 2023 compared to $1.4 million for the same period of 2022 and decreased $2.1 million, or 50.6% to $2.0 million for the six months ended June 30, 2023 compared to $4.1 million for the same period of 2022. The decrease for the three-month period ended June 30, 2023 compared to the same period of 2022 was primarily a result of decreases in brokerage income and operating lease income, as well as decreases in wire transfer and ACH fees as a result of the reclassification of these fees to service charges on deposit accounts, and a decrease in settlement income and fees earned on off-balance sheet deposit accounts, partially offset by a decrease in OREO devaluations. The decrease for the six-month period ended June 30, 2023 compared to the same period of 2022 was primarily a result of decreases in brokerage income and operating lease income, as well as decreases in wire transfer and ACH fees as a result of the reclassification of these fees to service charges on deposit accounts, a decrease in settlement income and fees earned on off-balance sheet deposit accounts, and a decrease in gains on sale of assets, partially offset by a decrease in OREO devaluations.

Other Expense

Other expense increased by $5.8 million to $75.9 million for the three months ended June 30, 2023 compared to $70.0 million for the same period of 2022 and increased by $15.0 million to $152.4 million for the first half of 2023 compared to $137.4 million for the first half of 2022.

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The following table is a summary of the changes in the components of other expense:

 Three months ended
June 30,		Six months ended
June 30,
(In thousands)20232022Change20232022Change
Salaries$33,649 $31,052 $2,597 $68,520 $61,573 $6,947 
Employee benefits10,538 10,199 339 21,354 20,698 656 
Occupancy expense3,214 3,040 174 6,567 6,254 313 
Furniture and equipment expense3,103 2,934 169 6,349 5,871 478 
Data processing fees9,582 8,416 1,166 18,332 15,920 2,412 
Professional fees and services7,365 6,775 590 14,586 12,633 1,953 
Marketing1,239 1,019 220 2,558 2,336 222 
Insurance1,960 1,245 715 3,774 2,650 1,124 
Communication1,045 935 110 2,082 1,825 257 
State tax expense1,096 1,167 (71)2,374 2,359 15 
Amortization of intangible assets328 403 (75)655 805 (150)
Miscellaneous2,766 2,863 (97)5,237 4,497 740 
Total other expense$75,885 $70,048 $5,837 $152,388 $137,421 $14,967 

Salaries increased by $2.6 million, or 8.4%, to $33.7 million for the three months ended June 30, 2023, compared to $31.1 million for the same period in 2022. The increase for the three months ended June 30, 2023 compared to the same period of 2022 was due to an increase of $3.1 million in base salary expense as full-time equivalent employees increased from 1,681 as of June 30, 2022 to 1,786 as of June 30, 2023. Also contributing to the increase in the second quarter of 2023 compared to the same period in 2022 was an increase in long-term incentive expense of $374,000. These increases were partially offset by decreases in officer incentive compensation of $680,000 and additional compensation expense of $251,000.

Salaries increased by $6.9 million, or 11.3%, to $68.5 million for the six months ended June 30, 2023, compared to $61.6 million for the same period in 2022. The increase for the six months ended June 30, 2023 compared to the same period of 2022 was due to an increase of $6.6 million in base salary expense, an increase in long-term incentive expense of $730,000 and an increase in officer incentive compensation of $195,000. These increases were partially offset by a decrease in additional compensation expense of $701,000.

Employee benefits increased $339,000, or 3.3%, to $10.5 million for the three months ended June 30, 2023, compared to $10.2 million for the same period in 2022 and increased $656,000, or 3.2%, to $21.4 million for the six months ended June 30, 2023 compared to $20.7 million for the same period. The $339,000 increase for the three months ended June 30, 2023 compared to the same period in 2022 was primarily due to an increase in group insurance costs of $1.2 million, partially offset by decreased pension plan expense of $878,000. The $656,000 increase for the six months ended June 30, 2023 compared to the same period in 2022 was primarily due to an increase in group insurance costs of $1.6 million, and an increase in payroll tax expense of $552,000, partially offset by a decrease in pension plan expense of $1.8 million.

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Data processing expense increased $1.2 million, or 13.9%, to $9.6 million for the three months ended June 30, 2023 compared to $8.4 million for the same period in 2022, and increased $2.4 million, or 15.2%, to $18.3 million for the six months ended June 30, 2023 from $15.9 million for the same period in 2022 The increase for both the three-month and the six-month periods ended June 30, 2023 compared to the same periods in 2022 related to an increase in software expenses and debit card processing costs.

Professional fees and services expense increased $590,000, or 8.7%, to $7.4 million for the three months ended June 30, 2023 compared to $6.8 million for the same period in 2022 and increased $2.0 million, or 15.5%, to $14.6 million for the six months ended June 30, 2023 compared to $12.6 million for the same period in 2022. The increase for the three-month period ended June 30, 2023 compared to the same period in 2022 related to a $267,000 increase in insured cash sweep ("ICS") fees, a $125,000 increase in legal expenses, and a $101,000 increase in temporary wages. The increase for the six-month period ended June 30, 2023 compared to the same period in 2022 related to a $296,000 increase in directors fees, a $388,000 increase in ICS fees, a $323,000 increase in legal expenses, a $306,000 increase in management consulting fees, and a $344,000 increase in temporary wages.

Insurance expense increased $715,000, or 57.4%, to $2.0 million for the three months ended June 30, 2023 compared to $1.2 million for the same period in 2022 and increased $1.1 million, or 42.4%, to $3.8 million for the six months ended June 30, 2023 compared to $2.7 million for the same period in 2022. The increase for both the three-month and the six-month periods ended June 30, 2023 compared to the periods ended June 30, 2022 related to an increase in FDIC insurance assessment expense.

The subcategory "miscellaneous" other expense includes expenses for supplies, travel and other miscellaneous expense. The subcategory miscellaneous other expense decreased $97,000, or 3.4%, to $2.8 million for the three-month period ended June 30, 2023, compared to the same period in 2022 and increased $740,000, or 16.5%, to $5.2 million for the six-month period ended June 30, 2023 compared to the same period in 2022. The $97,000 decrease in expense for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was primarily related to a decrease of $236,000 in the provision for unfunded credit losses, and a $172,000 decrease in operating lease depreciation, partially offset by an increase in travel expense of $210,000 and an increase in training expense of $129,000. The $740,000 increase in expense for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily related to an increase in travel expense of $442,000, an increase in training expense of $214,000 and an increase of $390,000 in the provision for the allowance for unfunded credit losses, partially offset by a $358,000 decrease in operating lease depreciation and a $149,000 decline in non-loan related losses.

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.



















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The following table details those items which management believes impact the comparability of current and prior period amounts.
THREE MONTHS ENDEDSIX MONTHS ENDED
(in thousands)June 30, 2023June 30, 2022June 30, 2022June 30, 2022Affected Line Item
Net interest income$91,572 $83,939 $183,770 $161,625 
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions164 545 364 1,022 Interest and fees on loans
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions— 2 — 5 Interest on deposits
less interest income on former Vision Bank relationships13 2,305 587 2,347 Interest and fees on loans
Net interest income - adjusted$91,395 $81,087 $182,819 $158,251 
Provision for (recovery of) credit losses$2,492 $2,991 $2,675 $(1,614)
less recoveries on former Vision Bank relationships(25)(506)(748)(507)Provision for (recovery of) credit losses
Provision for (recovery of) credit losses - adjusted$2,517 $3,497 $3,423 $(1,107)
Total other income$25,015 $31,193 $49,402 $62,849 
less other service income related to former Vision Bank relationships— 500 135 500 Other service income
Total other income - adjusted$25,015 $30,693 $49,267 $62,349 
Total other expense$75,885 $70,048 $152,388 $137,421 
less direct expenses related to collection of payments on former Vision Bank loan relationships— 366 100 366 Professional fees and services
less core deposit intangible amortization related to NewDominion and Carolina Alliance acquisitions328 403 655 805 Amortization of intangible assets
Total other expense - adjusted$75,557 $69,279 $151,633 $136,250 
Tax effect of adjustments to net income identified above (7)
$26 $(649)$(227)$(674)
Net income - reported$31,584 $34,324 $65,317 $73,199 
Net income - adjusted (6)
$31,684 $31,884 $64,465 $70,663 
Diluted EPS$1.94 $2.10 $4.01 $4.48 
Diluted EPS, adjusted (6)
$1.95 $1.95 $3.96 $4.32 
Annualized return on average assets (1)(2)
1.28 %1.42 %1.32 %1.51 %
Annualized return on average assets, adjusted (1)(2)(6)
1.28 %1.32 %1.30 %1.46 %
Annualized return on average tangible assets (1)(2)(4)
1.30 %1.45 %1.34 %1.54 %
Annualized return on average tangible assets, adjusted (1)(2)(4)(6)
1.30 %1.34 %1.32 %1.49 %
Annualized return on average shareholders' equity (1)(2)
11.61 %12.86 %12.07 %13.57 %
Annualized return on average shareholders' equity, adjusted (1)(2)(6)
11.65 %11.95 %11.92 %13.10 %
Annualized return on average tangible equity (1)(2)(3)
13.68 %15.23 %14.23 %16.02 %
Annualized return on average tangible equity, adjusted (1)(2)(3)(6)
13.73 %14.15 %14.04 %15.47 %
Efficiency ratio (5)
64.58 %60.38 %64.84 %60.76 %
Efficiency ratio, adjusted (5)(6)
64.40 %61.50 %64.82 %61.29 %
Annualized net interest margin (5)
4.07 %3.84 %4.07 %3.70 %
Annualized net interest margin, adjusted (5)(6)
4.06 %3.71 %4.05 %3.62 %
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Financial Reconciliations
(1) Reported measure uses net income.
(2) Averages are for the three months and the six months ended June 30, 2023 and June 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 OF AVERAGE SHAREHOLDERS' EQUITY TO AVERAGE TANGIBLE EQUITY:
THREE MONTHS ENDEDSIX MONTHS ENDED
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
AVERAGE SHAREHOLDERS' EQUITY$1,091,016 $1,070,493 $1,090,985 $1,087,919 
Less: Average goodwill and other intangible assets165,129 166,516 165,292 166,716 
AVERAGE TANGIBLE EQUITY$925,887 $903,977 $925,693 $921,203 
(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 OF AVERAGE ASSETS TO AVERAGE TANGIBLE ASSETS
THREE MONTHS ENDEDSIX MONTHS ENDED
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
AVERAGE ASSETS$9,917,805 $9,679,020 $9,987,953 $9,751,796 
Less: Average goodwill and other intangible assets165,129 166,516 165,292 166,716 
AVERAGE TANGIBLE ASSETS$9,752,676 $9,512,504 $9,822,661 $9,585,080 
(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 OF FTE NET INTEREST INCOME TO NET INTEREST INCOME
THREE MONTHS ENDEDSIX MONTHS ENDED
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
Interest income$114,674 $88,347 $225,575 $169,493 
FTE adjustment920 872 1,846 1,691 
FTE interest income$115,594 $89,219 $227,421 $171,184 
Interest expense23,102 4,408 41,805 7,868 
FTE net interest income$92,492 $84,811 $185,616 $163,316 
(6) Adjustments to net income for each period presented are detailed in the non-GAAP reconciliations of net interest income, provision for (recovery of) credit losses, total other income, and total other expense, as well as the disclosure of the "Tax effect of adjustments to net income identified above."
(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 provision for (recovery of) credit losses, in each case during the applicable period. PTPP net income is a common industry metric utilized in capital analysis and review. PTPP is used to assess the operating performance of Park while excluding the impact of the provision for (recovery of) credit losses.
RECONCILIATION OF PRE-TAX, PRE-PROVISION NET INCOME
THREE MONTHS ENDEDSIX MONTHS ENDED
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
Net income$31,584 $34,324 $65,317 $73,199 
Plus: Income taxes6,626 7,769 12,792 15,468 
Plus: Provision for (recovery of) credit losses2,492 2,991 2,675 (1,614)
Pre-tax, pre-provision net income$40,702 $45,084 $80,784 $87,053 

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Income Tax
 
Income tax expense was $6.6 million for the second quarter of 2023 and consisted of federal income tax expense of $6.3 million and state income tax expense of $345,000. This compares to income tax expense of $7.8 million for the second quarter of 2022, which consisted of federal income tax expense of $7.4 million and state income tax expense of $341,000. The effective income tax rate for the second quarter of 2023 was 17.3%, compared to 18.5% for the same period in 2022. Income tax expense was $12.8 million for the first half of 2023 and consisted of federal income tax expense of $12.7 million and state income tax expense of $111,000. This compares to income tax expense of $15.5 million for the first half of 2022, which consisted of federal income tax expense of $14.8 million and state income tax expense of $646,000. The effective income tax rate for the first half of 2023 was 16.4%, compared to 17.4% 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 $6.8 million.


Comparison of Financial Condition
At June 30, 2023 and December 31, 2022
 
Changes in Financial Condition
 
Total assets increased by $44.6 million during the first six months of 2023 to $9,900 million at June 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 $40.7 million, or 21.4%, to $230.4 million at June 30, 2023, compared to $189.7 million at December 31, 2022. Money market instruments increased by $37.9 million and cash and due from banks increased by $2.8 million.
•Loans increased by $66.2 million, or 0.9%, to $7,208 million at June 30, 2023, compared to $7,142 million at December 31, 2022.
•Total investment securities decreased by $63.8 million, or 3.5%, to $1,757 million at June 30, 2023, compared to $1,821 million at December 31, 2022.

Total liabilities increased by $25.0 million, or 0.3%, during the first six months of 2023 to $8,811 million at June 30, 2023, compared to $8,786 million at December 31, 2022. This increase was primarily due to the following:

•Total deposits increased by $124.3 million, or 1.5%, to $8,359 million at June 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 June 30, 2023 and at December 31, 2022, Park had $767,000 and $195.9 million, respectively, in off-balance sheet deposits.
•Short-term borrowings decreased by $83.4 million, or 36.7%, to $143.9 million at June 30, 2023, compared to $227.3 million at December 31, 2022 due to a decrease in securities sold under agreements to repurchase.
•Other liabilities decreased by $9.9 million, or 12.5%, to $69.0 million at June 30, 2023, compared to $78.9 million at December 31, 2022. This was primarily related to a decrease in accrued expenses payable.

Total shareholders’ equity increased by $19.5 million, or 1.8%, to $1,089 million at June 30, 2023, from $1,069 million at December 31, 2022. This increase was primarily due to the following:

•Accumulated other comprehensive loss, net of taxes changed by $5.6 million, from a negative $102.4 million at December 31, 2022, to a negative $96.8 million at June 30, 2023, and was largely comprised of unrealized net holding losses on debt securities AFS, net of taxes, of $90.1 million at June 30, 2023 compared to unrealized net holding losses on debt securities AFS, net of of taxes of $95.7 million at December 31, 2022.
•Retained earnings increased by $29.6 million during the period primarily as a result of net income of $65.3 million, partially offset by cash dividends on common shares of $34.5 million.
•Treasury shares increased by $13.8 million during the period as a result of the repurchase of an aggregate of 149,000 treasury shares, partially offset by the issuance of treasury shares under share-based compensation awards (net of common shares withheld to pay employee income taxes).

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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 $57.7 million and $56.5 million for the six months ended June 30, 2023 and 2022, respectively. Net income was the primary source of cash from operating activities for each of the six-month periods ended June 30, 2023 and 2022.

Cash used in investing activities was $2.0 million and $318.4 million for the six months ended June 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 $71.3 million for the six months ended June 30, 2023 and used cash of $216.5 million for the six months ended June 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 $62.4 million and $91.0 million for the six months ended June 30, 2023 and 2022, respectively.

Cash used in financing activities was $15.0 million and cash provided by financing activities was $289.2 million for the six months ended June 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 $124.3 million and $393.1 million of cash for the six months ended June 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 six months ended June 30, 2023, net short-term borrowings decreased and used $83.4 million in cash. For the six months ended June 30, 2022, net short-term borrowings decreased and used $67.0 million in cash. For the six months ended June 30, 2023, cash declined by $17.9 million due to the repurchase of common shares to be held as treasury shares; while there were no repurchases of common shares during the six months ended June 30, 2022. Finally, cash declined by $35.1 million and $34.5 million for the six months ended June 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, off-balance sheet deposits, unpledged investment securities and available FHLB borrowing capacity, totaled $2.53 billion at June 30, 2023. The Corporation’s loan to asset ratio was 72.81% at June 30, 2023, compared to 72.47% at December 31, 2022 and 70.81% at June 30, 2022. Cash and cash equivalents were $230.4 million at June 30, 2023, compared to $189.7 million at December 31, 2022 and $246.4 million at June 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 June 30, 2023 was $1,088.8 million, or 11.0% of total assets, compared to $1,069.2 million, or 10.9% of total assets, at December 31, 2022 and $1,050.0 million, or 10.7% of total assets, at June 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 June 30, 2023. The following table indicates the capital ratios for PNB and Park at June 30, 2023 and December 31, 2022.

At June 30, 2023
 LeverageTier 1
Risk-Based		Common Equity Tier 1Total
Risk-Based
The Park National Bank8.80 %10.78 %10.78 %12.19 %
Park National Corporation10.46 %12.86 %12.68 %16.18 %
Adequately capitalized ratio4.00 %6.00 %4.50 %8.00 %
Adequately capitalized ratio plus capital conservation buffer4.00 %8.50 %7.00 %10.50 %
Well capitalized ratio (PNB)5.00 %8.00 %6.50 %10.00 %
Well capitalized ratio (Park)N/A6.00 %N/A10.00 %

At December 31, 2022
 LeverageTier 1
Risk-Based		Common Equity Tier 1Total
Risk-Based
The Park National Bank8.34 %10.69 %10.69 %12.15 %
Park National Corporation9.90 %12.76 %12.57 %16.07 %
Adequately capitalized ratio4.00 %6.00 %4.50 %8.00 %
Adequately capitalized ratio plus capital conservation buffer4.00 %8.50 %7.00 %10.50 %
Well capitalized ratio (PNB)5.00 %8.00 %6.50 %10.00 %
Well capitalized ratio (Park)N/A6.00 %N/A10.00 %

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 six 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)June 30,
2023		December 31, 2022
Loan commitments$1,602,635 $1,416,699 
Standby letters of credit$31,889 $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 rise in interest rates experienced throughout 2022 and continuing into 2023, Park is now more exposed to an adverse impact to earnings in a down rate environment. 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 June 30, 2023, Park’s twelve-month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $529.6 million or 5.79% 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 June 30, 2023, the earnings simulation model projected that net income would increase by 0.3% using a rising interest rate scenario and would decrease by 0.8% in a declining interest rate scenario. At June 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 June 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 June 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 June 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 second 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, and First Republic Bank in California during the first and second 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 three 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 three 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 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 ("MMCTs") 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 MMCTs 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 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 MMCTs in the Columbus Lending Area
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and hire four lenders, one of whom will be 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 MMCTs 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 and Use of Proceeds

(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 June 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:
PeriodTotal number of
Common Shares
purchased		Average price
paid per
Common
Share		Total number of Common
Shares purchased as part of
publicly announced plans
or programs		Maximum number of
Common Shares that may
yet be purchased under the
plans or programs (1)
April 1 through April 30, 2023— $— — 1,071,088 
May 1 through May 31, 202325,000 102.05 25,000 1,046,088 
June 1 through June 30, 2023— — — 1,046,088 
Total25,000 $123.44 25,000 1,046,088 
(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)Not applicable
(c)During the three months (the quarterly period) ended June 30, 2023, no director or officer (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 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)
3.1(d)
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3.1(e)
3.1(f)
3.1(g)
3.1(h)
3.1(i)
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)
3.2(c)
3.2(d)
3.2(e)
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3.2(f)
3.2(g)
31.1
31.2
32.1
32.2
101The following information from Park National Corporation's Quarterly Report on Form 10-Q for the quarterly period ended June 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 June 30, 2023 and December 31, 2022 (unaudited); (ii) the Consolidated Condensed Statements of Income for the three months and the six months ended June 30, 2023 and 2022 (unaudited); (iii) the Consolidated Condensed Statements of Comprehensive Income (Loss) for the three months and the six months ended June 30, 2023 and 2022 (unaudited); (iv) the Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three months and the six months ended June 30, 2023 and 2022 (unaudited); (v) the Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited); and (vi) the Notes to Unaudited Consolidated Condensed Financial Statements (electronically submitted herewith). *
104Cover 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
   
August 1, 2023 /s/ David L. Trautman
  David L. Trautman
  Chairman of the Board and Chief Executive Officer
  (Principal Executive Officer and Duly Authorized Officer)
   
August 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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