UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20202021
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
“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: 16,314,20516,219,572 Common Shares, no par value per share, outstanding at November 03, 2020.2, 2021.



PARK NATIONAL CORPORATION
 
CONTENTS
 Page
PART I.   FINANCIAL INFORMATION 
  
Item 1.  Financial Statements 
  
Consolidated Condensed Balance Sheets at SeptemberSeptember 30, 202021 and December 31, 20120920 (unaudited)
45
  
Consolidated Condensed Statements of Income for the three months and nine months ended September 30, 20202021 and 20120920 (unaudited)
67
  
Consolidated Condensed Statements of Comprehensive Income for the three months and nine months ended September30, 202021 and 20120920 (unaudited)
89
  
Consolidated Condensed Statements of Changes in Shareholders’ Equity for the threemonths and nine months ended September 30, 202021 and 20120920 (unaudited)
910
  
Consolidated Condensed Statements of Cash Flows for the nine months ended SeptemberSeptember 30, 202021 and 20120920 (unaudited)
1112
  
Notes to Unaudited Consolidated Condensed Financial Statements
1314
  
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
6570
  
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
102106
  
Item 4.  Controls and Procedures
102106
  
103107 
  
Item 1.  Legal Proceedings
103107
  
Item 1A. Risk Factors
103107
  
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
104107
  
Item 3.  Defaults Upon Senior Securities
105108
  
Item 4.  Mine Safety Disclosures
105108
  
Item 5.  Other Information
105108
  
Item 6.  Exhibits
105108
  
108111

23

Glossary of Abbreviations and Acronyms

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

AFSAvailable-for-saleNAVLIBORNet asset valueLondon Inter-Bank Offered Rate
ALLLACLAllowance for loancredit lossesNewDominionMSRsNewDominion BankMortgage servicing rights
AllowanceAllowance for loancredit lossesOCINAVOther comprehensive incomeNet asset value
AOCIAccumulated other comprehensive incomeOREONewDominionOther real estate ownedNewDominion Bank
ASCAccounting Standards CodificationOWSOCIOne way sellOther comprehensive income
ASUAccounting standards updateStandards UpdateParkOREOPark National Corporation and its subsidiariesOther real estate owned
AUCLAllowance for unfunded credit lossesOWSOne-way sell
CABFCAB Financial Corporation and its subsidiariesPBRSUsParkPerformance-based restricted stock unitsPark National Corporation and its subsidiaries
CARES ActCoronavirus Aid, Relief, and Economic Security ActPCIPBRSUsPurchased credit impairedPerformance-based restricted stock units
Carolina AllianceCAB Financial Corporation and its subsidiariesPNBPCDThe Park National BankPurchased credit deteriorated
CECLCurrent expected credit lossPPPPCIPaycheck Protection ProgramPurchased credit impaired
COVID-19Novel coronavirusPDProbability of default
DCFDiscounted cash flowPNBThe Park National Bank
FASBFinancial Accounting Standards BoardROUPPPRight-of-usePaycheck Protection Program
FHLBFederal Home Loan BankROURight-of-use
FRBFederal Reserve BankSARsStock appreciation rights
FRBGDPFederal Reserve BankGross domestic productSBASmall Business Administration
GFSCGuardian Financial Services CompanySEPHSE Property Holdings, LLC
HTMHPIHeld-to-maturityHome price indexTBRSUsTime-based restricted stock units
IRLCHTMInterest rate lock commitmentHeld-to-maturityTDRsTroubled debt restructurings
LIBORIRLCLondon Inter-Bank Offered RateInterest rate lock commitmentU.S. GAAPUnited States Generally Accepted Accounting Principles
MSRsLDAMortgage servicing rightsLoss driver analysisU.S.United States
LGDLoss given default

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands, except share and per share data)    
September 30,
2020		December 31, 2019
Assets:  
Cash and due from banks$110,774 $135,567 
Money market instruments135,935 24,389 
Cash and cash equivalents246,709 159,956 
Investment securities:  
Debt securities available-for-sale, at fair value (amortized cost of $980,047 and $1,187,499 at September 30, 2020 and December 31, 2019, respectively)1,032,814 1,209,701 
Other investment securities64,784 69,806 
Total investment securities1,097,598 1,279,507 
Loans7,278,546 6,501,404 
Allowance for loan losses(87,038)(56,679)
Net loans7,191,508 6,444,725 
Bank owned life insurance215,214 212,529 
Prepaid assets114,548 101,990 
Goodwill159,595 159,595 
Other intangible assets9,785 11,523 
Premises and equipment, net85,287 73,322 
Affordable housing tax credit investments57,583 53,070 
Other real estate owned836 4,029 
Accrued interest receivable26,492 24,217 
Operating lease right-of-use asset18,011 13,714 
Mortgage loan servicing rights11,040 10,070 
Other5,800 10,130 
Total assets$9,240,006 $8,558,377 
September 30,
2021		December 31, 2020
Assets:  
Cash and due from banks$127,685 $155,596 
Money market instruments749,710 214,878 
Cash and cash equivalents877,395 370,474 
Investment securities:  
Debt securities available-for-sale, at fair value (amortized cost of $1,519,098 and $1,007,834 at September 30, 2021 and December 31, 2020, respectively, and no allowance for credit losses at September 30, 2021)1,553,218 1,059,341 
Other investment securities56,085 65,465 
Total investment securities1,609,303 1,124,806 
Loans6,908,417 7,177,785 
Allowance for credit losses(88,129)(85,675)
Net loans6,820,288 7,092,110 
Bank owned life insurance215,401 216,225 
Prepaid assets116,228 103,523 
Goodwill159,595 159,595 
Other intangible assets7,882 9,260 
Premises and equipment, net88,909 88,660 
Affordable housing tax credit investments60,457 56,024 
OREO813 1,431 
Accrued interest receivable23,628 24,926 
Operating lease right-of-use asset13,426 15,078 
Mortgage loan servicing rights14,556 12,210 
Other26,137 4,699 
Total assets$10,034,018 $9,279,021 

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (Unaudited) (Continued)
(in thousands, except share and per share data)
September 30,
2020		December 31, 2019September 30,
2021		December 31, 2020
Liabilities and Shareholders' Equity:Liabilities and Shareholders' Equity:  Liabilities and Shareholders' Equity:  
Deposits:Deposits:  Deposits:  
Noninterest bearing$2,579,335 $1,959,935 
Non-interest bearingNon-interest bearing$2,981,928 $2,727,100 
Interest bearingInterest bearing4,896,494 5,092,677 Interest bearing5,382,457 4,845,258 
Total depositsTotal deposits7,475,829 7,052,612 Total deposits8,364,385 7,572,358 
Short-term borrowingsShort-term borrowings320,435 230,657 Short-term borrowings235,979 342,230 
Long-term debtLong-term debt135,000 192,500 Long-term debt— 32,500 
Subordinated notesSubordinated notes187,668 15,000 Subordinated notes188,099 187,774 
Unfunded commitments in affordable housing tax credit investmentsUnfunded commitments in affordable housing tax credit investments31,593 25,894 Unfunded commitments in affordable housing tax credit investments33,116 29,298 
Operating lease liabilityOperating lease liability19,127 14,482 Operating lease liability14,480 16,053 
Allowance for credit losses on off-balance sheet commitmentsAllowance for credit losses on off-balance sheet commitments4,642 116 
Accrued interest payableAccrued interest payable2,938 2,927 Accrued interest payable1,330 3,860 
Unsettled investment commitmentsUnsettled investment commitments52,508 — 
OtherOther50,420 55,291 Other71,567 54,576 
Total liabilitiesTotal liabilities$8,223,010 $7,589,363 Total liabilities$8,966,106 $8,238,765 
Shareholders' equity:Shareholders' equity:  Shareholders' equity:  
Preferred shares (200,000 shares authorized; 0 shares issued)Preferred shares (200,000 shares authorized; 0 shares issued)$0 $0 Preferred shares (200,000 shares authorized; 0 shares issued)$— $— 
Common shares (No par value; 20,000,000 shares authorized; 17,623,179 shares issued at September 30, 2020 and 17,623,199 shares issued at December 31, 2019)458,440 459,389 
Common shares (No par value; 20,000,000 shares authorized; 17,623,132 shares issued at September 30, 2021 and 17,623,163 shares issued at December 31, 2020)Common shares (No par value; 20,000,000 shares authorized; 17,623,132 shares issued at September 30, 2021 and 17,623,163 shares issued at December 31, 2020)459,953 460,687 
Retained earningsRetained earnings676,465 646,847 Retained earnings759,619 704,764 
Treasury shares (1,322,416 shares at September 30, 2020 and 1,276,757 shares at December 31, 2019)(132,109)(127,633)
Accumulated other comprehensive income (loss), net of taxes14,200 (9,589)
Treasury shares (1,416,955 shares at September 30, 2021 and 1,308,966 shares at December 31, 2020)Treasury shares (1,416,955 shares at September 30, 2021 and 1,308,966 shares at December 31, 2020)(143,850)(130,766)
Accumulated other comprehensive (loss) income, net of taxesAccumulated other comprehensive (loss) income, net of taxes(7,810)5,571 
Total shareholders' equityTotal shareholders' equity1,016,996 969,014 Total shareholders' equity1,067,912 1,040,256 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$9,240,006 $8,558,377 Total liabilities and shareholders’ equity$10,034,018 $9,279,021 

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
56
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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited)
(in thousands, except share and per share data)
Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019 2021202020212020
Interest and dividend income:Interest and dividend income:  Interest and dividend income:  
Interest and fees on loansInterest and fees on loans$82,617 $84,213 $243,459 $238,687 Interest and fees on loans$78,127 $82,617 $238,040 $243,459 
Interest and dividends on:Interest and dividends on:  Interest and dividends on:  
Obligations of U.S. Government, its agencies and other securities - taxable4,841 6,326 15,398 20,240 
Obligations of U.S. Government sponsored entities' and other securities - taxableObligations of U.S. Government sponsored entities' and other securities - taxable4,904 4,841 13,760 15,398 
Obligations of states and political subdivisions - tax-exemptObligations of states and political subdivisions - tax-exempt2,045 2,225 6,396 6,750 Obligations of states and political subdivisions - tax-exempt2,029 2,045 6,098 6,396 
Other interest incomeOther interest income63 1,825 667 2,994 Other interest income360 63 689 667 
Total interest and dividend incomeTotal interest and dividend income89,566 94,589 265,920 268,671 Total interest and dividend income85,420 89,566 258,587 265,920 
Interest expense:Interest expense:  Interest expense:  
Interest on deposits:Interest on deposits:  Interest on deposits:  
Demand and savings depositsDemand and savings deposits803 9,649 8,652 25,553 Demand and savings deposits435 803 1,222 8,652 
Time depositsTime deposits2,662 4,694 10,293 12,828 Time deposits1,011 2,662 3,880 10,293 
Interest on borrowings:Interest on borrowings:  Interest on borrowings:  
Short-term borrowingsShort-term borrowings217 478 912 1,977 Short-term borrowings187 217 552 912 
Long-term debtLong-term debt2,044 2,667 4,754 7,585 Long-term debt2,185 2,044 6,746 4,754 
Total interest expenseTotal interest expense5,726 17,488 24,611 47,943 Total interest expense3,818 5,726 12,400 24,611 
Net interest incomeNet interest income83,840 77,101 241,309 220,728 Net interest income81,602 83,840 246,187 241,309 
Provision for loan losses13,836 1,967 31,213 6,384 
Net interest income after provision for loan losses70,004 75,134 210,096 214,344 
Provision for (recovery of) credit lossProvision for (recovery of) credit loss1,972 13,836 (6,923)31,213 
Net interest income after provision for (recovery of) credit lossNet interest income after provision for (recovery of) credit loss79,630 70,004 253,110 210,096 
Other income:Other income:  Other income:  
Income from fiduciary activitiesIncome from fiduciary activities7,335 6,842 21,241 20,500 Income from fiduciary activities8,820 7,335 25,562 21,241 
Service charges on deposit accountsService charges on deposit accounts2,118 2,864 6,322 8,078 Service charges on deposit accounts2,389 2,118 6,475 6,322 
Other service incomeOther service income13,047 4,260 25,571 11,118 Other service income6,668 13,047 23,444 25,571 
Debit card fee incomeDebit card fee income5,853 5,313 16,373 14,909 Debit card fee income6,453 5,853 19,297 16,373 
Bank owned life insurance incomeBank owned life insurance income1,192 1,107 3,619 3,399 Bank owned life insurance income1,462 1,192 3,776 3,619 
ATM feesATM fees491 482 1,341 1,382 ATM fees622 491 1,807 1,341 
Gain (loss) on sale of OREO, netGain (loss) on sale of OREO, net569 (53)1,214 (224)Gain (loss) on sale of OREO, net3 569 (26)1,214 
Net (loss) gain on the sale of debt securities(27)186 3,286 (421)
Net (loss) gain on sale of debt securitiesNet (loss) gain on sale of debt securities— (27)— 3,286 
Gain (loss) on equity securities, netGain (loss) on equity securities, net1,201 3,335 (749)5,309 Gain (loss) on equity securities, net609 1,201 2,886 (749)
Other components of net periodic pension benefit incomeOther components of net periodic pension benefit income1,988 1,183 5,964 3,549 Other components of net periodic pension benefit income2,038 1,988 6,114 5,964 
MiscellaneousMiscellaneous2,791 2,617 5,826 5,370 Miscellaneous3,347 2,791 8,403 5,826 
Total other incomeTotal other income36,558 28,136 90,008 72,969 Total other income32,411 36,558 97,738 90,008 
 

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited) (Continued)
(in thousands, except share and per share data)
Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019 2021202020212020
Other expense:Other expense:  Other expense:  
SalariesSalaries$31,632 $30,713 $90,760 $88,611 Salaries$29,433 $31,632 $89,632 $90,760 
Employee benefitsEmployee benefits10,676 10,389 29,799 27,833 Employee benefits10,640 10,676 30,897 29,799 
Occupancy expenseOccupancy expense3,835 3,226 10,571 9,460 Occupancy expense3,211 3,835 9,878 10,571 
Furniture and equipment expenseFurniture and equipment expense4,687 4,177 13,856 12,713 Furniture and equipment expense2,797 4,687 8,163 13,856 
Data processing feesData processing fees3,275 2,935 8,344 7,973 Data processing fees7,817 3,275 22,679 8,344 
Professional fees and servicesProfessional fees and services7,977 6,702 21,944 22,814 Professional fees and services6,973 7,977 19,610 21,944 
MarketingMarketing1,454 1,604 4,076 4,285 Marketing1,574 1,454 4,355 4,076 
InsuranceInsurance1,541 276 4,568 2,813 Insurance1,403 1,541 4,370 4,568 
CommunicationCommunication958 1,387 2,987 4,095 Communication796 958 2,688 2,987 
State tax expenseState tax expense1,125 746 3,386 2,805 State tax expense1,113 1,125 3,324 3,386 
Amortization of intangible assetsAmortization of intangible assets525 741 1,738 1,732 Amortization of intangible assets420 525 1,378 1,738 
Foundation contributionFoundation contribution— — 4,000 — 
MiscellaneousMiscellaneous2,174 2,842 8,905 7,623 Miscellaneous2,312 2,174 6,780 8,905 
Total other expenseTotal other expense69,859 65,738 200,934 192,757 Total other expense68,489 69,859 207,754 200,934 
Income before income taxesIncome before income taxes36,703 37,532 99,170 94,556 Income before income taxes43,552 36,703 143,094 99,170 
Income taxesIncome taxes5,857 6,386 16,447 15,792 Income taxes8,118 5,857 25,697 16,447 
Net incomeNet income$30,846 $31,146 $82,723 $78,764 Net income$35,434 $30,846 $117,397 $82,723 
Earnings per common share:Earnings per common share:Earnings per common share:
BasicBasic$1.89 $1.90 $5.07 $4.86 Basic$2.17 $1.89 $7.20 $5.07 
DilutedDiluted$1.88 $1.89 $5.04 $4.84 Diluted$2.16 $1.88 $7.14 $5.04 
Weighted average common shares outstanding:Weighted average common shares outstanding:  Weighted average common shares outstanding:  
BasicBasic16,300,720 16,382,798 16,300,250 16,198,294 Basic16,292,312 16,300,720 16,315,996 16,300,250 
DilutedDiluted16,393,792 16,475,741 16,398,350 16,287,695 Diluted16,423,912 16,393,792 16,445,568 16,398,350 
Cash dividends declared per common shareCash dividends declared per common share$1.02 $1.01 $3.26 $3.23 Cash dividends declared per common share$1.03 $1.02 $3.29 $3.26 
 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 


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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(in thousands)
Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Net income$30,846 $31,146 $82,723 $78,764 
Other comprehensive income, net of tax:
Net loss (gain) realized on sale of securities, net of income tax effect of $6 and $(39) for the three months ended September 30, 2020 and 2019, respectively, and $(690) and $88 for the nine months ended September 30, 2020 and 2019, respectively.21 (147)(2,596)333 
Unrealized gains on debt securities transferred from HTM to AFS, net of income tax effect of $5,076 for both the three months ended and nine months ended September 30, 20190 19,095 0 19,095 
Unrealized net holding gain (loss) on debt securities available-for-sale, net of income tax effect of $55 and $(1,385) for the three months ended September 30, 2020 and 2019, respectively, and $7,109 and $4,864 for the nine months ended September 30, 2020 and 2019, respectively.207 (5,206)26,742 18,302 
Unrealized gain (loss) on cash flow hedging derivatives, net of income tax effect of $30 and $(13) for the three months ended September 30, 2020 and 2019, respectively, and $(94) and $(148) for the nine months ended September 30, 2020 and 2019, respectively.111 (49)(357)(556)
Other comprehensive income$339 $13,693 $23,789 $37,174 
Comprehensive income$31,185 $44,839 $106,512 $115,938 
Three Months Ended
September 30,		Nine Months Ended
September 30,
 2021202020212020
Net income$35,434 $30,846 $117,397 $82,723 
Other comprehensive (loss) income, net of tax:
Net loss (gain) realized on sale of securities, net of income tax effect of $6 for the three months ended September 30, 2020, and $(690) for the nine months ended September 30, 2020— 21 — (2,596)
Unrealized net holding (loss) gain on debt securities available-for-sale, net of income tax effect of $(1,328) and $55 for the three months ended September 30, 2021 and 2020, respectively, and $(3,650) and $7,109 for the nine months ended September 30, 2021 and 2020, respectively(4,997)207 (13,736)26,742 
Unrealized gain (loss) on cash flow hedging derivatives, net of income tax effect of $31 and $30 for the three months ended September 30, 2021 and 2020, respectively, and $94 and $(94) for the nine months ended September 30, 2021 and 2020, respectively117 111 355 (357)
Other comprehensive (loss) income$(4,880)$339 $(13,381)$23,789 
Comprehensive income$30,554 $31,185 $104,016 $106,512 
 
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 share and per share data)
Preferred
Shares		Common
Shares		Retained
Earnings		Treasury
Shares		Accumulated
Other
Comprehensive
Income (Loss)
Balance at January 1, 2020$0 $459,389 $646,847 $(127,633)$(9,589)
Net income22,372 
Other comprehensive income, net of tax17,693 
Dividends on common shares at $1.22 per share(20,111)
Cash payment for fractional common shares in dividend reinvestment plan(1)
Issuance of 25,028 common shares under share-based compensation awards, net of 11,646 common shares withheld to pay employee income taxes(3,865)528 2,500 
Repurchase of 76,000 common shares to be held as treasury shares(7,507)
Share-based compensation expense1,254 
Balance at March 31, 2020$0 $456,777 $649,636 $(132,640)$8,104 
Net income29,505 
Other comprehensive income, net of tax5,757 
Dividends on common shares at $1.02 per share(16,837)
Issuance of 970 common shares under share-based compensation awards, net of 530 common shares withheld to pay employee income taxes(142)7 96 
Share-based compensation expense1,331 
Balance at June 30, 2020$0 $457,966 $662,311 $(132,544)$13,861 
Net income30,846 
Other comprehensive income, net of tax339 
Dividends on common shares at $1.02 per share(16,821)
Issuance of 4,345 common shares under share-based compensation awards, net of 1,860 common shares withheld to pay employee income taxes(690)129 435 
Share-based compensation expense1,164 
Balance at September 30, 2020$0 $458,440 $676,465 $(132,109)$14,200 
Preferred
Shares		Common
Shares		Retained
Earnings		Treasury
Shares		Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2020$— $460,687 $704,764 $(130,766)$5,571 
Cumulative change in accounting principle(7,956)
Balance at January 1, 2021$— $460,687 $696,808 $(130,766)$5,571 
Net income42,831 
Other comprehensive loss, net of tax(13,472)
Dividends on common shares at $1.23 per share(20,365)
Cash payment for fractional common shares in dividend reinvestment plan(1)
Issuance of 21,764 common shares under share-based compensation awards, net of 14,108 common shares withheld to pay employee income taxes(3,988)(44)2,174 
Share-based compensation expense1,836 
Balance at March 31, 2021$— $458,534 $719,230 $(128,592)$(7,901)
Net income39,132 
Other comprehensive income, net of tax4,971 
Dividends on common shares at $1.03 per share(17,081)
Cash payment for fractional common shares in dividend reinvestment plan(2)
Issuance of 4,834 common shares under share-based compensation awards, net of 2,973 common shares withheld to pay employee income taxes(743)(126)483 
Share-based compensation expense1,487 
Balance at June 30, 2021$— $459,276 $741,155 $(128,109)$(2,930)
Net income35,434 
Other comprehensive loss, net of tax(4,880)
Dividends on common shares at $1.03 per share(16,999)
Cash payment for fractional common shares in dividend reinvestment plan(1)
Issuance of 3,079 common shares under share-based compensation awards, net of 1,348 common shares withheld to pay employee income taxes(495)29 307 
Repurchase of 137,659 common shares to be held as treasury shares(16,048)
Share-based compensation expense1,173 
Balance at September 30, 2021$— $459,953 $759,619 $(143,850)$(7,810)

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited) (Continued)
(in thousands, except share and per share data)
Preferred
Shares		Common
Shares		Retained
Earnings		Treasury
Shares		Accumulated
Other
Comprehensive
Income (Loss)
Balance at January 1, 2019, as previously presented$0 $358,598 $614,069 $(90,373)$(49,788)
Cumulative effect of change in accounting principle for leases, net of tax(143)
Balance at January 1, 2019, as adjusted0 358,598 613,926 (90,373)(49,788)
Net income  25,455   
Other comprehensive income, net of tax 14,335 
Dividends on common shares at $1.21 per share  (19,137)  
Cash payment for fractional common shares in dividend reinvestment plan (1)   
Issuance of 27,719 common shares under share-based compensation awards, net of 8,736 common shares withheld to pay employee income taxes(2,480)(273)1,926 
Repurchase of 86,650 common shares to be held as treasury shares(8,502)
Share-based compensation expense1,358 
Balance at March 31, 2019$0 $357,475 $619,971 $(96,949)$(35,453)
Net income22,163 
Other comprehensive income, net of tax9,146 
Dividends on common shares at $1.01 per share(16,907)
Cash payment for fractional common shares in dividend reinvestment plan(1)
Repurchase of 250,000 common shares to be held as treasury shares(24,450)
Issuance of 1,037,205 common shares for the acquisition of CAB Financial Corporation98,275 
Share-based compensation expense1,162 
Balance at June 30, 2019$0 $456,911 $625,227 $(121,399)$(26,307)
Net income$31,146 
Other comprehensive income, net of tax13,693 
Dividends on common shares at $1.01 per share(16,779)
Cash payment for fractional common shares in dividend reinvestment plan(1)
Repurchase of 84,603 common shares to be held as treasury shares(7,583)
Share-based compensation expense1,232 
Balance at September 30, 2019$0 $458,142 $639,594 $(128,982)$(12,614)
Preferred
Shares		Common
Shares		Retained
Earnings		Treasury
Shares		Accumulated
Other
Comprehensive
Income (Loss)
Balance at January 1, 2020$— $459,389 $646,847 $(127,633)$(9,589)
Net income  22,372 
Other comprehensive income, net of tax 17,693 
Dividends on common shares at $1.22 per share  (20,111)
Cash payment for fractional common shares in dividend reinvestment plan (1) 
Issuance of 25,028 common shares under share-based compensation awards, net of 11,646 common shares withheld to pay employee income taxes(3,865)528 2,500 
Repurchase of 76,000 common shares to be held as treasury shares(7,507)
Share-based compensation expense1,254 
Balance at March 31, 2020$— $456,777 $649,636 $(132,640)$8,104 
Net income29,505 
Other comprehensive income, net of tax5,757 
Dividends on common shares at $1.02 per share(16,837)
Issuance of 970 common shares under share-based compensation awards, net of 530 common shares withheld to pay employee income taxes(142)7 96 
Share-based compensation expense1,331 
Balance at June 30, 2020$— $457,966 $662,311 $(132,544)$13,861 
Net income30,846 
Other comprehensive income, net of tax339 
Dividends on common shares at $1.02 per share(16,821)
Issuance of 4,345 common shares under share-based compensation awards, net of 1,860 common shares withheld to pay employee income taxes(690)129 435 
Share-based compensation expense1,164 
Balance at September 30, 2020$— $458,440 $676,465 $(132,109)$14,200 

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
(in thousands)
Nine Months Ended
September 30,		Nine Months Ended September 30,
20202019 20212020
Operating activities:Operating activities:  Operating activities:  
Net incomeNet income$82,723 $78,764 Net income$117,397 $82,723 
Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:  Adjustments to reconcile net income to net cash provided by operating activities:  
Provision for loan losses31,213 6,384 
(Recovery of) provision for credit losses(Recovery of) provision for credit losses(6,923)31,213 
Accretion of loan fees and costs, netAccretion of loan fees and costs, net(12,191)(5,077)Accretion of loan fees and costs, net(20,601)(12,191)
Depreciation of premises and equipmentDepreciation of premises and equipment7,888 6,676 Depreciation of premises and equipment9,951 7,888 
Amortization of investment securities, netAmortization of investment securities, net1,064 1,102 Amortization of investment securities, net1,442 1,064 
Net accretion of purchase accounting adjustmentsNet accretion of purchase accounting adjustments(2,005)(2,052)Net accretion of purchase accounting adjustments(1,375)(2,005)
Realized net investment securities (gains) losses(3,286)421 
Loss (gain) on equity securities, net749 (5,309)
Realized net debt securities gainsRealized net debt securities gains— (3,286)
(Gain) loss on equity securities, net(Gain) loss on equity securities, net(2,886)749 
Loan originations to be sold in secondary marketLoan originations to be sold in secondary market(697,555)(224,314)Loan originations to be sold in secondary market(465,278)(697,555)
Proceeds from sale of loans in secondary marketProceeds from sale of loans in secondary market676,275 214,266 Proceeds from sale of loans in secondary market503,032 676,275 
Gain on sale of loans in secondary marketGain on sale of loans in secondary market(14,707)(4,658)Gain on sale of loans in secondary market(15,032)(14,707)
Share-based compensation expenseShare-based compensation expense3,749 3,752 Share-based compensation expense4,496 3,749 
(Gain) loss on sale of OREO, net(1,214)224 
Loss (gain) on sale of OREO, netLoss (gain) on sale of OREO, net26 (1,214)
Bank owned life insurance incomeBank owned life insurance income(3,619)(3,399)Bank owned life insurance income(3,776)(3,619)
Investment in qualified affordable housing tax credits amortizationInvestment in qualified affordable housing tax credits amortization5,487 5,438 Investment in qualified affordable housing tax credits amortization5,567 5,487 
Changes in assets and liabilities:Changes in assets and liabilities:  Changes in assets and liabilities:  
Increase in prepaid dealer premiumsIncrease in prepaid dealer premiums(7,889)(4,625)Increase in prepaid dealer premiums(3,370)(7,889)
(Increase) decrease in other assets(5,794)5,250 
(Decrease) increase in other liabilities(8,452)1,128 
Increase in other assetsIncrease in other assets(11,021)(5,794)
Increase (decrease) in other liabilitiesIncrease (decrease) in other liabilities986 (8,452)
Net cash provided by operating activitiesNet cash provided by operating activities$52,436 $73,971 Net cash provided by operating activities$112,635 $52,436 
Investing activities:Investing activities:  Investing activities:  
Proceeds from the redemption/repurchase of Federal Home Loan Bank stockProceeds from the redemption/repurchase of Federal Home Loan Bank stock$7,639 $9,964 Proceeds from the redemption/repurchase of Federal Home Loan Bank stock$8,677 $7,639 
Proceeds from sales of investment securitiesProceeds from sales of investment securities312,159 91,110 Proceeds from sales of investment securities934 312,159 
Proceeds from calls and maturities of:Proceeds from calls and maturities of:  Proceeds from calls and maturities of:  
Available-for-sale debt securities164,725 145,851 
Held-to-maturity debt securities0 475 
Debt securities AFSDebt securities AFS176,926 164,725 
Purchases of:Purchases of:  Purchases of:  
Available-for-sale debt securities(267,210)0 
Debt securities AFSDebt securities AFS(637,123)(267,210)
Equity securitiesEquity securities(3,567)0 Equity securities— (3,567)
Federal Reserve Bank stock0 (5,180)
Net decrease in other investmentsNet decrease in other investments201 6,145 Net decrease in other investments2,655 201 
Net loan originations, portfolio loans(727,387)(112,767)
Net loan paydowns (originations), portfolio loansNet loan paydowns (originations), portfolio loans269,353 (727,387)
Proceeds from the sale of non-mortgage loansProceeds from the sale of non-mortgage loans3,688 — 
Investment in qualified affordable housing tax creditsInvestment in qualified affordable housing tax credits(4,301)(3,843)Investment in qualified affordable housing tax credits(6,182)(4,301)
Proceeds from the sale of OREOProceeds from the sale of OREO5,595 1,098 Proceeds from the sale of OREO659 5,595 
Life insurance death benefitsLife insurance death benefits1,196 1,344 Life insurance death benefits4,862 1,196 
Cash paid for acquisition of CAB Financial Corporation, net0 (4,831)
Purchases of premises and equipmentPurchases of premises and equipment(20,820)(11,641)Purchases of premises and equipment(10,670)(20,820)
Net cash (used in) provided by investing activities$(531,770)$117,725 
Net cash used in investing activitiesNet cash used in investing activities$(186,221)$(531,770)
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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued)
(in thousands)
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued)
(in thousands)
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued)
(in thousands)
Nine Months Ended
September 30,		Nine Months Ended September 30,
20202019 20212020
Financing activities:Financing activities:  Financing activities:  
Net increase in depositsNet increase in deposits$423,411 $275,207 Net increase in deposits$900,305 $1,196,684 
Net increase (decrease) in short-term borrowings89,778 (64,891)
Proceeds from issuance of long-term debt0 50,000 
Net increase in OWS depositsNet increase in OWS deposits(108,239)(773,273)
Net (decrease) increase in short-term borrowingsNet (decrease) increase in short-term borrowings(106,251)89,778 
Proceeds from issuance of subordinated notesProceeds from issuance of subordinated notes172,620 0 Proceeds from issuance of subordinated notes— 172,620 
Repayment of long-term debtRepayment of long-term debt(57,500)(152,500)Repayment of long-term debt(32,500)(57,500)
Value of common shares withheld to pay employee income taxesValue of common shares withheld to pay employee income taxes(1,002)(827)Value of common shares withheld to pay employee income taxes(2,403)(1,002)
Repurchase of common shares to be held as treasury sharesRepurchase of common shares to be held as treasury shares(7,507)(40,535)Repurchase of common shares to be held as treasury shares(16,048)(7,507)
Cash dividends paidCash dividends paid(53,713)(52,638)Cash dividends paid(54,357)(53,713)
Net cash provided by financing activitiesNet cash provided by financing activities$566,087 $13,816 Net cash provided by financing activities$580,507 $566,087 
Increase in cash and cash equivalentsIncrease in cash and cash equivalents86,753 205,512 Increase in cash and cash equivalents506,921 86,753 
Cash and cash equivalents at beginning of yearCash and cash equivalents at beginning of year159,956 167,214 Cash and cash equivalents at beginning of year370,474 159,956 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$246,709 $372,726 Cash and cash equivalents at end of period$877,395 $246,709 
Supplemental disclosures of cash flow information:Supplemental disclosures of cash flow information:  Supplemental disclosures of cash flow information:  
Cash paid for:Cash paid for:  Cash paid for:  
InterestInterest$24,600 $47,891 Interest$14,930 $24,600 
Federal income taxFederal income tax$17,400 $9,261 Federal income tax16,430 17,400 
Non-cash items:Non-cash items:Non-cash items:
Transfer of debt securities from HTM to AFS$0 $349,773 
Loans transferred to OREOLoans transferred to OREO$1,124 $951 Loans transferred to OREO$78 $1,124 
Right-of-use assets obtained in exchange for lease obligationsRight-of-use assets obtained in exchange for lease obligations$7,794 $11,351 Right-of-use assets obtained in exchange for lease obligations547 7,794
New commitments in affordable housing tax credit investmentsNew commitments in affordable housing tax credit investments$10,000 $10,000 New commitments in affordable housing tax credit investments10,000 10,000 
Debt securities AFS purchase commitmentDebt securities AFS purchase commitment52,508 — 

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 nine-month periods ended September 30, 20202021 are not necessarily indicative of the operating results to be anticipated for the year ending December 31, 2020.2021.
 
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for 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, 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, 20192020 ("Park's 20192020 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 11. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 20192020 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.

The COVID-19 pandemic has caused significant, unprecedented disruption around the world that has affected daily living and negatively impacted the global economy. The effects of the COVID-19 pandemic may meaningfully impact significant estimates such as the allowance for loancredit losses, goodwill, mortgage servicing rights, and pension plan obligations and related expenses. Additionally, the COVID-19 pandemic may particularly impact certain loan concentrations in the hotelhotels and accommodations, restaurantrestaurants and food service, and strip shopping centercenters industries.

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, and issued accounting standards not yet effective for Park:statements:

Adoption of New Accounting Pronouncements

ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement: 2016-13In August 2018, the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement by removing, modifying and adding certain requirements. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption of this guidance on January 1, 2020 did not have an impact on Park’s consolidated financial statements, but did impact disclosures.

ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting: In March 2020, the FASB issued ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this ASU are effective from March 12, 2020 through December 31, 2022. The adoption of this guidance did not have a material impact on Park's consolidated financial statements, but Park will consider this guidance as contracts are transitioned from LIBOR to another reference rate.

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Issued But Not Yet Effective Accounting Standards

ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments: In June 2016, the FASB issued Effective January 1, 2021, Park adoptedASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.("ASU 2016-13") ("ASC 326"), as amended. The new accounting guidance in this ASU 2016-13 replaces the incurred loss modelmethodology with an expected loss model,methodology, which is referred to as the current expected credit loss ("CECL") model.methodology. The CECL modelmethodology is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, HTM debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments), and net investments in leases recognized by a lessor. The CECL modelmethodology requires an entity to estimate credit losses over the life of an asset or off-balance sheet credit exposure. The new accounting guidance was to have originally been effective for Park for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019.

Section 4014 of the CARES Act providesprovided financial institutions with optional temporary relief from having to comply with ASU 2016-13, including the CECL methodology for estimating the allowance for credit losses. This temporary relief willwas set to expire on the earlier of the date on which the national emergency concerning the COVID-19 outbreak terminatesterminated or December 31, 2020, with adoption being effective retrospectively as of January 1, 2020.

Section 540 of the Consolidated Appropriations Act, 2021, amended Section 4014 of the CARES Act by extending the relief period provided in the CARES Act. The Consolidated Appropriations Act, 2021, modifies the CARES Act so that temporary
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relief will expire on the earlier of the first day of the fiscal year that begins after the date on which the national emergency concerning COVID-19 terminates or January 1, 2022.

Park elected to delay the implementation of CECLASU 2016-13 following the effectivenessapproval of the CARES Act. The CECL standardAct and continued to use the incurred loss methodology for estimating the allowance for credit losses in 2020. ASU 2016-13 requires
financial institutions to calculate an allowance utilizing a reasonable and supportable forecast period which Park has established
as a one-year period. Much is still unknown aboutIn the economic impact ofunprecedented circumstances surrounding the COVID-19 including the duration of the pandemic,
future government programs that may be established as a result of the pandemic and the resiliency of the U.S. economy,
making any forecast subject to large fluctuations in the coming months. In this unprecedented situation,response thereto, Park believesbelieved that
adoption of the CECL model adopting ASU 2016-13 in the first quarter of 2020 would have added an unnecessary level of subjectivity and volatility to
the calculation of the allowance for credit losses. With the approval of the Consolidated Appropriations Act, 2021, management elected to further delay adoption of ASU 2016-13 to January 1, 2021. This allowed Park to utilize the CECL standard for the entire year of adoption.

WithPark adopted ASU 326 using the delay, management is currently evaluatingmodified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with the impact of adoption of this new accounting guidance on Park’s consolidated financial statements. Adoption will be applied throughthen applicable U.S. GAAP. Park recorded a one-time cumulative-effect adjustmentnet decrease to retained earnings of $8.0 million as of January 1, 2020. Management has developed a quantitative2021 for the cumulative effect of adopting ASC 326.

Park adopted ASC 326 using the prospective transition approach for financial assets PCD that were previously classified as PCI and accounted for under ASC 310-30. In accordance with ASC 326, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2021, the amortized cost basis of the PCD assets was adjusted to reflect the addition of $52,000 to the allowance for credit model and is completinglosses. The remaining noncredit discount (based on the processadjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of validation. Management is still finalizingJanuary 1, 2021.

As permitted by ASC 326, Park elected to maintain pools of loans accounted for under ASC 310-30. In accordance with ASC 326, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were TDRs as of the analysisdate of qualitative factors, to capture inherent risks, which are not included within the quantitative credit model. Management, along with Park’s CECL Committee, is in the process of implementing the accounting, processes, controls and governance required to comply with the new accounting guidance.adoption.

The Companyfollowing table illustrates the impact of ASC 326:

January 1, 2021
(In thousands)As Reported Under ASC 326Pre-ASC 326 AdoptionImpact of ASC 326 Adoption
Assets:
Loans$7,177,666 $7,177,785 $(119)
ACL on loans
Commercial, financial and agricultural17,351 25,608 (8,257)
Commercial real estate25,599 23,480 2,119 
Construction real estate5,390 7,288 (1,898)
Residential real estate14,484 11,363 3,121 
Consumer28,343 17,418 10,925 
Leases598 518 80 
Total ACL on loans$91,765 $85,675 $6,090 
Liabilities:
ACL on off-balance sheet commitments$3,982 $116 $3,866 
Net deferred tax liability$777 $2,892 $(2,115)
Shareholders' equity:$1,032,300 $1,040,256 $(7,956)


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ACL - Debt Securities AFS
For debt securities AFS in an unrealized loss position, Park first assesses whether it intends to sell, or it is usingmore likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For debt securities AFS that do not meet the aforementioned criteria, Park evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an economic forecast modelallowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes.
Changes in the ACL are recorded as a provision for (or recovery of) credit loss expense. Losses are charged against the ACL when management believes that uncollectibility of a debt security AFS is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on debt securities AFS totaled $5.3 million at September 30, 2021 and is excluded from the estimate of credit losses.

ACL - HTM Debt Securities
Management measures expected credit losses on HTM debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Park does not currently hold any HTM debt securities.

ACL - Loans
The ACL is a valuation account that is deducted from the amortized cost of total loans to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes that the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of the amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant and available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.

Accrued interest receivable on loans totaled $18.4 million at September 30, 2021 and is excluded from the estimate of credit losses.

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ACL - Loans - Collectively Evaluated
The ACL is measured on a collective pool basis when similar risk characteristics exist. Park has identified the following portfolio segments and measures the allowance for credit losses using the following methods:

Portfolio SegmentMeasurement MethodLoss Driver
Commercial, financial and agriculturalDiscounted Cash FlowOhio Unemployment, Ohio GDP
PPP loansOtherNot Applicable
OverdraftsHistorical Loss ExperienceNot Applicable
Commercial real estateDiscounted Cash FlowOhio Unemployment, Ohio GDP
Construction real estate:
CommercialDiscounted Cash FlowOhio Unemployment, Ohio GDP
RetailDiscounted Cash FlowOhio Unemployment, Ohio GDP
Residential real estate:
CommercialDiscounted Cash FlowOhio Unemployment, Ohio HPI
MortgageDiscounted Cash FlowOhio Unemployment, Ohio HPI
HELOCDiscounted Cash FlowOhio Unemployment, Ohio HPI
InstallmentDiscounted Cash FlowOhio Unemployment, Ohio HPI
Consumer:
ConsumerDiscounted Cash FlowOhio Unemployment, Ohio GDP
GFSCDiscounted Cash FlowOhio Unemployment, Ohio GDP
Check loansHistorical Loss ExperienceNot Applicable
LeasesRemaining LifeNot Applicable

Expected credit losses are estimated over the contractual term of the loans, adjusted for prepayments when appropriate. The contractual term excludes extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by Park.

In general,Park utilized a DCF method to estimate the quantitative portion of the allowance for credit losses for loans evaluated on a collective pooled basis. For each 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 utilized Park's own Federal Financial Institutions Examination Council's ("FFIEC") Call Report data for the commercial, financial and agricultural and residential real estate segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer segments.

In creating the DCF model, Park has established a one-year reasonable and supportable forecast period and then revert, overwith a one-year straight line reversion to the long-term historical average. Park's policy is to utilize its own data, which includes loan-level loss data from 2013 through September 30, 2021, whenever possible. Park and peer FFIEC call report data are utilized when there are not sufficient defaults for a statistically sound calculation, or if Park does not have its own loan-level detail reflecting similar economic conditions as the forecasted loss drivers.

Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, and loss history, and forecasted loss drivers. 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 weighting of the scenarios is evaluated on a quarterly basis considering the various scenarios in the context of the current economic environment and presumed risk of loss.

Additional key assumptions in the DCF model include the PD, LGD, and prepayment/curtailment rates. When possible, Park utilizes its own PDs for the reasonable and supportable forecast period. When it is not possible to use Park's own PDs, the LDA is utilized to determine PDs based on the forecasted economic factors. In all cases, the LDA is then utilized to determine the long-term historical average which is reached over the reversion period. When possible, Park's utilizes its own 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. The Frye Jacobs method is a mathematical formula that traces the relationship between
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LGD and PD over time and projects the LGD based on the level of PD forecasted. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the reversion period and long-term historical average. Prepayment and curtailment rates were calculated based on Park's own data utilizing a three-year average.

When the discounted cash flow method is used to longer term historical loss experience to arrive at lifetime expected credit losses. The estimated change indetermine the allowance for credit losses, as comparedmanagement incorporates expected prepayments to Park's historical ALLL is primarilydetermine the effective interest rate utilized to discount expected cash flow.

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;
•The volume and severity of past due to required increases for residential mortgage, home equity, and installment loans to addressfinancial assets, the requirement to estimate lifetime expected credit lossesvolume of nonaccrual assets, and the remaining lengthvolume and severity of time to maturityadversely classified or graded assets;
•Park’s lending policies and procedures, including changes in lending strategies, underwriting standards and practices for these loanscollections, write-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 wellthe regulatory, legal and technological environments, competition, 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 which Park operates that affect the collectibility of financial assets;
•Where the U.S. economy is within a given credit cycle; and
•The extent that there is government assistance (stimulus).

ACL - Loans - Individually Evaluated
Loans that do not share risk characteristics are evaluated on an increase in reserves on acquired non-impairedindividual basis and are excluded from the collective evaluation. Park has determined that any commercial loans which have lowbeen placed on nonaccrual status or classified as TDRs will be individually evaluated and are labeled as impaired. Individual analysis establishes a specific reserve levelsfor loans in scope.  Specific reserves on impaired commercial loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as appropriate.

ACL - Purchased Credit Deteriorated Loans
The Company has purchased loans, some of which have shown evidence of credit deterioration since origination.  Upon adoption of ASC 326, Park elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. Loans are only removed from the incurred loss accounting guidance. Offsetting declines in the allowanceexisting pools if they are expected for commercial and commercial real estate loans due to their short-term nature. Additionally, management expects an increase inwritten off, paid off, or sold. Upon adoption of ASC 326, the allowance for credit losses was determined for unfunded commitments.

While iteach pool and added to the pool's carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the pool and the new amortized cost basis is expected that the adoptionnoncredit premium or discount which will be amortized into interest income over the remaining life of this ASU could increasethe pool. Changes to the allowance for credit losses many factors will determine the ultimate calculation at December 31, 2020. Theafter adoption of this ASU will not, however, change the overall credit risk in the Company's loan, lease and investment securities portfolios or the ultimate losses therein. The transition adjustment to increase the allowance will primarily result in a decrease to shareholders' equity, net of income taxes. The ultimate impact of the adoption of this ASU will depend on the composition of the loan, lease and investment securities portfolios, finalization ofare recorded through provision for credit loss models, and macroeconomic conditions and forecasts that exist at the adoption date.expense.

ASU 2018-14ACL - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - ChangesOff-Balance Sheet Credit Exposures
Park estimates expected credit losses over the contractual period in which Park is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by Park. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the Disclosure Requirements for Defined Benefit Plans: In August 2018, the FASB issued ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this ASU modify the disclosure requirements for employerslikelihood that sponsor defined benefit pension or other postretirement plans by removing disclosures that are no longer considered cost beneficial, clarifying the specific requirementsfunding will occur and an estimate of disclosures and adding disclosure requirements identified as relevant. The amendments in this ASU are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The adoption of this guidance will not have an impactexpected credit losses on Park’s consolidated financial statements, but will impact disclosures.

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ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses: In November 2018, the FASB issued ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendment in this ASU clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Impairment of receivables arising from operating leases arecommitments expected to be accounted for in accordance with Topic 842, Leases. Park will consider this clarification in determiningfunded over the appropriate adoptioncommitments' respective estimated lives. Funding rates are based on a historical analysis of ASU 2016-13.

ASU 2019-04 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments: In April 2019, the FASB issued ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This ASU includes amendments that clarify or address specific issues about certain aspectsPark's portfolio, while estimates of the amendments in ASU 2016-01, Financial Instruments - Overall (Subtopic 925-10): Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.

Park has already adopted ASU 2016-01.  As a result, certain provisions in the amendments within ASU 2019-04 related tocredit losses are determined using the same topicsloss rates as ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of the provisions related to the same topics as ASU 2016-01 on January 1, 2020 did not have a material effect on Park’s consolidated financial statements.

For the amendments related to Topic 326 that clarify or address specific aspects of ASU 2016-13, Park will consider these clarifications in determining the appropriate adoption of ASU 2016-13.

Park has already adopted ASU 2017-12.  As a result, the amendments within ASU 2019-04 related to the same topics as ASU 2017-12 were effective as of January 1, 2020.  This ASU allows entities, like Park, that did not reclassify debt securities from HTM to AFS upon the adoption of ASU 2017-12 to reclassify these securities as of the adoption of ASU 2019-04.  Park considered this option and, effective September 1, 2019, reclassified all HTM debt securities to AFS. The transfer occurred at fair value and resulted in an unrealized gain, net of taxes, of $19.1 million being recorded in other comprehensive income.

ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326): In May 2019, the FASB issued ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326). The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. Park will consider this amendment in determining the appropriate adoption of ASU 2016-13.

ASU 2019-11 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses: In November 2019, the FASB issued ASU 2019-11 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU represents changes to clarify, correct errors in, or improve the ASC related to five topics. The amendments make the ASC easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. Park will consider these clarifications and improvements in determining the appropriate adoption of ASU 2016-13.funded loans.

ASU 2019-20 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes: In December 2019, the FASB issued ASU 2019-20 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU 2019-20 includes amendments to simplify accounting for income taxes by removing certain exceptions and adding requirements with the intention of simplifying and clarifying existing guidance. The amendments in this ASU 2019-20 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The adoption of this guidance willon January 1, 2021, did not have a material impact on Park's consolidated financial statements.


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ASU 2020-01 - Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815: In January 2020, the FASB issued ASU 2020-01 - Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This ASU 2020-01 represents changes to clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815. These amendments improve current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting for these transactions. The amendments in this ASU 2020-01 are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance willon January 1, 2021 did not have a material impact on Park's consolidated financial statements.
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ASU 2020-02 - Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842): In February 2020, the FASB issued ASU 2020-02 - Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842). This ASU represents changes to clarify or improve the ASC. The amendments make the ASC easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. It also addresses transition and open effective date information for Topic 842. Park will consider these clarifications and improvements in determining the appropriate adoption of ASU 2016-13.

ASU 2020-03 - Codification Improvements to Financial Instruments: In March 2020, the FASB issued ASU 2020-03 - Codification Improvements to Financial Instruments. This ASU represents changes to clarify or improve the ASC related to seven topics. The amendments make the ASC easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. Issues 1, 2, 3, 4 and 5 are conforming amendments and for public entities were effective upon the issuance of the standard. Issues 6 and 7 are amendments that affect the guidance in ASU 2016-13. Park will consider these clarifications and improvements in determining the appropriate adoption of ASU 2016-13.

ASU 2020-08 - Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs: In October 2020, the FASB issued ASU 2020-08 - Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs. This ASU 2020-08 clarifies that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. The amendments in this ASU 2020-08 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. The adoption of this guidance willon January 1, 2021, did not have a material impact on Park's consolidated financial statements.

Issued But Not Yet Effective Accounting Standards
Note 3
ASU 2021-06 - Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946):Business Combinations In August 2021, FASB issued ASU 2021-06 - Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946). ASU 2021-06 updates the codification to align with SEC Final Rule Releases No. 33-10786 and No. 33-10835. Specific to financial institutions, these SEC releases updated required annual statistical disclosures. The amendments in ASU 2021-06 were effective immediately. Park will update the statistical disclosures in its Annual Report on Form 10-K for the fiscal year ending December 31, 2021, to align with this guidance.

CAB Financial Corporation

On April 1, 2019, CAB Financial Corporation, a South Carolina corporation, merged with and into Park, with Park continuing as the surviving entity pursuant to the Agreement and Plan of Merger and Reorganization (the "CABF Merger Agreement"), dated as of September 12, 2018, by and between Park and CABF. Immediately following the CABF merger into Park, Carolina Alliance Bank, a South Carolina state-chartered bank and a wholly-owned subsidiary of CABF, was merged with and into PNB, with PNB as the surviving bank. In accordance with the transactions completed by the CABF Merger Agreement (the "Carolina Alliance acquisition"), CABF shareholders received for each share of their CABF common stock (i) $3.80 in cash (the cash consideration) and (ii) 0.1378 of a Park common share (the stock consideration). CABF stock options and restricted stock awards were fully vested (with any performance-based vesting condition deemed satisfied) and canceled and converted automatically into the right to receive merger consideration.

Purchase consideration consisted of 1,037,205 Park common shares, valued at $98.3 million, and $28.6 million in cash to acquire 100% of CABF's outstanding shares of common stock.

Carolina Alliance's results of operations were included in Park's results beginning April 1, 2019. For the three months ended September 30, 2020 and 2019, Park recorded merger-related expenses of $158,000 and $654,000, respectively, and for the nine months ended September 30, 2020 and 2019, Park recorded merger-related expenses of $602,000 and $6.9 million associated with the Carolina Alliance acquisition.

Goodwill of $46.9 million arising from the Carolina Alliance acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of PNB and Carolina Alliance. The goodwill is not deductible for income tax purposes as the transaction was accounted for as a tax-free exchange.

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The following table summarizes the consideration paid in the Carolina Alliance acquisition and the amounts of the assets acquired and liabilities assumed at their fair value:

(in thousands)
Consideration
Cash$28,630 
Park common shares98,275 
Fair value of total consideration transferred$126,905 
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents$23,799 
Securities97,606 
Loans578,577 
Premises and equipment8,337 
Core deposit intangibles8,207 
Other assets32,123 
Total assets acquired748,649 
Deposits632,649 
Other liabilities35,951 
Total liabilities assumed668,600 
Net identifiable assets80,049 
Goodwill$46,856 

Park accounted for the Carolina Alliance acquisition using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date, in accordance with FASB ASC Topic 805, Business Combinations.

The fair value of net assets acquired includes fair value adjustments to loans that were not considered impaired as of the acquisition date.  The fair value adjustments were determined using discounted contractual cash flows.  However, Park believed that all contractual cash flows related to these loans would be collected.  As such, these loans were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans which have shown evidence of credit deterioration since origination.  Loans acquired that were not subject to these requirements included non-impaired loans with a fair value and gross contractual amounts receivable of $560.2 million and $572.6 million, respectively, on the date of acquisition.

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The table below presents information with respect to the fair value of acquired loans as well as their book balance at the acquisition date.

(in thousands)Book BalanceFair Value
Commercial, financial and agricultural$80,895 $80,580 
Commercial real estate281,425 273,855 
Construction real estate:
Commercial43,106 42,176 
Mortgage11,130 10,633 
Residential real estate:
Commercial48,546 48,684 
Mortgage30,519 30,969 
HELOC40,825 39,853 
Consumer4,813 4,647 
Leases28,589 28,781 
PCI19,850 18,399 
Total loans$589,698 $578,577 

The following table presents supplemental pro forma information as if the Carolina Alliance acquisition had occurred as of January 1, 2019. The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, depreciation expense on property acquired, interest expense on deposits acquired, and the related tax effects. The pro forma information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

Nine months ended September 30,
(dollars in thousands, except per share data)20202019
Net interest income$241,253 $227,974 
Net income$83,178 $86,227 
Basic earnings per share$5.10 $5.21 
Diluted earnings per share$5.07 $5.18 

Note 43 – Investment Securities
 
The amortized cost and fair value of investment securities are shown in the following tables. Management performs a quarterly evaluation of investment securities for any other-than-temporary impairment. For the three-month and nine-month periods ended September 30, 2020 and 2019, there were 0 investment securities deemed to be other-than-temporarily impaired.
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Investment securities at September 30, 2021 and December 31, 2020, were as follows:
Debt securities AFS (In thousands)Amortized
Cost		Gross
Unrealized
Holding 
Gains		Gross
Unrealized
Holding 
Losses		Fair Value
September 30, 2021:
Obligations of states and political subdivisions$277,527 $21,567 $— $299,094 
U.S. Government sponsored entities' asset-backed securities844,128 17,876 4,855 857,149 
Collateralized loan obligations388,193 146 657 387,682 
Corporate debt securities9,250 43 — 9,293 
Total$1,519,098 $39,632 $5,512 $1,553,218 

Debt securities AFS (In thousands)Amortized
Cost		Gross
Unrealized
Holding 
Gains		Gross
Unrealized
Holding 
Losses		Fair Value
Obligations of states and political subdivisions$279,810 $24,696 $— $304,506 
U.S. Government sponsored entities' asset-backed securities698,237 28,092 32 726,297 
Corporate debt securities2,000 11 — 2,011 
Total$980,047 $52,799 $32 $1,032,814 
Investment securities in an unrealized loss position at September 30, 2020, 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
U.S. Government sponsored entities' asset-backed securities$— $— $5,330 $32 $5,330 $32 
Total$— $— $5,330 $32 $5,330 $32 
Investment securities at December 31, 2019, were as follows:

Debt securities AFS (In thousands)Amortized
Cost		Gross
Unrealized
Holding 
Gains		Gross
Unrealized
Holding 
Losses		Fair Value
Obligations of states and political subdivisions$302,928 $17,563 $— $320,491 
U.S. Government sponsored entities' asset-backed securities884,571 10,862 6,223 889,210 
Total$1,187,499 $28,425 $6,223 $1,209,701 
Investment securities in an unrealized loss position at December 31, 2019, 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
U.S. Government sponsored entities' asset-backed securities$237,613 $1,106 $171,805 $5,117 $409,418 $6,223 
Total$237,613 $1,106 $171,805 $5,117 $409,418 $6,223 
Management does not believe any of the unrealized losses at September 30, 2020 or December 31, 2019 represented other-than-temporary impairment. The unrealized losses are primarily the result of interest rate changes. These conditions will not prohibit Park from receiving its contractual principal and interest payments on these debt securities. The fair value of these debt securities is expected to recover as payments are received on these debt securities and they approach maturity. Should the impairment of any of these debt securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss attributable to credit will be recognized in net income in the period the other-than-temporary impairment is identified.
Debt securities AFS (In thousands)Amortized
Cost		Gross
Unrealized
Holding 
Gains		Gross
Unrealized
Holding 
Losses		Fair Value
December 31, 2020:
Obligations of states and political subdivisions$279,245 $25,973 $— $305,218 
U.S. Government sponsored entities' asset-backed securities726,589 26,248 728 752,109 
Corporate debt securities2,000 14 — 2,014 
Total$1,007,834 $52,235 $728 $1,059,341 

Park’s U.S. Government sponsored entities' asset-backed securities consist primarily of 15-year residential mortgage-backed securities and collateralized mortgage obligations.
 
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Investment securities in an unrealized loss position at September 30, 2021, 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
U.S. Government sponsored entities' asset-backed securities$296,586 $4,855 $— $— $296,586 $4,855 
Collateralized loan obligations239,804 657 — — 239,804 657 
Total$536,390 $5,512 $— $— $536,390 $5,512 
 Investment securities in an unrealized loss position at December 31, 2020, 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
U.S. Government sponsored entities' asset-backed securities$86,393 $695 $4,727 $33 $91,120 $728 
Total$86,393 $695 $4,727 $33 $91,120 $728 

Unrealized losses on U.S. Government sponsored entities' asset-based securities and collateralized loan obligations have not been recognized into income as they represent negative adjustments to fair value relative to the rate of interest paid on the securities and not losses related to the creditworthiness of the respective issuers. 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. Management believes the value will recover as the securities approach maturity or market rates change.

There was no allowance for credit losses recorded for debt securities AFS at September 30, 2021. Additionally, for the three-months and nine-months ended September 30, 2021 and 2020, there were no credit-related investment impairment losses recognized.

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The amortized cost and estimated fair value of investments in debt securities AFS at September 30, 2020,2021, 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. 
Debt securities AFS (In thousands)Amortized
cost		Fair value
Tax equivalent yield (1)
U.S. Government sponsored entities' asset-backed securities$698,237 $726,297 2.37 %
Corporate debt securities
Due five through ten years$2,000 $2,011 4.00 %
Obligations of state and political subdivisions:
Due five through ten years$58,800 $64,264 3.81 %
Due over ten years221,010 240,242 3.67 %
Total (1)
$279,810 $304,506 3.70 %

Debt securities AFS (In thousands)Amortized
cost		Fair value
Tax equivalent yield (1)
U.S. Government sponsored entities' asset-backed securities$844,128 $857,149 1.73 %
Collateralized loan obligations$388,193 $387,682 1.45 %
Corporate debt securities
Due five through ten years$9,250 $9,293 4.10 %
Obligations of state and political subdivisions:
Due five through ten years$136,029 $146,481 3.71 %
Due over ten years141,498 152,613 3.68 %
Total (1)
$277,527 $299,094 3.70 %
(1) The tax equivalent yield for certain obligations of state and political subdivisions includes the effects 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 nine-month periods ended September 30, 2021. During the three months ended September 30, 2020, Park sold certain AFS debt securities AFS with a book value of $140.9 million at a gross gain of $37,000 and sold certain AFS debt securities AFS with a book value of $112.5 million at a gross loss of $64,000.
During the nine months ended September 30, 2020, Park sold certain AFS debt securities AFS with a book value of $196.4 million at a gross gain of $3.4 million and sold certain debt securities AFS debit securities with a book value of $112.5 million at a gross loss of $64,000. During the three months ended September 30, 2019, Park sold certain AFS debt securities with a book value of $10.7 million at a gross loss of $67,000 and sold certain AFS debt securities with a book value of $23.8 million at a gross gain of $253,000. During the nine months ended September 30, 2019, Park sold certain AFS debt securities with a book value of $62.4 million at a gross loss of $692,000 and sold certain AFS debt securities with a book value of $29.1 million at a gross gain of $271,000.

On September 1, 2019, Park adopted the portion of ASU 2019-04 which allowed for a one-time reclassification of securities from HTM to AFS. On this date, Park transferred HTM securities with a fair value of $373.9 million to AFS classification. The transfer occurred at fair value and had a related unrealized gain, net of taxes, of $19.1 million recorded in other comprehensive income.

Investment securities having an amortized cost of $688$717.5 million and $585$691.0 million at September 30, 20202021 and December 31, 2019,2020, respectively, were pledged to collateralize government and trust department deposits in accordance with federal and state requirements, to secure repurchase agreements sold and as collateral for FHLB advance borrowings.

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Note 54 – Other Investment Securities
 
Other investment securities consist of stock investments in the FHLB, the FRB, and equity securities. The FHLB and FRB stock investments are carried at their redemption value. Equity securities with a readily determinable fair value are carried at fair value. Equity securities without a readily determinable fair value are recorded at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions ("modified cost"). Park's portfolio of equity investments in limited partnerships which provide mezzanine funding ("Partnership Investments") are valued using the NAV practical expedient in accordance with ASC 820.

The carrying amounts of other investment securities at September 30, 20202021 and December 31, 20192020 were as follows:
(In thousands)September 30, 2020December 31, 2019
FHLB stock$22,421 $30,060 
FRB stock14,653 14,653 
Equity investments carried at fair value2,042 1,993 
Equity investments carried at modified cost (1)
4,689 2,689 
Equity investments carried at NAV20,979 20,411 
Total other investment securities$64,784 $69,806 
(In thousands)September 30, 2021December 31, 2020
FHLB stock$13,413 $22,090 
FRB stock14,653 14,653 
Equity investments carried at fair value2,070 2,511 
Equity investments carried at modified cost (1)
4,689 4,689 
Equity investments carried at NAV21,260 21,522 
Total other investment securities$56,085 $65,465 
(1) There have been no impairments, downward adjustments, or upward adjustments made to equity investments carried at modified cost.

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During the three months ended September 30, 20202021 and 2019,2020, the FHLB repurchased 13,97121,286 and 18,56713,971 shares, respectively, of FHLB stock with a book value of $1.4$2.1 million and $1.9$1.4 million, respectively. During the nine months ended September 30, 20202021 and 2019,2020, the FHLB repurchased 76,39486,770 and 99,64676,394 shares, respectively, of FHLB stock with a book value of $7.6$8.7 million and $10.0 million, respectively. Additionally, during 2019, Park acquired Carolina Alliance's FHLB shares which were subsequently repurchased by the FHLB. During the three and nine months ended September 30, 2019, Park purchased 76,831 and 128,553 shares, respectively, of FRB stock, with a book value of $3.8 million and $6.4$7.6 million, respectively. No shares of FRB stock were purchased during the three andmonths or the nine months ended September 30, 2021 or 2020.

During the three months ended September 30, 2021 and 2020, $97,000 and 2019, $(89,000) and $58,000,, respectively, of unrealizedgains (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 nine months ended September 30, 2021 and 2020, $492,000 and 2019, $(708,000) and $241,000,, respectively, of unrealizedgains (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 September 30, 2021 and 2020, and 2019, $1.3$0.5 million and $3.3$1.3 million, 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 nine months ended September 30, 2021 and 2020, $2.4 million and 2019, $(41,000) and $5.1 million,, respectively, of gains (losses) gains on equity investments carried at NAV were recorded within "Gain“Gain (loss) on equity securities, net"net” on the Consolidated Condensed Statements of Income.

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Note 65 – Loans
 
The composition of the loan portfolio by class of loan, at September 30, 20202021 and December 31, 20192020 was as follows:
September 30, 2021December 31, 2020
(In thousands)Amortized CostAmortized CostAccrued Interest ReceivableRecorded Investment
Commercial, financial and agricultural: (1)
$1,588,989 $6,528 $1,595,517 
Commercial, financial and agricultural (1)
$1,179,354 (2)(2)(2)
PPP loans131,483 (2)(2)(2)
Overdrafts4,033 (2)(2)(2)
Commercial real estate (1)
1,761,596 1,748,189 6,017 1,754,206 
Construction real estate:  
Commercial231,210 226,991 572 227,563 
Retail111,677 116,430 235 116,665 
Residential real estate:  
Commercial527,151 526,222 1,161 527,383 
Mortgage1,052,093 1,096,358 947 1,097,305 
HELOC166,454 182,028 647 182,675 
Installment6,410 8,436 22 8,458 
Consumer:1,659,704 4,510 1,664,214 
Consumer1,710,608 (2)(2)(2)
GFSC2,624 (2)(2)(2)
Check loans2,092 (2)(2)(2)
Leases21,632 24,438 14 24,452 
Total$6,908,417 $7,177,785 $20,653 $7,198,438 
Allowance for credit losses(88,129)(85,675)
Net loans$6,820,288 $7,092,110 
 September 30, 2020December 31, 2019
(In thousands)Loan
Balance		Accrued
Interest
Receivable		Recorded
Investment		Loan
Balance		Accrued
Interest
Receivable		Recorded
Investment
Commercial, financial and agricultural *$1,727,016 $6,934 $1,733,950 $1,185,110 $4,393 $1,189,503 
Commercial real estate *1,689,477 6,811 1,696,288 1,609,413 5,571 1,614,984 
Construction real estate:      
Commercial245,288 710 245,998 233,637 826 234,463 
Mortgage112,648 249 112,897 96,574 228 96,802 
Installment1,060 5 1,065 1,488 4 1,492 
Residential real estate:      
Commercial501,608 1,173 502,781 479,081 1,339 480,420 
Mortgage1,117,534 1,519 1,119,053 1,176,316 1,381 1,177,697 
HELOC194,342 671 195,013 224,766 1,113 225,879 
Installment9,425 26 9,451 12,563 32 12,595 
Consumer1,652,638 4,515 1,657,153 1,452,375 4,314 1,456,689 
Leases27,510 22 27,532 30,081 20 30,101 
Total loans$7,278,546 $22,635 $7,301,181 $6,501,404 $19,221 $6,520,625 

*(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that arewere not broken out by class.
(2) Results for reporting periods beginning after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. Category was not broken out as a separate class at December 31, 2020.

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In order to support customers, Park participated in the CARES Act Paycheck Protection Program ("PPP"). PPP loans were broken out as a separate class as of September 30, 2021. Included within commercial, financial and agricultural loans are $542.8as of December 31, 2020 were $331.6 million of PPP loans. For its assistance in originating and retaining thesethe first round of PPP loans during 2020, Park received an aggregate of $20.2 million in fees from the SBA, and for its assistance in originating additional PPP loans during 2021, Park received an aggregate of $12.9 million in fees from the SBA. Of this $20.2 million of PPP fees, Park recognized $3.8 million and $6.6 million duringDuring the three months ended September 30, 2021 and September 30, 2020, $4.3 million and $3.8 million, respectively, of PPP fee income were recognized within loan interest income. During the nine months ended September 30, 2021 and September 30, 2020, respectively.$14.0 million and $6.6 million, respectively, of PPP fee income were recognized within loan interest income.

Loans are shown net of deferred origination fees, costs and unearned income of $30.8 million and $16.3$22.7 million at September 30, 20202021, and of $23.6 million at December 31, 2019, respectively,2020, which represented a net deferred income position at each date.in both years. At September 30, 2021 and December 31, 2020, included in the net deferred origination fees, costs and unearned income of $30.8were $5.2 million were $13.6and $6.5 million, respectively, in net origination fees related to PPP loans. At September 30, 20202021 and December 31, 2019,2020, loans included purchase accounting adjustments of $8.1$4.8 million and $11.7$7.2 million, respectively, which represented a net deferred income position at each date. This fair market value purchase accounting adjustment related to loans which are not PCI, 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 $4.8$4.0 million and $2.2$2.0 million had beenwere reclassified to loans at September 30, 20202021 and December 31, 2019, respectively,2020, respectively. As of September 30, 2021, overdrafts were within their own class and areas of December 31, 2020, were included in the commercial, financial and agricultural loan segment in the previous table.

Credit Quality
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 above.of loan, at September 30, 2021:
 September 30, 2021
(In thousands)Nonaccrual
Loans		Accruing
TDRs		Loans Past Due
90 Days
 or More
and Accruing		Total
Nonperforming
Loans
Commercial, financial and agricultural:
Commercial, financial and agricultural$18,245 $3,812 $— $22,057 
PPP loans— — — — 
Overdrafts— — — — 
Commercial real estate46,803 3,740 — 50,543 
Construction real estate:    
Commercial61 380 — 441 
Retail12 10 — 22 
Residential real estate:    
Commercial4,614 243 — 4,857 
Mortgage13,122 7,387 — 20,509 
HELOC1,683 697 — 2,380 
Installment113 1,661 29 1,803 
Consumer:
Consumer1,650 857 243 2,750 
GFSC82 10 12 104 
Check loans— — — — 
Leases1,406 — — 1,406 
Total loans$87,791 $18,797 $284 $106,872 

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Credit Quality
The following tables presenttable presents the recorded investment in nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing, by class of loan, at September 30, 2020 and December 31, 2019:2020:

September 30, 2020 December 31, 2020
(In thousands)(In thousands)Nonaccrual
Loans		Accruing
TDRs		Loans Past Due
90 Days or More
and Accruing		Total
Nonperforming
Loans		(In thousands)Nonaccrual
Loans		Accruing
TDRs		Loans Past Due 90 Days or More and AccruingTotal
Nonperforming
Loans
Commercial, financial and agriculturalCommercial, financial and agricultural$25,582 $7,516 $63 $33,161 Commercial, financial and agricultural$23,261 $5,619 $— $28,880 
Commercial real estateCommercial real estate68,134 4,385 654 73,173 Commercial real estate67,426 2,931 377 70,734 
Construction real estate:Construction real estate:    Construction real estate:   
CommercialCommercial3,142 0 0 3,142 Commercial3,110 — — 3,110 
MortgageMortgage0 17 0 17 Mortgage14 31 — 45 
Installment14 1 0 15 
Residential real estate:Residential real estate:    Residential real estate:    
CommercialCommercial4,862 35 0 4,897 Commercial4,304 253 — 4,557 
MortgageMortgage14,933 8,097 476 23,506 Mortgage14,016 8,400 416 22,832 
HELOCHELOC1,358 895 65 2,318 HELOC1,286 909 77 2,272 
InstallmentInstallment312 1,813 0 2,125 Installment184 1,728 — 1,912 
ConsumerConsumer2,189 1,108 445 3,742 Consumer2,172 1,017 724 3,913 
LeasesLeases2,524 0 0 2,524 Leases1,595 — — 1,595 
Total loansTotal loans$123,050 $23,867 $1,703 $148,620 Total loans$117,368 $20,888 $1,594 $139,850 
 December 31, 2019
(In thousands)Nonaccrual
Loans		Accruing
TDRs		Loans Past Due
90 Days or More
and Accruing		Total
Nonperforming
Loans
Commercial, financial and agricultural$26,776 $6,349 $28 $33,153 
Commercial real estate39,711 2,080 625 42,416 
Construction real estate:   
Commercial453 0 0 453 
Mortgage25 84 0 109 
Installment72 5 0 77 
Residential real estate:    
Commercial2,025 0 — 2,025 
Mortgage15,271 8,826 1,209 25,306 
HELOC2,062 1,010 44 3,116 
Installment462 1,964 — 2,426 
Consumer3,089 980 645 4,714 
Leases134 0 186 320 
Total loans$90,080 $21,298 $2,737 $114,115 
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The following table provides additional information regarding thosedetail on nonaccrual loans and accruing TDR loans that are individually evaluated for impairment and those collectively evaluated for impairmentthe related ACL, by class of loan, at September 30, 2020 and December 31, 2019.
September 30, 2020December 31, 2019
 
(In thousands)		Nonaccrual and Accruing TDRsLoans Individually Evaluated for ImpairmentLoans Collectively Evaluated for ImpairmentNonaccrual and Accruing TDRsLoans Individually Evaluated for ImpairmentLoans Collectively Evaluated for Impairment
Commercial, financial and agricultural$33,098 $33,098 $— $33,125 $33,088 $37 
Commercial real estate72,519 72,519 0 41,791 41,791 0 
Construction real estate:
Commercial3,142 3,142 0 453 453 0 
Mortgage17 0 17 1090 109
Installment15 0 15 770 77
Residential real estate:
Commercial4,897 4,897 0 2,025 2,025 0 
Mortgage23,030 0 23,030 24,097 0 24,097 
HELOC2,253 0 2,253 3,072 0 3,072 
Installment2,125 0 2,125 2,426 0 2,426 
Consumer3,297 — 3,297 4,069 — 4,069 
Leases2,524 2,524 — 134 134 — 
Total loans$146,917 $116,180 $30,737 $111,378 $77,491 $33,887 
All of the loans individually evaluated for impairment were evaluated using the fair value of the collateral or the present value of expected future cash flows as the measurement method.2021:

September 30, 2021
(In thousands)Nonaccrual Loans With No ACLNonaccrual Loans With an ACLRelated ACL
Commercial, financial and agricultural:
Commercial, financial and agricultural$13,270 $4,975 $3,190 
PPP loans— — — 
Overdrafts— — — 
Commercial real estate46,121 682 180 
Construction real estate:
Commercial61 — — 
Retail— 12 — 
Residential real estate:
Commercial4,614 — — 
Mortgage— 13,122 84 
HELOC— 1,683 110 
Installment— 113 26 
Consumer
Consumer— 1,650 470 
GFSC— 82 12 
Check loans— — — 
Leases930 476 103 
Total loans$64,996 $22,795 $4,175 

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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 table presents loans individually evaluated for impairment by class of loan atas of December 31, 2020:

12/31/2020
(In thousands)Unpaid Principal BalanceRecorded InvestmentACL Allocated
With no related allowance recorded
Commercial, financial and agricultural$23,316 $22,970 $— 
Commercial real estate63,639 63,467 — 
Construction real estate:
Commercial3,110 3,110 — 
Residential real estate:
Commercial4,522 4,448 — 
Leases568 568 — 
With an allowance recorded
Commercial, financial and agricultural5,881 5,866 3,758 
Commercial real estate6,890 6,890 1,316 
Construction real estate:
Commercial— — — 
Residential real estate:
Commercial109 109 16 
Leases1,027 1,027 344 
Total$109,062 $108,455 $5,434 

The following table provides the amortized cost basis of collateral-dependent loans by class of loan, as of September 30, 2020 and December 31, 2019.2021:

September 30, 2020December 31, 2019
(In thousands)Unpaid Principal BalanceRecorded InvestmentAllowance for Loan Losses AllocatedUnpaid Principal BalanceRecorded InvestmentAllowance for Loan Losses Allocated
With no related allowance recorded
Commercial, financial and agricultural$19,020 $18,923 $0 $21,194 $21,010 $0 
Commercial real estate54,824 54,650 0 41,696 41,471 0 
Construction real estate:
Commercial3,142 3,142 0 453 453 0 
Residential real estate:
Commercial4,677 4,623 0 1,921 1,854 0 
Leases784 784 0 — — 0 
With an allowance recorded
Commercial, financial and agricultural14,371 14,175 5,033 12,289 12,078 5,104 
Commercial real estate17,869 17,869 3,014 320 320 35 
Construction real estate:
Commercial— — — — — — 
Residential real estate:
Commercial274 274 155 171 171 42 
Leases1,740 1,740 464 134 134 49 
Total$116,701 $116,180 $8,666 $78,178 $77,491 $5,230 
Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. At September 30, 2020 and December 31, 2019, there were $0.4 million and $0.5 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $197,000 and $210,000, respectively, of partial charge-offs on loans individually evaluated for impairment that also had a specific reserve allocated.
The allowance for loan losses included specific reserves related to loans individually evaluated for impairment at September 30, 2020 and December 31, 2019, of $8.7 million and $5.2 million, respectively. These loans with specific reserves had a recorded investment of $34.1 million and $12.7 million at September 30, 2020 and December 31, 2019, respectively.
 September 30, 2021
(In thousands)Real EstateBusiness AssetsOtherTotal
Commercial, financial and agricultural
Commercial, financial and agricultural$9,386 $12,232 $651 $22,269 
Commercial real estate56,722 300 47 57,069 
Construction real estate:
Commercial1,407 — — 1,407 
Residential real estate:
Commercial5,250 — — 5,250 
Mortgage375 — — 375 
HELOC144 — — 144 
Leases— 1,455 — 1,455 
Total loans$73,284 $13,987 $698 $87,969 

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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. Interest income on accruing TDRs individually evaluated for impairment continues to be recorded on an accrual basis. The following table presents interest income recognized on nonaccrual loans for the three-month and nine-month periods ended September 30, 2021:

Interest Income Recognized
(In thousands)Three months ended
September 30, 2021		Nine months ended
September 30, 2021
Commercial, financial and agricultural:
Commercial, financial and agricultural$40 $147 
PPP loans— — 
Overdrafts— — 
Commercial real estate458 1,480 
Construction real estate:
Commercial1 38 
Retail— 1 
Residential real estate:
Commercial60 180 
Mortgage90 233 
HELOC2 12 
Installment— 2 
Consumer:
Consumer23 71 
GFSC3 11 
Check loans— — 
Leases17 61 
Total loans$694 $2,236 

The following table presents the average recorded investment and interest income recognized subsequent to impairment on loans individually evaluated for impairment as of and for the three-monththree months and nine-month periodsnine months ended September 30, 2020 and September 30, 2019:2020:
Three months ended
September 30, 2020		Nine months ended
September 30, 2020
(In thousands)Recorded Investment as of September 30, 2020Average Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income Recognized
Commercial, financial and agricultural$33,098 $29,481 $159 30,426 543 
Commercial real estate72,519 58,195 526 50,479 1,416 
Construction real estate:
   Commercial3,142 1,212 6 743 14 
Residential real estate:
   Commercial4,897 5,061 65 4,271 166 
Leases2,524 2,079 — 909 — 
Total$116,180 $96,028 $756 $86,828 $2,139 

 Three Months Ended
September 30, 2020		Three Months Ended
September 30, 2019
(In thousands)Recorded Investment at September 30, 2020Average
Recorded
Investment		Interest
Income
Recognized		Recorded Investment at September 30, 2019Average
Recorded
Investment		Interest
Income
Recognized
Commercial, financial and agricultural$33,098 $29,481 $159 $31,485 $23,468 $107 
Commercial real estate72,519 58,195 526 38,799 29,779 277 
Construction real estate:
   Commercial3,142 1,212 6 1,868 1,922 1 
Residential real estate:
   Commercial4,897 5,061 65 2,238 1,977 27 
Leases2,524 2,079 — 88 90 — 
Total$116,180 $96,028 $756 $74,478 $57,236 $412 


 Nine Months Ended
September 30, 2020		Nine Months Ended
September 30, 2019
(In thousands)Recorded Investment at September 30, 2020Average
Recorded
Investment		Interest
Income
Recognized		Recorded Investment at September 30, 2019Average
Recorded
Investment		Interest
Income
Recognized
Commercial, financial and agricultural$33,098 $30,426 $543 $31,485 $18,368 $244 
Commercial real estate72,519 50,479 1,416 38,799 29,712 803 
Construction real estate:
   Commercial3,142 743 14 1,868 2,176 23 
Residential real estate:
   Commercial4,897 4,271 166 2,238 2,198 72 
Leases2,524 909 — 88 36 — 
Total$116,180 $86,828 $2,139 $74,478 $52,490 $1,142 

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The following tables presenttable presents the aging of the recorded investmentamortized cost in past due loans at September 30, 2020 and December 31, 20192021 by class of loan. loan:

 September 30, 2020
(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 Recorded
Investment
Commercial, financial and agricultural$9 $11,949 $11,958 $1,721,992 $1,733,950 
Commercial real estate717 947 1,664 1,694,624 1,696,288 
Construction real estate:     
Commercial— 38 38 245,960 245,998 
Mortgage68 — 68 112,829 112,897 
Installment— — — 1,065 1,065 
Residential real estate:     
Commercial119 514 633 502,148 502,781 
Mortgage6,246 8,023 14,269 1,104,784 1,119,053 
HELOC725 627 1,352 193,661 195,013 
Installment118 89 207 9,244 9,451 
Consumer4,499 947 5,446 1,651,707 1,657,153 
Leases0 66 66 27,466 27,532 
Total loans$12,501 $23,200 $35,701 $7,265,480 $7,301,181 

 September 30, 2021
(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$3,210 $10,909 $14,119 $1,165,235 $1,179,354 
PPP loans1 — 1 131,482 131,483 
Overdrafts— — — 4,033 4,033 
Commercial real estate— 1,009 1,009 1,760,587 1,761,596 
Construction real estate:
Commercial815 — 815 230,395 231,210 
Retail1,202 12 1,214 110,463 111,677 
Residential real estate:
Commercial— 413 413 526,738 527,151 
Mortgage5,931 5,884 11,815 1,040,278 1,052,093 
HELOC487 997 1,484 164,970 166,454 
Installment37 93 130 6,280 6,410 
Consumer:
Consumer2,436 404 2,840 1,707,768 1,710,608 
GFSC196 57 253 2,371 2,624 
Check loans8 — 8 2,084 2,092 
Leases53 576 629 21,003 21,632 
Total loans$14,376 $20,354 $34,730 $6,873,687 $6,908,417 
(1) Includes an aggregate of $1.7$0.3 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes an aggregate of $101.6$67.7 million of nonaccrual loans which were current in regards to contractual principal and interest payments.

 December 31, 2019
(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 Recorded
Investment
Commercial, financial and agricultural$582 $12,407 $12,989 $1,176,514 $1,189,503 
Commercial real estate160 1,143 1,303 1,613,681 1,614,984 
Construction real estate:    
Commercial— — — 234,463 234,463 
Mortgage397 — 397 96,405 96,802 
Installment24 — 24 1,468 1,492 
Residential real estate:     
Commercial— 908 908 479,512 480,420 
Mortgage12,841 9,153 21,994 1,155,703 1,177,697 
HELOC652 779 1,431 224,448 225,879 
Installment164 338 502 12,093 12,595 
Consumer6,561 1,621 8,182 1,448,507 1,456,689 
Leases368 186 554 29,547 30,101 
Total loans$21,749 $26,535 $48,284 $6,472,341 $6,520,625 
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The following table presents the aging of the recorded investment in past due loans at December 31, 2020 by class of loan:

 December 31, 2020
(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 Recorded
Investment
Commercial, financial and agricultural$7,372 $13,968 $21,340 $1,574,177 $1,595,517 
Commercial real estate82 972 1,054 1,753,152 1,754,206 
Construction real estate:    
Commercial— 39 39 227,524 227,563 
Mortgage77 — 77 115,647 115,724 
Installment12 — 12 929 941 
Residential real estate:     
Commercial17 493 510 526,873 527,383 
Mortgage9,538 7,814 17,352 1,079,953 1,097,305 
HELOC805 810 1,615 181,060 182,675 
Installment67 71 138 8,320 8,458 
Consumer5,496 1,213 6,709 1,657,505 1,664,214 
Leases186 984 1,170 23,282 24,452 
Total loans$23,652 $26,364 $50,016 $7,148,422 $7,198,438 
(1) Includes an aggregate of $2.7$1.6 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes an aggregate of $66.3$92.6 million of nonaccrual loans which were current in regards to contractual principal and interest payments.


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Table of Contents
Credit Quality Indicators
Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information at September 30, 20202021 and December 31, 20192020 is included in the previous tables. The past due information is the primary credit quality indicator within the following classes of loans: (1) mortgage loansoverdrafts in the commercial, financial and installmentagricultural portfolio segment; (2) retail loans in the construction real estate portfolio segment; (2)(3) mortgage loans, HELOC and installment loans in the residential real estate portfolio segment; and (3)(4) consumer loans.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 loan loss reserve percentagePD is allocatedapplied 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 loan loss reserve percentagePD is allocatedapplied 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 deficiencies 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 impaired category. A loan is deemed impaired, and is individually evaluated, when management determines the borrower's ability to perform in accordance with the contractual loan agreement is in doubt. Any commercial loan graded an 8 (loss) is completely charged off.

The tables below present



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Based on the recorded investmentmost recent analysis performed, the risk category of loans by loan grade atclass of loans as of September 30, 2020 and December 31, 2019 for all commercial loans:2021 follows:

 September 30, 2020
(In thousands)5 Rated6 RatedNonaccrual and Accruing TDRs
PCI (1)
Pass-RatedRecorded
Investment
Commercial, financial and agricultural *$15,091 $60 $33,098 $375 $1,685,326 $1,733,950 
Commercial real estate *88,618 1,060 72,519 8,084 1,526,007 1,696,288 
Construction real estate:
Commercial— — 3,142 1,012 241,844 245,998 
Residential real estate:
Commercial353 24 4,897 1,530 495,977 502,781 
Leases349 0 2,524 127 24,532 27,532 
Total commercial loans$104,411 $1,144 $116,180 $11,128 $3,973,686 $4,206,549 
September 30, 2021Term Loans Amortized Cost Basis by Origination Year
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
Commercial, financial and agricultural: Commercial, financial and agricultural (1)
Risk rating
Pass$195,565 $225,189 $111,003 $58,680 $47,081 $74,703 $439,145 $1,151,366 
Special Mention— 1,711 477 390 101 — 6,916 9,595 
Substandard612 787 593 1,371 680 8,084 404 12,531 
Doubtful1,167 912 372 321 1,903 496 691 5,862 
Total$197,344 $228,599 $112,445 $60,762 $49,765 $83,283 $447,156 $1,179,354 
Commercial, financial and agricultural: PPP
Risk rating
Pass$117,405 $14,078 $— $— $— $— $— $131,483 
Special Mention— — — — — — — — 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total$117,405 $14,078 $— $— $— $— $— $131,483 
*
Commercial real estate (1)
Risk rating
Pass$274,406 $453,316 $251,647 $167,526 $120,190 $345,899 $11,767 $1,624,751 
Special Mention1,571 12,615 34,376 10,602 7,725 18,777 3,590 89,256 
Substandard1,429 3,866 4,679 12,175 8,486 15,587 439 46,661 
Doubtful— — 245 — 47 636 — 928 
Total$277,406 $469,797 $290,947 $190,303 $136,448 $380,899 $15,796 $1,761,596 
Construction real estate: Commercial
Risk rating
Pass$65,351 $85,633 $43,410 $5,308 $1,900 $5,250 $22,951 $229,803 
Special Mention— — 98 699 — — 282 1,079 
Substandard— 54 7 267 — — — 328 
Doubtful— — — — — — — — 
Total$65,351 $85,687 $43,515 $6,274 $1,900 $5,250 $23,233 $231,210 
Residential Real Estate: Commercial
Risk rating
Pass$106,322 $172,182 $65,248 $46,258 $29,798 $86,348 $14,615 $520,771 
Special Mention96 — 413 80 — 507 337 1,433 
Substandard615 22 809 1,977 64 1,026 166 4,679 
Doubtful— — — — 244 24 — 268 
Total$107,033 $172,204 $66,470 $48,315 $30,106 $87,905 $15,118 $527,151 
Leases
Risk rating
Pass$5,179 $6,398 $4,017 $2,652 $907 $1,057 $— $20,210 
Special Mention— — — — — — — — 
Substandard— 792 — 41 — 75 — 908 
Doubtful— 76 354 21 47 16 — 514 
Total$5,179 $7,266 $4,371 $2,714 $954 $1,148 $— $21,632 





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September 30, 2021Term Loans Amortized Cost Basis by Origination Year
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
Total Commercial Loans
Risk rating
Pass$764,228 $956,796 $475,325 $280,424 $199,876 $513,257 $488,478 $3,678,384 
Special Mention1,667 14,326 35,364 11,771 7,826 19,284 11,125 101,363 
Substandard2,656 5,521 6,088 15,831 9,230 24,772 1,009 65,107 
Doubtful1,167 988 971 342 2,241 1,172 691 7,572 
Total$769,718 $977,631 $517,748 $308,368 $219,173 $558,485 $501,303 $3,852,426 
(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.
(1) There were no loans acquired with deteriorated credit quality which were nonaccrual or TDRs at September 30, 2020.


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 December 31, 2019
(In thousands)5 Rated6 RatedNonaccrual and Accruing TDRs
PCI (1)
Pass-RatedRecorded
Investment
Commercial, financial and agricultural *$11,981 $3 $33,125 $966 $1,143,428 $1,189,503 
Commercial real estate *6,796 945 41,791 9,182 1,556,270 1,614,984 
Construction real estate:
Commercial4,857 1 453 1,044 228,108 234,463 
Residential real estate:
Commercial3,839 30 2,025 1,754 472,772 480,420 
Leases0 0 134 523 29,444 30,101 
Total Commercial Loans$27,473 $979 $77,528 $13,469 $3,430,022 $3,549,471 

The table below presents the recorded investment by loan grade at December 31, 2020 for all commercial loans:
 *
December 31, 2020
(In thousands)5 Rated6 RatedNonaccrual and Accruing TDRsPCIPass-RatedRecorded
Investment
Commercial, financial and agricultural (1)
$14,638 $— $28,880 $337 $1,551,662 $1,595,517 
Commercial real estate (1)
87,439 117 70,357 7,461 1,588,832 1,754,206 
Construction real estate:
  Commercial164 — 3,110 1,002 223,287 227,563 
Residential real estate:
  Commercial798 22 4,557 1,510 520,496 527,383 
Leases331 — 1,595 112 22,414 24,452 
Total Commercial Loans$103,370 $139 $108,499 $10,422 $3,906,691 $4,129,121 
(1) Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that arewere not broken out by class.

(1) Excludes loans acquired with deteriorated
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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 arewas previously presented, and by performing status. The following tables present the amortized cost in residential and consumer loans based on performing status. Park defines a loan as nonperforming if it is on nonaccrual status, designated as an accruing TDR, or TDRsis greater than 90 days past due to additional credit deterioration or modification post acquisition. These loans had a recorded investmentand accruing.

September 30, 2021Term Loans Amortized Cost Basis by Origination Year
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
Commercial, financial and agricultural: Overdrafts
Performing$4,033 $— $— $— $— $— $— $4,033 
Nonperforming— — — — — — — — 
Total$4,033 $— $— $— $— $— $— $4,033 
Construction Real Estate: Retail
Performing$47,057 $49,942 $7,649 $3,045 $1,556 $2,326 $80 $111,655 
Nonperforming— — — — — 22 — 22 
Total$47,057 $49,942 $7,649 $3,045 $1,556 $2,348 $80 $111,677 
Residential Real Estate: Mortgage
Performing$195,203 $217,391 $123,465 $75,441 $63,593 $356,491 $— $1,031,584 
Nonperforming— 629 814 861 841 17,364 — 20,509 
Total$195,203 $218,020 $124,279 $76,302 $64,434 $373,855 $— $1,052,093 
Residential Real Estate: HELOC
Performing$299 $— $158 $22 $43 $2,490 $161,062 $164,074 
Nonperforming— — — 39 70 1,878 393 2,380 
Total$299 $— $158 $61 $113 $4,368 $161,455 $166,454 
Residential Real Estate: Installment
Performing$— $7 $553 $142 $1,231 $2,674 $— $4,607 
Nonperforming— 13 2 43 85 1,660 — 1,803 
Total$— $20 $555 $185 $1,316 $4,334 $— $6,410 
Consumer: Consumer
Performing$544,465 $558,784 $293,738 $138,496 $77,438 $72,314 $22,623 $1,707,858 
Nonperforming129 482 772 426 243 698 — 2,750 
Total$544,594 $559,266 $294,510 $138,922 $77,681 $73,012 $22,623 $1,710,608 
Consumer: GFSC
Performing$— $333 $1,581 $452 $110 $(81)$125 $2,520 
Nonperforming— — 70 19 15 — — 104 
Total$— $333 $1,651 $471 $125 $(81)$125 $2,624 
Consumer: Check loans
Performing$— $— $— $— $— $— $2,092 $2,092 
Nonperforming— — — — — — — — 
Total$— $— $— $— $— $— $2,092 $2,092 
Total Consumer Loans
Performing$791,057 $826,457 $427,144 $217,598 $143,971 $436,214 $185,982 $3,028,423 
Nonperforming
129 1,124 1,658 1,388 1,254 21,622 393 27,568 
Total$791,186 $827,581 $428,802 $218,986 $145,225 $457,836 $186,375 $3,055,991 



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Table of $6,000 at December 31, 2019.Contents
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. The carrying amount of loans acquired with deteriorated credit quality at September 30, 2020 and December 31, 2019 was $1.7 million and $3.0 million, respectively, while the outstanding customer balance was $1.8 million and $3.2 million, respectively. At September 30, 2020 and December 31, 2019, an allowance for loan losses of $2,000 and $101,000, respectively, had been recognized related to the acquired impaired loans.

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 adoption of CECL on January 1, 2021, $52,000 of the credit discount on PCD loans was reclassified to the allowance for credit losses. At September 30, 2021, there was no allowance for credit losses on PCD loans. The carrying amount of loans and leases acquired with deteriorated credit quality at September 30, 20202021 and December 31, 20192020 was $10.2$8.7 million and $11.3$11.2 million, respectively, while the outstanding customer balance was $12.5 million and $13.8 million, respectively. At September 30, 2020 and December 31, 2019, an allowance for loan losses of $101,000 and $167,000, respectively, had been recognized related to the acquired impaired loans and leases.

Troubled Debt Restructurings
Management typically classifies loans as TDRs when a borrower is experiencing financial difficulties and Park has granted a concession to the borrower 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. Management’s policy is to modify loans by extending the term or by granting a temporary or permanent contractual interest rate below the market rate, not by forgiving debt. A court's discharge of a borrower's debt in a Chapter 7 bankruptcy is considered a concession when the borrower does not reaffirm the discharged debt.

Additionally,During the twenty-one months ended September 30, 2021, Park is workingmodified 5,131 consumer loans, with an aggregate balance of $79.5 million, and modified 1,406 commercial loans, with an aggregate balance of $513.3 million, in each case related to a hardship caused by the COVID-19 pandemic and responses thereto. Park has worked with borrowers impacted by the COVID-19 pandemic and providingprovided modifications to include either interest only deferral or principal and interest deferral, in each case, for initial periods of up to 90 days. As necessary, Park is makingmade available a second 90-day interest only deferral or principal and interest deferral bringing the total potential deferral period to six months. A majority of these modifications arewere excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. In accordance with this guidance, such modified loans will beare considered current and will continue to accrue interest during the deferral period.

Certain other loans which were modified during the three-month and nine-month periods ended September 30, 20202021 and September 30, 20192020 did not meet the definition of a TDR as the modification was a delay in a payment that was considered to be insignificant. Management considers a forbearance period of up to three months or a delay in payment of up to 30 days to be insignificant. TDRs may be classified as accruing if the borrower has been current for a period of at least six months with
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respect to loan payments and management expects that the borrower will be able to continue to make payments in accordance with the terms of the restructured note. Management reviews all accruing TDRs quarterly to ensure payments continue to be made in accordance with the modified terms.

At September 30, 20202021 and December 31, 2019,2020, there were $22.9$26.1 million and $34.3$25.8 million, respectively, of TDRs included in the nonaccrual loan totals. At September 30, 20202021 and December 31, 2019, $12.52020, $16.2 million and $23.2$12.9 million, respectively, of these nonaccrual TDRs were performing in accordance with the terms of the restructured notes. At September 30, 20202021 and December 31, 2019,2020, loans with a recorded investment of $23.9totaling $18.8 million and $21.3$20.9 million, respectively, were included in accruing TDR loan totals. Management will continue to review the restructured loans and may determine it is appropriate to move certain nonaccrual TDRs to accrual status in the future.

At September 30, 20202021 and December 31, 2019,2020, Park had commitments to lend $4.7$6.8 million and $7.9$6.7 million, respectively, of additional funds to borrowers whose outstanding loan terms had been modified in a TDR.
 
At September 30, 20202021 and December 31, 2019,2020, there were $2.0$0.5 million and $2.2$0.2 million, respectively, of specific reserves related to TDRs. Modifications made in 20202021 and 20192020 were largely the result of renewals and extending the maturity date of the loans at terms consistent with the original notes. These modifications were deemed to be TDRs primarily due to Park’s conclusion that the borrowerrespective borrowers would likely not have qualified for similar terms through another lender. Many of the modifications deemed to be TDRs were previously identified as impaired loans, and thus were also previously evaluated for impairment under ASC 310. There were 0$156,000 and $174,000 of additional specific reserves recorded during the three-month and nine-month periods ended September 30, 2021, respectively, as a result of TDRs identified in the period. There were no
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additional specific reserves recorded during either of the three-month or nine-month periods ended September 30, 2020 or 2019 as a result of TDRs identified in the period.

Quarterly, management reviews renewals/modifications of loans previously identified as TDRs to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms and the terms of the renewal/modification are considered to be market terms based on the current risk characteristics of the borrower, management considers the potential removal of the TDR classification. If deemed appropriate, the TDR classification is removed if the borrower has complied with the terms of the loan at the date of the renewal/modification and there was a reasonable expectation that the borrower wouldwill continue to comply with the terms of the loan subsequent to the date of the renewal/modification. The majority of these TDRs were originally considered restructurings in a prior year as a result of a renewal/modification with an interest rate that was not commensurate with the risk of the underlying loan at the time of the renewal/modification. There were $58,000 and $4.0 million of TDR classifications removed during the three-month and nine-month periods ended September 30, 2021, respectively. The TDR classification was removed on $709,000 and $1.6 million of loans during the three-month and nine-month periods ended September 30, 2020, respectively. The TDR classification was removed on $15,000 and $38,000 of loans during the three-month and nine-month periods ended September 30, 2019, respectively.

The terms of certain other loans were modified during the three-month and nine-month periods ended September 30, 20202021 and September 30, 20192020 that did not meet the definition of a TDR. Excluding COVID-19 related modifications, there were 0 substandard commercial loans modified during either the three-month period ended September 30, 2020 or the nine-month period ended September 30, 2020 which did not meet the definition of a TDR. There were $0.4 million and $0.6 million ofno substandard commercial loans modified during the three-month and nine-month periods ended September 30, 2019, respectively,2021 and September 30, 2020, which did not meet the definition of a TDR. Excluding COVID-19 related modifications, consumer loans modified during the three-month and nine-month periods ended September 30, 2021 which did not meet the definition of a TDR had a total recorded investment of $2.0 million and $4.8 million, respectively. Excluding COVID-19 related modifications, consumer loans modified during the three-month and nine-month periods ended September 30, 2020 which did not meet the definition of a TDR had a total recorded investment of $16.7 million and $58.2 million, respectively. Consumer loans modified during the three-month and nine-month periods ended September 30, 2019 which did not meet the definition of a TDR had a total recorded investment of $11.9 million and $21.4 million, respectively. Many of these loans were to borrowers who were not experiencing financial difficulties but who were looking to reduce their cost of funds.

During the nine months ended September 30, 2020, Park modified 4,810 consumer loans, with an aggregate balance
33
Table of $111.0 million, and modified 1,386 commercial loans, with an aggregate balance of $583.7 million, in each case related to a hardship caused by the COVID-19 pandemic and responses thereto. Of the $111.0 million in consumer COVID-19 related modifications, $2.3 million were already classified as TDRs due to previous modifications and $818,000 were classified as TDRs due to the COVID-19 modification. Of the $583.7 million in commercial COVID-19 related modifications, $6.0 million were already classified as TDRs due to previous modifications and $112,000 were classified as TDRs due to the COVID-19 modification. The remaining loans met the exclusion criteria for TDR accounting either in Section 4013 of the CARES Act or in applicable interagency guidance.Contents

The following tables detail the number of contracts modified as TDRs during the three-month periods ended September 30, 20202021 and September 30, 2019,2020, as well as the amortized cost/recorded investment of these contracts at September 30, 20202021 and September 30,
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2019.2020. The amortized cost/recorded investment pre- and post-modification is generally the same due to the fact that Park does not typically forgive principal.

Three Months Ended
September 30, 2020		 Three Months Ended
September 30, 2021
(In thousands)(In thousands)Number of
Contracts		AccruingNonaccrualTotal
Recorded
Investment		(In thousands)Number of
Contracts		AccruingNonaccrualTotal Amortized Cost
Commercial, financial and agriculturalCommercial, financial and agricultural3 $35 $117 $152 Commercial, financial and agricultural
Commercial, financial and agriculturalCommercial, financial and agricultural5 $383 $868 $1,251 
PPP loansPPP loans— — — — 
OverdraftsOverdrafts— — — — 
Commercial real estateCommercial real estate4 — 359 359 Commercial real estate5 — 5,053 5,053 
Construction real estate:Construction real estate:    Construction real estate:    
Commercial Commercial0 — — —  Commercial— — — — 
Mortgage0 0 — — 
Installment0 0 — — 
Retail Retail— — — — 
Residential real estate:Residential real estate:    Residential real estate:    
Commercial Commercial0 — — —  Commercial2 96 125 221 
Mortgage Mortgage5 258 109 367  Mortgage3 — 102 102 
HELOC HELOC1 21 0 21  HELOC1 33 — 33 
Installment Installment3 12 7 19  Installment1 55 — 55 
Consumer:Consumer:
ConsumerConsumer64 109 479 588 Consumer28 15 250 265 
GFSCGFSC— — — — 
Check loansCheck loans— — — — 
LeasesLeases— — — — 
Total loansTotal loans80 $435 $1,071 $1,506 Total loans45 $582 $6,398 $6,980 

Three Months Ended
September 30, 2019		 Three Months Ended
September 30, 2020
(In thousands)(In thousands)Number of
Contracts		AccruingNonaccrualTotal
Recorded
Investment		(In thousands)Number of
Contracts		AccruingNonaccrualTotal
Recorded
Investment
Commercial, financial and agriculturalCommercial, financial and agricultural8 $752 $5,002 $5,754 Commercial, financial and agricultural3 $35 $117 $152 
Commercial real estateCommercial real estate1 — 241 241 Commercial real estate4 — 359 359 
Construction real estate:Construction real estate:    Construction real estate:    
Commercial Commercial1 82 — 82  Commercial— — — — 
Mortgage Mortgage0 0 — —  Mortgage— — — — 
Installment Installment0 0 — —  Installment— — — — 
Residential real estate:Residential real estate:   Residential real estate:   
Commercial Commercial1 13 — 13  Commercial— — — — 
Mortgage Mortgage4 286 215 501  Mortgage5 258 109 367 
HELOC HELOC6 31 107 138  HELOC1 21 — 21 
Installment Installment9 407 14 421  Installment3 12 7 19 
ConsumerConsumer77 174 542 716 Consumer64 109 479 588 
Total loansTotal loans107 $1,745 $6,121 $7,866 Total loans80 $435 $1,071 $1,506 

Of those loans which were modified and determined to be a TDR during the three-month period ended September 30, 2021, $4.5 million were on nonaccrual status at December 31, 2020. Of those loans which were modified and determined to be a TDR during the three-month period ended September 30, 2020, $0.1 million were on nonaccrual status at December 31, 2019. Of those loans which were modified and determined to be a TDR during the three-month period ended September 30, 2019, $0.6 million were on nonaccrual status at December 31, 2018.

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The following tables detail the number of contracts modified as TDRs during the nine-month periods ended September 30, 20202021 and September 30, 2019,2020, as well as the amortized cost/recorded investment of these contracts at September 30, 20202021 and September 30, 2019.2020. The amortized cost/recorded investment pre- and post-modification is generally the same due to the fact that Park does not typically forgive principal.

Nine Months Ended
September 30, 2020		 Nine Months Ended
September 30, 2021
(In thousands)(In thousands)Number of
Contracts		AccruingNonaccrualTotal
Recorded
Investment		(In thousands)Number of
Contracts		AccruingNonaccrualTotal Amortized Cost
Commercial, financial and agriculturalCommercial, financial and agricultural10 $117 $1,110 $1,227 Commercial, financial and agricultural
Commercial, financial and agriculturalCommercial, financial and agricultural9 $383 $899 $1,282 
PPP loansPPP loans— — — — 
OverdraftsOverdrafts— — — — 
Commercial real estateCommercial real estate8 1,136 2,068 3,204 Commercial real estate13 1,571 6,137 7,708 
Construction real estate:Construction real estate:Construction real estate:— 
Commercial Commercial0 — — —  Commercial1 98 — 98 
Mortgage1 10 — 10 
Installment1 0 14 14 
Retail Retail— — — — 
Residential real estate:Residential real estate:Residential real estate:— 
Commercial Commercial1 — 8 8  Commercial5 96 528 624 
Mortgage Mortgage24 735 1,005 1,740  Mortgage13 148 377 525 
HELOC HELOC6 25 18 43  HELOC5 80 106 186 
Installment Installment16 191 63 254  Installment7 93 27 120 
Consumer:Consumer:— 
ConsumerConsumer177 235 655 890 Consumer104 137 379 516 
GFSCGFSC— 0— — 
Check loansCheck loans— 0— — 
LeasesLeases1 0351 351 
Total loansTotal loans244 $2,449 $4,941 $7,390 Total loans158 $2,606 $8,804 $11,410 

Nine Months Ended
September 30, 2019		 Nine Months Ended
September 30, 2020
(In thousands)(In thousands)Number of
Contracts		AccruingNonaccrualTotal
Recorded
Investment		(In thousands)Number of
Contracts		AccruingNonaccrualTotal
Recorded
Investment
Commercial, financial and agriculturalCommercial, financial and agricultural24 $3,237 $6,059 $9,296 Commercial, financial and agricultural10 $117 $1,110 $1,227 
Commercial real estateCommercial real estate5 — 3,236 3,236 Commercial real estate8 1,136 2,068 3,204 
Construction real estate:Construction real estate:Construction real estate: 
Commercial Commercial2 82 — 82  Commercial— — — — 
Mortgage Mortgage1 0 — —  Mortgage1 10 — 10 
Installment Installment0 0 — —  Installment1 — 14 14 
Residential real estate:Residential real estate:Residential real estate: 
Commercial Commercial2 13 36 49  Commercial1 — 8 8 
Mortgage Mortgage18 340 673 1,013  Mortgage24 735 1,005 1,740 
HELOC HELOC14 121 243 364  HELOC6 25 18 43 
Installment Installment25 951 52 1,003  Installment16 191 63 254 
ConsumerConsumer251 199 987 1,186 Consumer177 235 655 890 
Total loansTotal loans342 $4,943 $11,286 $16,229 Total loans244 $2,449 $4,941 $7,390 

Of those loans which were modified and determined to be a TDR during the nine-month period ended September 30, 2021, $6.1 million were on nonaccrual status at December 31, 2020. Of those loans which were modified and determined to be a TDR during the nine-month period ended September 30, 2020, $0.4 million were on nonaccrual status at December 31, 2019. Of those loans which were modified and determined to be a TDR during the nine-month period ended September 30, 2019, $1.8 million were on nonaccrual status at December 31, 2018.
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The following tables present the amortized cost/recorded investment in loans which were modified as TDRs within the previous 12 months and for which there was a payment default during the three-month and nine-month periods ended September 30, 20202021 and September 30, 2019,2020, respectively. For these tables, a loan is considered to be in default when it becomes 30 days contractually past due under the modified terms. The additional allowance for loan lossACL resulting from the defaults on TDR loans was immaterial.
 Three Months Ended
September 30, 2021		Three Months Ended
September 30, 2020
(In thousands)Number of
Contracts		Amortized CostNumber of
Contracts		Recorded
Investment
Commercial, financial and agricultural:— $— 
Commercial, financial and agricultural— $— (1)(1)
PPP loans— — (1)(1)
Overdrafts— — (1)(1)
Commercial real estate— — 1 50 
Construction real estate:
Commercial— — — — 
Retail— — 1 14 
Residential real estate:
Commercial— — — — 
Mortgage4 330 4 365 
HELOC1 95 1 16 
Installment1 4 1 16 
Consumer26 263 
Consumer15 122 (1)(1)
GFSC— — (1)(1)
Check loans— — (1)(1)
Leases— — — — 
Total loans21 $551 34 $724 
 Three Months Ended
September 30, 2020		Three Months Ended
September 30, 2019
(In thousands)Number of
Contracts		Recorded
Investment		Number of
Contracts		Recorded
Investment
Commercial, financial and agricultural0 $— 2 $2 
Commercial real estate1 50 0 — 
Construction real estate:  
Commercial0 — 0 — 
Mortgage0 0 0 0 
Installment1 14 0 0 
Residential real estate:  
Commercial0 — 0 — 
Mortgage4 365 4 257 
HELOC1 16 5 135 
Installment1 16 2 66 
Consumer26 263 51 477 
Leases0 0 0 0 
Total loans34 $724 64 $937 
(1) Results for reporting periods beginning after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. Category was not broken out as a separate class at December 31, 2020.

Of the $0.6 million in modified TDRs which defaulted during the three-month period ended September 30, 2021, $29,000 were accruing loans and $0.5 million were nonaccrual loans. Of the $0.7 million in modified TDRs which defaulted during the three-month period ended September 30, 2020, $65,000 were accruing loans and $0.7 million were nonaccrual loans.

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 Nine Months Ended
September 30, 2021		Nine Months Ended
September 30, 2020
(In thousands)Number of
Contracts		Amortized CostNumber of
Contracts		Recorded
Investment
Commercial, financial and agricultural:2 89 
Commercial, financial and agricultural— — (1)(1)
PPP loans— — (1)(1)
Overdrafts— — (1)(1)
Commercial real estate— — 2 278 
Construction real estate:
Commercial— — — — 
Retail— — 1 14 
Residential real estate:
Commercial— — 1 8 
Mortgage6 396 8 768 
HELOC1 95 1 16 
Installment2 32 2 28 
Consumer32 365 
Consumer16 128 (1)(1)
GFSC— — (1)(1)
Check loans— — (1)(1)
Leases1 351 — — 
Total loans26 $1,002 49 $1,566 
(1) Results for reporting periods beginning after January 1, 2021 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. Category was not broken out as a separate class at December 31, 2020.

Of the $0.9$1.0 million in modified TDRs which defaulted during the three-monthnine-month period ended September 30, 2019, $48,0002021, $29,000 were accruing loans and $0.9$1.0 million were nonaccrual loans.


 Nine Months Ended
September 30, 2020		Nine Months Ended
September 30, 2019
(In thousands)Number of
Contracts		Recorded
Investment		Number of
Contracts		Recorded
Investment
Commercial, financial and agricultural2 $89 3 $65 
Commercial real estate2 278 0 — 
Construction real estate:
Commercial0 — 0 — 
Mortgage0 0 0 0 
Installment1 14 0 0 
Residential real estate:
Commercial1 8 1 13 
Mortgage8 768 7 370 
HELOC1 16 7 165 
Installment2 28 2 66 
Consumer32 365 58 530 
Leases0 0 0 0 
Total loans49 $1,566 78 $1,209 

Of the $1.6 million in modified TDRs which defaulted during the nine-month period ended September 30, 2020, $621,000 were accruing loans and $0.9 million were nonaccrual loans. Of the $1.2 million in modified TDRs which defaulted during the nine-month period ended September 30, 2019, $87,000 were accruing loans and $1.1 million$945,000 were nonaccrual loans.

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Note 76 – Allowance for LoanCredit Losses

The allowance for loan lossesACL is that amount management believes is adequate to absorb probable incurredan estimate of the expected credit losses in the loan portfolio based on management’s evaluation of various factorsfinancial assets measured at amortized cost, which is measured using relevant information about past events, including the overall growth in the loan portfolio, an analysis of individual loans, prior and currenthistorical credit loss experience on financial assets with similar risk characteristics, current conditions, and current economic conditions.reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for loancredit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors as discussed within Note 1 - Summary2 – Adoption of SignificantNew Accounting PoliciesPronouncements and Issued But Not Yet Effective Accounting Standards of the Notes to the Consolidated Condensed Financial Statements included in Park's 2019this Form 10-K.10-Q. 

Loss factors are reviewed quarterly and updated at least annually to reflect recent loan loss history and incorporate current risks and trends which may not be recognized in historical data. Management updatedDuring the historical loss calculation during the fourthfirst quarter of 2019, incorporating annualized net charge-offs plus changes2021, Park adopted ASU 2016-13, including the CECL methodology for estimating the ACL. This standard was adopted prospectively on January 1, 2021, resulting in specific reserves through December 31, 2019. Witha $6.1 million increase to the addition of 2019 historical losses, management extendedACL and a $3.9 million increase to the historical loss periodallowance for unfunded credit losses. A cumulative effect adjustment resulting in an $8.0 million decrease to 120 months from 108 months. The 120-month historical loss period captures all annual periods subsequentretained earnings and a $2.1 million increase to June 2009, the enddeferred tax assets was also recorded as of the most recent recession, thus encompassing the full economic cycle to date.adoption of ASU 2016-13.

For all loan types, management considers the following factorsQuantitative Considerations
The ACL is primarily calculated utilizing a DCF model. Key inputs and assumptions used in determining loan collectability and the appropriate level of the allowance:this model are discussed below:

•ChangesForecast 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 residential real estate portfolio segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer portfolio segments. Park plans to update the LDA annually; however, due to the impact of COVID-19, the LDA analysis was last updated in the fourth quarter of 2019.
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•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 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 2020.
•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 January 1, 2021, the date of CECL adoption, Park weighted a "most likely" scenario 80%, a "slower near-term growth" scenario 10%, and a "moderate recession" scenario 10%. As of January 1, 2021, the "most likely" scenario forecasted Ohio unemployment to range between 5.31% and 5.79% during the next four quarters.
◦As of March 31, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease significantly, to a range between 3.70% and 4.93% during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2021, management considered this improved economic forecast while balancing the risks associated with the COVID-19 pandemic, including the risk of pandemic-related losses lagging behind the projected improvement in unemployment. Management determined it was appropriate to weight the "most likely" scenario 50% and the "moderate recession" scenario 50%.
◦As of June 30, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease significantly, to a range between 2.85% and 3.92% during the next four quarters. In determining the appropriate weighting of scenarios at June 30, 2021, management considered this improved economic forecast and other positive economic indicators while balancing the risks associated with the COVID-19 pandemic, including the continued risk of pandemic-related losses lagging behind the projected improvement in unemployment. Management determined it was appropriate to weight the "most likely" scenario 55% and the "moderate recession" scenario 45% at June 30, 2021. Management believed that the resulting quantitative reserve appropriately balanced economic improvement with the ongoing risks.
◦As of September 30, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease, to a range between 3.03% and 4.02%, during the next four quarters. In determining the appropriate weighting of scenarios at September 30, 2021, management considered a number of less optimistic economic indicators, including: a slight uptick in Ohio unemployment, which was contrary to the forecast; increased COVID cases; decreased consumer confidence; and decreased occupancy, among others. Considering these factors, management determined it was appropriate to return to the March 31, 2021 weighting and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at September 30, 2021.

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 portfolioexistence, growth, and ineffect of any concentrations of credit and the termsvolume and severity of loans, including: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 PNB and GFSC.Park.
◦Level of and trend in loan delinquencies, troubled loans, commercial watch list loans and impairednonperforming loans.
◦Level of and trend in new nonaccrual loans.
◦Level of and trend in loan charge-offs and recoveries.
•Changes inPark's lending policies and procedures, including changes in lending strategies, underwriting standards and collection, charge-off,practices for collections, write-offs, and recovery practices.recoveries.
•Changes in nationalThe quality of Park’s credit review function.
•The experience, ability, and local economicdepth of Park’s lending, investment, collection, and business conditionsother relevant management and developments that affect the collectabilitystaff.
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•The effect of other external factors such as competition andthe regulatory, legal and regulatory requirements on the level of estimated losses in Park's existing portfolio.

The following are factors management reviews specifically for commercial loans on a quarterlytechnological environments; competition; and events such as natural disasters or annual basis.

pandemics.
•Loss Emergence Period Factor: At least annually, management calculates the loss emergence period for each commercial loan segment. The loss emergence period is calculated based upon the average period of time it takes from the probable occurrence of a loss event to the credit being moved to nonaccrual. If the loss emergence period for any commercial loan segment is greater than one year, management applies additional general reserves to all performing loans within that segment of the commercial loan portfolio. The calculation of the loss emergence period was last updated in the fourth quarter of 2019.

During the third quarter of 2020, Park made the decision to extend the loss emergence period on all commercial loan types by six months. Management believes that the start of the COVID-19 pandemic in March 2020 represents the loss event. Management continues to refine estimated losses as a result of this March 2020 loss event. Approximately six months following the start of the pandemic, Park has experienced very little, if any, increase in delinquenciesActual and charge-offs. Management believes that this is due to the unprecedented level of economic stimulus and CARES Act accommodations provided by the U.S. government which has delayed loan defaults and losses.

•Loss Migration Factor: Park’s commercial loans are individually risk graded. If loan downgrades occur, the probability of default increases, and accordingly, management allocates a higher percentage reserve to those accruing commercial loans graded special mention and substandard. Annually, management calculates a loss migration factor for each commercial loan segment for special mention and substandard credits based on a review of losses over the period of time a loan takes to migrate from pass-rated to impaired. The loss migration factor was last updated in the fourth quarter of 2019.

•Environmental Loss Factor: Management has identified certain macroeconomic factors that trend in accordance with losses in Park’s commercial loan portfolio. Certain environmental loss factors have been determined to correlate with higher charge-offs while other adjustments are based on a subjective evaluation of other environmental loss factors.
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Environmental factors applicable to the commercial loan portfolio include: the Ohio unemployment rate, percent change in Ohio GDP, the consumer confidence index, the prevalence of fixed rate loans in the portfolio, and other environmental factors. In evaluating the ongoing relevance and amount of the other environmental factors, management considers:expected changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices, changes ininternational, national, regional, and local economic and business conditions and developments in which Park operates that affect the collectabilitycollectibility of financial assets.
•Where the portfolio, and the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated losses in Park's existing portfolio. All of these factors are evaluated in relation to the historical look back period. At September 30, 2020 and December 31, 2019, such subjective environmental loss factor inputs accounted for 39% and 42%, respectively, of the allowance for loan losses driven by environmental loss factors.U.S. economy is within a given credit cycle.
•The extent that there is government assistance (stimulus).

These macroeconomic factors are reviewed quarterly and the adjustments made to the environmental loss factor impacting each segment in the performing commercial loan portfolio correlate to changes in the macroeconomic environment. The environmental loss factors were updated in the first, second, and third quarters ofDuring 2020, to consider the economic impact of the COVID-19 pandemic. These factors were increased from 0.60% of applicable loans at December 31, 2019 to 0.675% of applicable loans at March 31, 2020, to 0.75% of applicable loans at June 30, 2020, and to 0.825% at September 30, 2020. The increase in the first and second quarters of 2020 was the result of upward adjustments to the factors for Ohio unemployment, percent change in Ohio GDP and consumer confidence. The increase in the third quarter of 2020 was due to the increased uncertainty in the overall economic environment, the unknown length and severity of the pandemic and the limitations in the incurred loss model to capture all probable incurred losses during such uncertain times. Management will continue to evaluate this estimate of incurred losses as new information becomes available.

In addition to the increases in the environmental loss factor, in the second quarter, Park added an additional reservesreserve for three industries at particularly high risk due to the COVID-19 pandemic: hotels and accommodations,accommodations; restaurants and food service,service; and strip shopping centers. These industries have hadexperienced high levels of deferrals and have been particularly impacted by shut downs of non-essential businesses, increased health department regulations, and changes in consumer behavior. Management expects that a highrelatively higher percentage of the 4-rated credits in these portfolios will eventually migrate to special mention, substandard, or impaired status. In adopting CECL, management determined it was appropriate to retain this qualitative adjustment as this adjustment takes into account the additional risk in these portfolios, which is not captured in the quantitative calculation. As a result,of September 30, 2021, additional reserves totaling $3.9$4.6 million were added for these portfolios on top of thatthe quantitative reserve already calculated. This amount wasis an increase from $3.4 million as of June 30, 2021 and $4.5 million as of March 31, 2021 and reflects the previously discussed uncertainty regarding sustained economic improvement due to COVID-19. The $4.6 million in additional COVID-19-related reserves as of September 30, 2021 is also an increase compared to $3.8 million as of December 31, 2020, which had been calculated by applyingunder the previous incurred loss factor for special mention credits to all 4-rated loans in these portfolios. methodology.

A breakout of the 4-rated balances within these portfolios and the additional reserve related to these portfolios is detailed in the following table.

September 30, 2020September 30, 2021
(in thousands)(in thousands)4-Rated Balance4-Rated Balance - Originated4-Rated Balance - PurchasedAdditional Reserve(in thousands)4-Rated BalanceAdditional Reserve
Hotels and accommodationsHotels and accommodations$86,041 $85,050 $991 $1,435 Hotels and accommodations$123,249 $1,854 
Restaurants and food serviceRestaurants and food service34,263 28,291 5,972 658 Restaurants and food service33,373 754 
Strip shopping centersStrip shopping centers181,517 158,790 22,727 1,789 Strip shopping centers177,635 1,961 
TotalTotal$301,821 $272,131 $29,690 $3,882 Total$334,257 $4,569 

Additionally, management applied a 1%1.00% reserve to all hotels and accommodations loans in the general reservecollectively evaluated population to account for increased valuation risk. This is an increase from 0.50% at June 30, 2021 and considers some decline in various economic conditions due to the Delta variant and a decline in hotel occupancy rates. At September 30, 2020,2021, Park's originated hotels and accommodation loans had a balance of $178.8$193.8 million with an additional reserve related to valuation risks of $1.8$1.9 million.

For the consumer portfolio, a specific COVID-19 factor was added to each segment equal to 50% of the 120-month historical loss factor. This increase considers the payment deferrals being provided to consumer loan customers as well as the likely delays in delinquencies and charge-offs as a result.

MuchThere is still unknown abouta significant amount of uncertainty related to the economic impact of COVID-19, including the duration of the pandemic, the risk related to new variants, future government programs that may be established as a result ofin response to the pandemic, and the resiliency of the U.S. economy. Management will continue to evaluate thisits estimate of incurredexpected credit losses as new information becomes available. Given uncertainty about the magnitude and length of the COVID-19 pandemic and related economic shutdown, additional loan loss provisions may be required that would adversely impact earnings in future periods.

As of September 30, 2020,2021, Park had $542.8$131.5 million of PPP loans which arewere 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
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methodology as the rest of Park’s loan portfolio. A 10 basis point reserve was calculated for these loans to reflect minimal credit risk.

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ACL Activity
The activity in the allowance for loan lossesACL for the three-month and nine-month periods ended September 30, 20202021 and September 30, 20192020 is summarized in the following tables.

Three Months Ended
September 30, 2020		 Three Months Ended
September 30, 2021
(In thousands)(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
Allowance for loan losses:       
ACL:ACL:       
Beginning balanceBeginning balance$23,476 $16,469 $6,828 $10,507 $15,624 $572 $73,476 Beginning balance$15,222 $22,749 $5,670 $13,113 $26,261 $562 $83,577 
Charge-offsCharge-offs241 45 0 34 1,208 1 1,529 Charge-offs221 — — — 781 — 1,002 
RecoveriesRecoveries181 47 35 189 803 0 1,255 Recoveries132 428 1,597 729 696 — 3,582 
Net charge-offs/(recoveries)Net charge-offs/(recoveries)60 (2)(35)(155)405 1 274 Net charge-offs/(recoveries)$89 $(428)$(1,597)$(729)$85 $— $(2,580)
Provision3,571 6,417 1,544 546 1,750 8 13,836 
Provision for (recovery of) credit lossProvision for (recovery of) credit loss843 2,991 (1,003)(2,080)1,483 (262)1,972 
Ending balanceEnding balance$26,987 $22,888 $8,407 $11,208 $16,969 $579 $87,038 Ending balance$15,976 $26,168 $6,264 $11,762 $27,659 $300 $88,129 
 Three Months Ended
September 30, 2019
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
Allowance for loan losses:       
Beginning balance$17,370 $10,377 $5,065 $8,869 $12,265 $57 $54,003 
Charge-offs585 8 0 85 1,801 0 2,479 
Recoveries403 246 432 98 1,183 0 2,362 
Net charge-offs/(recoveries)182 (238)(432)(13)618 0 117 
Provision/(recovery)1,238 (177)(65)49 908 14 1,967 
Ending balance$18,426 $10,438 $5,432 $8,931 $12,555 $71 $55,853 
 Three Months Ended
September 30, 2020
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
ACL:       
Beginning balance$23,476 $16,469 $6,828 $10,507 $15,624 $572 $73,476 
Charge-offs241 45 — 34 1,208 1 1,529 
Recoveries181 47 35 189 803 — 1,255 
Net charge-offs/(recoveries)$60 $(2)$(35)$(155)$405 $1 $274 
Provision for credit loss3,571 6,417 1,544 546 1,750 8 13,836 
Ending balance$26,987 $22,888 $8,407 $11,208 $16,969 $579 $87,038 


 Nine Months Ended
September 30, 2021
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
ACL:       
Beginning balance, prior to adoption of ASC 326$25,608 $23,480 $7,288 $11,363 $17,418 $518 $85,675 
Impact of adopting ASC 326(8,257)2,119 (1,898)3,121 10,925 80 6,090 
Charge-offs675 — — 37 3,061 — 3,773 
Recoveries487 724 2,078 859 2,912 — 7,060 
Net charge-offs/(recoveries)$188 $(724)$(2,078)$(822)$149 $— $(3,287)
Recovery of credit loss(1,187)(155)(1,204)(3,544)(535)(298)(6,923)
Ending balance$15,976 $26,168 $6,264 $11,762 $27,659 $300 $88,129 
 Nine Months Ended
September 30, 2020
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
Allowance for loan losses:       
Beginning balance$20,203 $10,229 $5,311 $8,610 $12,211 $115 $56,679 
Charge-offs1,041 45 6 176 5,060 16 6,344 
Recoveries1,061 690 628 457 2,654 0 5,490 
Net (recoveries)/charge-offs(20)(645)(622)(281)2,406 16 854 
Provision6,764 12,014 2,474 2,317 7,164 480 31,213 
Ending balance$26,987 $22,888 $8,407 $11,208 $16,969 $579 $87,038 
 Nine Months Ended
September 30, 2019
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
Allowance for loan losses:       
Beginning balance$16,777 $9,768 $4,463 $8,731 $11,773 $0 $51,512 
Charge-offs1,498 401 0 176 6,319 0 8,394 
Recoveries983 360 543 640 3,824 1 6,351 
Net charge-offs/(recoveries)515 41 (543)(464)2,495 (1)2,043 
Provision/(recovery)2,164 711 426 (264)3,277 70 6,384 
Ending balance$18,426 $10,438 $5,432 $8,931 $12,555 $71 $55,853 
 Nine Months Ended
September 30, 2020
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
ACL:       
Beginning balance$20,203 $10,229 $5,311 $8,610 $12,211 $115 $56,679 
Charge-offs1,041 45 6 176 5,060 16 6,344 
Recoveries1,061 690 628 457 2,654 — 5,490 
Net (recoveries)/charge-offs$(20)$(645)$(622)$(281)$2,406 $16 $854 
Provision for credit loss6,764 12,014 2,474 2,317 7,164 480 31,213 
Ending balance$26,987 $22,888 $8,407 $11,208 $16,969 $579 $87,038 


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ACL Summary
Loans collectively evaluated for impairment in the following tables include all performing loans at September 30, 20202021 and December 31, 2019,2020, 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 allowance for loan losses.ACL. Loans individually evaluated for impairment include all impaired loans internally classified as commercial loans at September 30, 20202021 and December 31, 2019,2020, which are 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 20192020 Form 10-K).

The composition of the allowance for loan lossesACL at September 30, 20202021 and December 31, 20192020 was as follows:
 September 30, 2020
(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
Allowance for loan losses:       
Ending allowance balance attributed to loans:       
Individually evaluated for impairment$5,033 $3,014 $0 $155 $0 $464 $8,666 
Collectively evaluated for impairment21,913 19,872 8,407 10,993 16,969 115 78,269 
Acquired with deteriorated credit quality41 2 0 60 0 0 103 
Total ending allowance balance$26,987 $22,888 $8,407 $11,208 $16,969 $579 $87,038 
Loan balance:       
Loans individually evaluated for impairment$33,075 $72,499 $3,142 $4,898 $0 $2,524 $116,138 
Loans collectively evaluated for impairment1,693,568 1,608,993 354,845 1,815,628 1,652,638 24,859 7,150,531 
Loans acquired with deteriorated credit quality373 7,985 1,009 2,383 0 127 11,877 
Total ending loan balance$1,727,016 $1,689,477 $358,996 $1,822,909 $1,652,638 $27,510 $7,278,546 
Allowance for loan losses as a percentage of loan balance:       
Loans individually evaluated for impairment15.22 %4.16 %0 %3.16 %0 %18.38 %7.46 %
Loans collectively evaluated for impairment1.29 %1.24 %2.37 %0.61 %1.03 %0.46 %1.09 %
Loans acquired with deteriorated credit quality10.99 %0.03 %0 %2.52 %0 %0 %0.87 %
Total1.56 %1.35 %2.34 %0.61 %1.03 %2.10 %1.20 %
Recorded investment:       
Loans individually evaluated for impairment$33,098 $72,519 $3,142 $4,897 $0 $2,524 $116,180 
Loans collectively evaluated for impairment1,700,477 1,615,685 355,806 1,819,008 1,657,153 24,881 7,173,010 
Loans acquired with deteriorated credit quality375 8,084 1,012 2,393 0 127 11,991 
Total ending recorded investment$1,733,950 $1,696,288 $359,960 $1,826,298 $1,657,153 $27,532 $7,301,181 

 September 30, 2021
(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$3,183 $180 $— $— $— $103 $3,466 
Collectively evaluated for impairment12,793 25,988 6,264 11,762 27,659 197 84,663 
Acquired with deteriorated credit quality— — — — — — — 
Total ending allowance balance$15,976 $26,168 $6,264 $11,762 $27,659 $300 $88,129 
Loan balance:       
Loans individually evaluated for impairment$22,018 $50,541 $442 $4,857 $— $1,406 $79,264 
Loans collectively evaluated for impairment1,292,601 1,704,527 341,480 1,746,339 1,715,324 20,177 6,820,448 
Loans acquired with deteriorated credit quality251 6,528 965 912 — 49 8,705 
Total ending loan balance$1,314,870 $1,761,596 $342,887 $1,752,108 $1,715,324 $21,632 $6,908,417 
ACL as a percentage of loan balance:       
Loans individually evaluated for impairment14.46 %0.36 %— %— %— %7.33 %4.37 %
Loans collectively evaluated for impairment0.99 %1.52 %1.83 %0.67 %1.61 %0.98 %1.24 %
Loans acquired with deteriorated credit quality— %— %— %— %— %— %— %
Total1.22 %1.49 %1.83 %0.67 %1.61 %1.39 %1.28 %
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December 31, 2019 December 31, 2020
(In thousands)(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal(In thousands)Commercial,
financial and
agricultural		Commercial
real estate		Construction
real estate		Residential
real estate		ConsumerLeasesTotal
Allowance for loan losses:       
ACL:ACL:       
Ending allowance balance attributed to loans:Ending allowance balance attributed to loans:       Ending allowance balance attributed to loans:       
Individually evaluated for impairmentIndividually evaluated for impairment$5,104 $35 $0 $42 $0 $49 $5,230 Individually evaluated for impairment$3,758 $1,316 $— $16 $— $344 $5,434 
Collectively evaluated for impairmentCollectively evaluated for impairment14,948 10,187 5,311 8,458 12,211 66 51,181 Collectively evaluated for impairment21,809 22,093 7,288 11,292 17,418 174 80,074 
Acquired with deteriorated credit qualityAcquired with deteriorated credit quality151 7 0 110 0 0 268 Acquired with deteriorated credit quality41 71 — 55 — — 167 
Total ending allowance balanceTotal ending allowance balance$20,203 $10,229 $5,311 $8,610 $12,211 $115 $56,679 Total ending allowance balance$25,608 $23,480 $7,288 $11,363 $17,418 $518 $85,675 
Loan balance:Loan balance:       Loan balance:       
Loans individually evaluated for impairmentLoans individually evaluated for impairment$33,077 $41,770 $453 $2,025 $0 $134 $77,459 Loans individually evaluated for impairment$28,811 $70,334 $3,110 $4,557 $— $1,595 $108,407 
Loans collectively evaluated for impairmentLoans collectively evaluated for impairment1,151,073 1,558,550 330,106 1,888,088 1,452,373 29,424 6,409,614 Loans collectively evaluated for impairment1,559,842 1,670,510 339,312 1,806,126 1,659,704 22,731 7,058,225 
Loans acquired with deteriorated credit quality (1)
Loans acquired with deteriorated credit quality (1)
960 9,093 1,140 2,613 2 523 14,331 
Loans acquired with deteriorated credit quality (1)
336 7,345 999 2,361 — 112 11,153 
Total ending loan balanceTotal ending loan balance$1,185,110 $1,609,413 $331,699 $1,892,726 $1,452,375 $30,081 $6,501,404 Total ending loan balance$1,588,989 $1,748,189 $343,421 $1,813,044 $1,659,704 $24,438 $7,177,785 
Allowance for loan losses as a percentage of loan balance:       
ACL as a percentage of loan balance:ACL as a percentage of loan balance:       
Loans individually evaluated for impairmentLoans individually evaluated for impairment15.43 %0.08 %0 %2.07 %0 %36.57 %6.75 %Loans individually evaluated for impairment13.04 %1.87 %— %0.35 %— %21.57 %5.01 %
Loans collectively evaluated for impairmentLoans collectively evaluated for impairment1.30 %0.65 %1.61 %0.45 %0.84 %0.22 %0.80 %Loans collectively evaluated for impairment1.40 %1.32 %2.15 %0.63 %1.05 %0.77 %1.13 %
Loans acquired with deteriorated credit qualityLoans acquired with deteriorated credit quality15.73 %0.08 %0 %4.21 %0 %0 %1.87 %Loans acquired with deteriorated credit quality12.20 %0.97 %— %2.33 %— %— %1.50 %
TotalTotal1.70 %0.64 %1.60 %0.45 %0.84 %0.38 %0.87 %Total1.61 %1.34 %2.12 %0.63 %1.05 %2.12 %1.19 %
Recorded investment:Recorded investment:       Recorded investment:       
Loans individually evaluated for impairmentLoans individually evaluated for impairment$33,088 $41,791 $453 $2,025 $0 $134 $77,491 Loans individually evaluated for impairment$28,836 $70,357 $3,110 $4,557 $— $1,595 $108,455 
Loans collectively evaluated for impairmentLoans collectively evaluated for impairment1,155,449 1,564,011 331,161 1,891,941 1,456,687 29,444 6,428,693 Loans collectively evaluated for impairment1,566,344 1,676,388 340,116 1,808,892 1,664,214 22,745 7,078,699 
Loans acquired with deteriorated credit quality (1)
966 9,182 1,143 2,625 2 523 14,441 
Loans acquired with deteriorated credit qualityLoans acquired with deteriorated credit quality337 7,461 1,002 2,372 — 112 11,284 
Total ending recorded investmentTotal ending recorded investment$1,189,503 $1,614,984 $332,757 $1,896,591 $1,456,689 $30,101 $6,520,625 Total ending recorded investment$1,595,517 $1,754,206 $344,228 $1,815,821 $1,664,214 $24,452 $7,198,438 
(1) Excludes loans acquired with deteriorated credit quality which were individually evaluated for impairment due to additional credit deterioration or modification post acquisition. These loans had a balance of $5,000, a recorded investment of $6,000, and 0 allowance as of December 31, 2019.


Note 87 – Loans Held For Sale
 
Mortgage loans held for sale are carried at their fair value. At September 30, 20202021 and December 31, 2019,2020, respectively, Park had $48.3$8.9 million and $12.3$31.7 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 segmentsportfolio segment in Note 65 - Loans, and Note 76 - Allowance for LoanCredit Losses. The contractual balance was $47.4$8.8 million and $12.1$30.9 million at September 30, 20202021 and December 31, 2019,2020, respectively. The gain expected upon sale was $878,000$175,000 and $153,000$753,000 at September 30, 20202021 and December 31, 2019,2020, respectively. None of these loans were 90 days or more past due or on nonaccrual status as ofat September 30, 20202021 or December 31, 2019.2020.

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Note 98 – Goodwill and Other Intangible Assets

The following tables show the activity in goodwill and other intangible assets for the three-month and nine-month periods ended September 30, 20202021 and 2019.2020.
(in thousands)GoodwillOther
intangible assets		Total
July 1, 2020$159,595 $10,310 $169,905 
Amortization— 525 525 
September 30, 2020$159,595 $9,785 $169,380 
July 1, 2021$159,595 $8,302 $167,897 
Amortization— 420 420 
September 30, 2021$159,595 $7,882 $167,477 
(in thousands)GoodwillOther
intangible assets		Total
July 1, 2019$158,057 $16,231 $174,288 
Acquired goodwill and other intangible assets(58)0 (58)
Amortization— 741 741 
September 30, 2019$157,999 $15,490 $173,489 
July 1, 2020$159,595 $10,310 $169,905 
Acquired goodwill and other intangible assets0 0 0 
Amortization— 525 525 
September 30, 2020$159,595 $9,785 $169,380 

(in thousands)(in thousands)GoodwillOther
intangible assets		Total(in thousands)GoodwillOther
intangible assets		Total
December 31, 2018$112,739 $6,971 $119,710 
Acquired goodwill and other intangible assets45,260 10,251 55,511 
Amortization— 1,732 1,732 
September 30, 2019$157,999 $15,490 $173,489 
December 31, 2019December 31, 2019$159,595 $11,523 $171,118 December 31, 2019$159,595 $11,523 $171,118 
Acquired goodwill and other intangible assets0 0 0 
AmortizationAmortization— 1,738 1,738 Amortization— 1,738 1,738 
September 30, 2020September 30, 2020$159,595 $9,785 $169,380 September 30, 2020$159,595 $9,785 $169,380 
December 31, 2020December 31, 2020$159,595 $9,260 $168,855 
AmortizationAmortization— 1,378 1,378 
September 30, 2021September 30, 2021$159,595 $7,882 $167,477 
   
Park evaluates goodwill for impairment during the second quarter of each year, with financial data as of March 31. Based on the qualitative analysis performed as of April 1, 2020,2021, the Company determined that goodwill for Park's reporting unit, PNB, was not impaired. During each of the second and third quarters of 2020, management determined that the deterioration in generalManagement continues to monitor economic factors, including economic conditions as a result of the COVID-19 pandemic and responses thereto, represented a triggering event prompting an evaluation of goodwill impairment. Based on the analysis performed during each of the second and third quarters of 2020, the Company determined that goodwill was not impaired. Management continues to monitor economic factors to evaluate goodwill impairment.

Acquired Intangible Assets

The following table shows the balance of acquired intangible assets as of September 30, 20202021 and December 31, 2019.2020.
September 30, 2021December 31, 2020
(in thousands)Gross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Other intangible assets:
Core deposit intangible assets$14,456 $6,574 $14,456 $5,196 
Trade name intangible assets1,300 1,300 1,300 1,300 
Total$15,756 $7,874 $15,756 $6,496 

September 30, 2020December 31, 2019
(in thousands)Gross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Other intangible assets:
Core deposit intangible assets$14,456 $4,671 $14,456 $2,933 
Trade name intangible assets1,300 1,300 1,300 1,300 
Total$15,756 $5,971 $15,756 $4,233 

During 2019, Park announced its 2020 rebranding initiative to operate all 12 banking divisions of PNB under one name. The NewDominion trade name intangible was initially recorded assuming an indefinite useful life. Considering Park's rebranding initiative, Park concluded that the trade name intangible represented a definite useful life asset, and impairment of $1.3 million was recorded during the fourth quarter of 2019.
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Core deposit intangible assets are being amortized, on an accelerated basis, over a period of ten years. Aggregate amortization expense was $525,000$420,000 and $741,000$525,000 for the three months ended September 30, 20202021 and 2019,2020, respectively, and was $1.4 million and $1.7 million for each of the nine months ended September 30, 2021 and 2020, and 2019.respectively.

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Estimated amortization expense related to core deposit intangible assets for each of the next five years follows:

(in thousands)Total
Three months ending December 31, 2020$525 
20211,798 
20221,487 
20231,323 
20241,215 

(in thousands)Total
Three months ending December 31, 2021$420 
20221,487 
20231,323 
20241,215 
20251,042 

Note 109 – Investment in Qualified Affordable Housing

Park makes certain equity investments in various limited partnerships that sponsor affordable housing projects. The purposes of these investments are to achieve a satisfactory return on capital, help create affordable housing opportunities, and assist the Company to achieve its goals associated with the Community Reinvestment Act.

The table below details the balances of Park’s affordable housing tax credit investments and related unfunded commitments at September 30, 20202021 and December 31, 2019.2020.
(in thousands)September 30, 2020December 31, 2019
Affordable housing tax credit investments$57,583 $53,070 
Unfunded commitments31,593 25,894 

(in thousands)September 30, 2021December 31, 2020
Affordable housing tax credit investments$60,457 $56,024 
Unfunded commitments33,116 29,298 

Commitments are funded when capital calls are made by the general partner. Park expects that the current commitments will be funded between 20202021 and 2030.2031.

Park recognized amortization expense of $1.9 million and $1.8 million, respectively, for each of the three months ended September 30, 2021 and 2020, and 2019,recognized $5.6 million and $5.5 million and $5.4 million for each of the nine months ended September 30, 2021 and 2020, and 2019, respectively, which waswere included within the provision for income taxes. Additionally, during the three months ended September 30, 20202021 and 2019,2020, Park recognized tax credits and other benefits from its affordable housing tax credit investments of $2.3$1.9 million and $2.6$2.3 million, respectively, and during each of the nine months ended September 30, 2021 and 2020, recognized $7.2 million and 2019, recognized $6.9 million, respectively, which waswere included within the provision for income taxes.

Note 1110 – Foreclosed and Repossessed Assets

Park typically transfers a loan to OREO at the time that Park takes deed/title to the real estate property asset. The carrying amounts of foreclosed real estate properties held at September 30, 20202021 and December 31, 20192020 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)(in thousands)September 30, 2020December 31, 2019(in thousands)September 30, 2021December 31, 2020
OREO:OREO:OREO:
Commercial real estateCommercial real estate$31 $2,295 Commercial real estate$— $625 
Construction real estate0 879 
Residential real estateResidential real estate805 855 Residential real estate813 806 
Total OREOTotal OREO$836 $4,029 Total OREO$813 $1,431 
Loans in process of foreclosure:Loans in process of foreclosure:Loans in process of foreclosure:
Residential real estateResidential real estate$2,679 $3,959 Residential real estate$1,397 $1,643 

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In addition to real estate, Park may also repossess different types of collateral. As ofAt both September 30, 20202021 and December 31, 2019,2020, Park had $3.6 million and $4.2 million, respectively, in other repossessed assets which are included in "Other assets" on the Consolidated Condensed Balance Sheets. As ofAt both dates presented, the other repossessed assets largely consisted of an aircraft acquired as part of a loan workout.

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Note 1211 – Loan Servicing
 
Park serviced sold mortgage loans of $2.12 billion at September 30, 2021, $1.97 billion at December 31, 2020 and $1.79 billion at September 30, 2020, $1.45 billion at December 31, 2019 and $1.41 billion at September 30, 2019.2020. At September 30, 2020, $2.02021, $3.5 million of the sold mortgage loans were sold with recourse, compared to $2.3$1.7 million at December 31, 20192020 and $2.4$2.0 million at September 30, 2019.2020. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. At September 30, 20202021 and December 31, 2019,2020, management had established reserves of $44,000$39,000 and $25,000,$30,000, respectively, to account for expected losses on loan repurchases.
 
When Park sells mortgage loans with servicing rights retained, these servicing rights are initially recorded at fair value. Park has selected the “amortization method” as permissible within U.S. GAAP, whereby the servicing rights capitalized are amortized in proportion to and over the period of estimated future servicing income with respect to the underlying loan. At the end of each reporting period, the carrying value of MSRs is assessed for impairment with a comparison to fair value. MSRs are carried at the lower of their amortized cost or fair value. The amortization of MSRs is included within "Other service income" in the Consolidated Condensed Statements of Income.

Activity for MSRs and the related valuation allowance follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
(In thousands)2020201920202019
Mortgage servicing rights: 
Carrying amount, net, beginning of period$9,505 $10,104 $10,070 $10,178 
Additions2,987 722 5,796 1,462 
Amortization(1,254)(534)(2,853)(1,259)
Changes in valuation allowance(198)(332)(1,973)(421)
Carrying amount, net, end of period$11,040 $9,960 $11,040 $9,960 
Valuation allowance: 
Beginning of period$2,600 $321 $825 $232 
Changes in valuation allowance198 332 1,973 421 
End of period$2,798 $653 $2,798 $653 
Three Months Ended
September 30,		Nine Months Ended
September 30,
(In thousands)2021202020212020
Mortgage servicing rights: 
Carrying amount, net, beginning of period$14,316 $9,505 $12,210 $10,070 
Additions1,114 2,987 4,061 5,796 
Amortization(835)(1,254)(2,753)(2,853)
Change in valuation allowance(39)(198)1,038 (1,973)
Carrying amount, net, end of period$14,556 $11,040 $14,556 $11,040 
Valuation allowance: 
Beginning of period$2,112 $2,600 $3,189 $825 
Change in valuation allowance39 198 (1,038)1,973 
End of period$2,151 $2,798 $2,151 $2,798 
 
Servicing fees included in other service income were $1.0$1.4 million and $0.9$1.0 million for the three months ended September 30, 20202021 and 2019,2020, respectively, and $2.9were $4.0 million and $2.7$2.9 million for the nine months ended September 30, 20202021 and 2019,2020, respectively.

Note 1312 - 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 contracts 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.

The Company adopted ASU 2016-02, Leases (ASC 842), using the modified retrospective method as of the date of adoption, January 1, 2019, as permitted by the amendments in ASU 2018-11. As a result, the Company was not required to adjust its comparative period financial information for effects of the adoption of the standard or make the new required lease disclosures for periods prior to the effective date. Upon adoption of this accounting guidance on January 1, 2019, Park recorded an initial ROU asset of $11.0 million, and a lease liability of $11.8 million, and reclassified an existing deferred rent liability of $0.6 million. The impact to the Company's retained earnings, net of the tax impact, was $143,000.
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Management elected to adopt the package of transition practical expedients and, therefore, has not reassessed (1) whether existing or expired contracts contain a lease, (2) the lease classification for existing or expired leases or (3) the accounting for initial direct costs that were previously capitalized. The Company did not elect the practical expedient to use hindsight for leases existing at the adoption date. Park elected the practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease components. Additionally, Park has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a cash basis.

Management determines if an arrangement is or contains a lease at contract inception. If an arrangement is determined to be or contain a lease, Park recognizes a ROU asset and a lease liability at the lease commencement date. Leases are classified as operating or finance leases at the lease commencement date. At September 30, 20202021 and December 31, 2019,2020, all of Park's leases were classified as operating leases.

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Park’s lease liability is initially and subsequently measured atas the present value of the unpaid lease payments at the lease commencement date. Key estimates and judgments related to the lease liability include how management determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) the lease term, and (3) lease payments.

•ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, management cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, Park utilizes its incremental borrowing rate as the discount rate for leases. Park’s incremental borrowing rate for a lease is the rate of interest itPark would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. To manage its capital and liquidity needs, Park periodically obtains wholesale funding from the FHLB on an over-collateralized basis. The impact of utilizing an interest rate on an over-collateralized borrowing versus a fully collateralized borrowing is not material. Therefore, the FHLB yield curve was selected by management as a baseline to determine Park’s discount rates for leases.

•The lease term for all of the Company’s leases includes the noncancellable period of the lease plus any additional periods covered by either Park's option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. If a lease contract contains multiple renewal options, management generally models lease cash flows through the first renewal option period unless the contract contains economic incentives or other conditions that increase the likelihood that additional renewals are reasonably certain to be exercised.

•Lease payments included in the measurement of the lease liability are comprised of the following:

–Fixed payments, including in-substance fixed payments, owed over the lease term;
–For certain of Park's gross real estate leases, non-lease components such as real estate taxes, insurance, and common area maintenance; and
–Variable lease payments that depend on an index or rate, initially measured using the index or rate at the lease commencement date.

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Park's operating lease ROU asset and lease liability are presented in “Operating lease right-of-use asset" and "Operating lease liability," respectively, on Park's Consolidated Condensed Balance Sheets. The carrying amountamounts of Park's ROU asset and lease liability at September 30, 2020 was $18.02021 were $13.4 million and $19.1$14.5 million, respectively. At December 31, 2019,2020, the carrying amounts of Park's ROU asset and lease liability was $13.7were $15.1 million and $14.5$16.1 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 months and nine months ended September 30, 20202021 and 20192020 was as follows:

Three Months EndedNine Months Ended
(in thousands)September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Lease cost
Operating lease cost$905 $831 $2,671 $2,320 
Sublease income(95)(97)(289)(285)
Total lease cost$810 $734 $2,382 $2,035 
Other information
Cash paid for amounts included in the measurement of lease liabilities:
      Operating cash flows from operating leases$906 $843 $2,710 $2,336 
ROU assets obtained in exchange for new operating lease liabilities$25 $342 $7,794 $381 
Reductions to ROU assets resulting from reductions to lease obligations$(789)$(726)$(2,347)$(2,021)

Three Months EndedNine Months Ended
(in thousands)September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Lease cost
Operating lease cost$705 $905 $2,124 $2,671 
Sublease income(63)(95)(189)(289)
Total lease cost$642 $810 $1,935 $2,382 
Other information
Cash paid for amounts included in the measurement of lease liabilities:
      Operating cash flows from operating leases$777 $906 $2,329 $2,710 
ROU assets obtained in exchange for new operating lease liabilities$367 $25 $547 $7,794 
Reductions to ROU assets resulting from reductions to lease obligations$(695)$(789)$(2,074)$(2,347)

At September 30, 20202021 and December 31, 2019,2020, Park's operating leases had a weighted average remaining term of 7.76.8 years and 7.2 years, respectively. The weighted average discount rate of Park's operating leases was 2.4% and 3.1%2.3% at both September 30, 20202021 and December 31, 2019, respectively.2020.

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

(in thousands)September 30, 2020
3 months ending December 31, 2020$880 
20213,357 
20223,210 
20233,110 
20242,025 
Thereafter8,395 
Total undiscounted minimum lease payments$20,977 
Present value adjustment(1,850)
Total lease liabilities$19,127 

(in thousands)September 30, 2021
3 months ending December 31, 2021$783 
20223,085 
20232,944 
20241,791 
20251,451 
Thereafter5,602 
Total undiscounted minimum lease payments$15,656 
Present value adjustment(1,176)
Total lease liabilities$14,480 

Note 1413 – 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 consisted of customer accounts and securities which are pledged on an individual security basis.

At September 30, 20202021 and December 31, 2019,2020, Park's repurchase agreement borrowings totaled $295$211 million and $176$317 million, respectively. These borrowings were collateralized with U.S. government and agency securities with a fair value of $322$319 million and $200$366 million at September 30, 20202021 and December 31, 2019,2020, respectively. Declines in the value of the collateral would require Park to pledge additional securities. As of September 30, 20202021 and December 31, 2019,2020, Park had $421$909 million and $756$439 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 September 30, 20202021 and December 31, 2019:2020:

September 30, 2020
(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$295,435 $0 $0 $0 $295,435 
December 31, 2019
(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$175,657 $0 $0 $0 $175,657 

September 30, 2021
(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$210,979 $— $— $— $210,979 
December 31, 2020
(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$317,230 $— $— $— $317,230 

Note 1514 - Derivatives

Park uses certain derivative financial instruments (or "derivatives") to meet the needs of its 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 as part of its asset liabilityasset-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: Interest rate swaps with notional amounts totaling $25.0 million at both September 30, 20202021 and December 31, 20192020 were designated as cash flow hedges of certain FHLB advances.

Loan Derivatives: In conjunction with the Carolina Alliance acquisition, Park acquired interest rate swaps related to certain commercial loans. TheseSimultaneously with borrowers entering into interest rate swaps, were simultaneously hedged byCarolina Alliance entered into offsetting interest rate swaps that Carolina Alliance 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 $33.8$30.1 million and $35.533.3 million at September 30, 20202021 and December 31, 2019,2020, respectively.

All of the Company's interest rate swaps were determined to be fully effective during each of the three-month and nine-month and nine-month periods ended September 30, 20202021 and September 30, 2019.2020. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets and other liabilities with changes in fair value recorded in other comprehensive income. The amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective. Park expects the hedges to remain fully effective during the remaining respective terms of the swaps.

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Summary information about Park's interest rate swaps as of September 30, 20202021 and December 31, 20192020 follows:

September 30, 2020December 31, 2019September 30, 2021December 31, 2020
(In thousands, except weighted average data)(In thousands, except weighted average data)Borrowing DerivativesLoan DerivativesBorrowing DerivativesLoan Derivatives(In thousands, except weighted average data)Borrowing DerivativesLoan DerivativesBorrowing DerivativesLoan Derivatives
Notional amountsNotional amounts$25,000 $33,783 $25,000 $35,503 Notional amounts$25,000 $30,118 $25,000 $33,310 
Weighted average pay ratesWeighted average pay rates2.595 %4.691 %2.595 %4.695 %Weighted average pay rates2.595 %4.664 %2.595 %4.695 %
Weighted average receive ratesWeighted average receive rates0.273 %4.691 %2.002 %4.695 %Weighted average receive rates0.134 %4.664 %0.218 %4.695 %
Weighted average maturity (years)Weighted average maturity (years)1.79.62.510.2Weighted average maturity (years)0.78.51.59.3
Unrealized lossesUnrealized losses$1,026 $0 $575 $0 Unrealized losses$436 $— $885 $— 

Interest expense recorded on swap transactions was $140,000$157,000 and $16,000$140,000 for the three-month periods ended September 30, 20202021 and 2019,2020, respectively, and was $272,000457,000 and $7,000272,000 for the nine-monthnine-month periods ended September 30, 2021 and 2020, and 2019, respectively.respectively.

Interest Rate Swaps

The following table presents the net gains (losses), net of income taxes, recorded in AOCIOCI and the Consolidated Condensed Statements of Income related to interest rate swaps for the three-month and ninenine-month -month periods ended September 30, 20202021 and 2019.2020.

Three Months Ended
September 30, 2020
(In thousands)Amount of Gain (Loss) Recognized in OCI (Effective Portion)Amount of Gain (Loss) Reclassified from OCI to Interest IncomeAmount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts$111 $0 $0 
Three Months Ended
September 30, 2021
(In thousands)Amount of Gain (Loss) Recognized in OCI (Effective Portion)Amount of Gain (Loss) Reclassified from OCI to Interest IncomeAmount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts$117$—$—

Three Months Ended
September 30, 2019
(In thousands)Amount of Gain (Loss) Recognized in OCI (Effective Portion)Amount of Gain (Loss) Reclassified from OCI to Interest IncomeAmount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts$(49)$0 $0 
Three Months Ended
September 30, 2020
(In thousands)Amount of Gain (Loss) Recognized in OCI (Effective Portion)Amount of Gain (Loss) Reclassified from OCI to Interest IncomeAmount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts$111 $— $— 


Nine Months Ended
September 30, 2020
(In thousands)Amount of Gain (Loss) Recognized in OCI (Effective Portion)Amount of Gain (Loss) Reclassified from OCI to Interest IncomeAmount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts$(357)$0 $0 
Nine Months Ended
September 30, 2021
(In thousands)Amount of Gain (Loss) Recognized in OCI (Effective Portion)Amount of Gain (Loss) Reclassified from OCI to Interest IncomeAmount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts$355$—$—

Nine Months Ended
September 30, 2019
(In thousands)Amount of Gain (Loss) Recognized in OCI (Effective Portion)Amount of Gain (Loss) Reclassified from OCI to Interest IncomeAmount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts$(556)$0 $0 
Nine Months Ended
September 30, 2020
(In thousands)Amount of Gain (Loss) Recognized in OCI (Effective Portion)Amount of Gain (Loss) Reclassified from OCI to Interest IncomeAmount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts$(357)$— $— 
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The following tables reflect the interest rate swaps included in the Consolidated Condensed Balance Sheets as of September 30, 20202021 and December 31, 2019.2020.

(In thousands)September 30, 2020
Notional AmountFair Value
Included in other assets:
Borrowing derivatives - interest rate swaps related to FHLB advances$0 $0 
Loan derivatives - instruments associated with loans
 Matched interest rate swaps with borrower33,783 4,503 
 Matched interest rate swaps with counterparty0 0 
   Total included in other assets$33,783 $4,503 
Included in other liabilities:
Borrowing derivatives - interest rate swaps related to FHLB advances$25,000 $(1,026)
Loan derivatives - instruments associated with loans
 Matched interest rate swaps with borrower0 0 
 Matched interest rate swaps with counterparty33,783 (4,503)
    Total included in other liabilities$58,783 $(5,529)


(In thousands)(In thousands)December 31, 2019(In thousands)September 30, 2021December 31, 2020
Notional AmountFair ValueNotional AmountFair ValueNotional AmountFair Value
Included in other assets:Included in other assets:Included in other assets:
Borrowing derivatives - interest rate swaps related to FHLB advancesBorrowing derivatives - interest rate swaps related to FHLB advances$0 $0 Borrowing derivatives - interest rate swaps related to FHLB advances$— $— $— $— 
Loan derivatives - instruments associated with loansLoan derivatives - instruments associated with loansLoan derivatives - instruments associated with loans
Matched interest rate swaps with borrower Matched interest rate swaps with borrower24,421 1,781  Matched interest rate swaps with borrower30,118 2,258 33,310 3,934 
Matched interest rate swaps with counterparty Matched interest rate swaps with counterparty11,083 89  Matched interest rate swaps with counterparty— — — — 
Total included in other assets Total included in other assets$35,504 $1,870  Total included in other assets$30,118 $2,258 $33,310 $3,934 
Included in other liabilities:Included in other liabilities:Included in other liabilities:
Borrowing derivatives - interest rate swaps related to FHLB advancesBorrowing derivatives - interest rate swaps related to FHLB advances$25,000 $(575)Borrowing derivatives - interest rate swaps related to FHLB advances$25,000 $(436)$25,000 $(885)
Loan derivatives - instruments associated with loansLoan derivatives - instruments associated with loansLoan derivatives - instruments associated with loans
Matched interest rate swaps with borrower Matched interest rate swaps with borrower11,083 (89) Matched interest rate swaps with borrower— — — — 
Matched interest rate swaps with counterparty Matched interest rate swaps with counterparty24,421 (1,781) Matched interest rate swaps with counterparty30,118 (2,258)33,310 (3,934)
Total included in other liabilities Total included in other liabilities$60,504 $(2,445) Total included in other liabilities$55,118 $(2,694)$58,310 $(4,819)

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 inas hedge relationships. The fair value of thean interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Fair values of these mortgage banking derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in "Other service income" in the Condensed Consolidated Statements of Income.

At September 30, 20202021 and December 31, 20192020, Park had $136.8$15.9 million and $15.9$58.2 million, respectively, of interest rate lock commitments. The fair value of these mortgage banking derivatives was reflected by a derivative asset of $2.9$0.4 million and $221,000$1.5 million at September 30, 20202021 and December 31, 20192020, respectively.
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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 both September 30, 2021 and December 31, 2020, the fair value of the swap liability of $226,000 was an estimate of the exposure based upon probability-weighted potential Visa litigation losses.

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Note 1615 – Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss) components, net of income tax, are shown in the following table for the three-month and nine-month periods ended September 30, 20202021 and 2019:

(in thousands)		Changes in pension plan assets and benefit obligationsUnrealized net holding gain (loss) on cash flow hedgeUnrealized gains (losses) on AFS debt securitiesTotal
Beginning balance at July 1, 2020$(26,674)$(922)$41,457 $13,861 
Other comprehensive income before reclassifications0 111 207 318 
Amounts reclassified from accumulated other comprehensive income— — 21 21 
Net current period other comprehensive income— 111 228 339 
Ending balance at September 30, 2020$(26,674)$(811)$41,685 $14,200 
Beginning balance at July 1, 2019$(29,672)$(507)$3,872 $(26,307)
Other comprehensive (loss) income before reclassifications (1)
0 (49)13,889 13,840 
Amounts reclassified from accumulated other comprehensive loss— — (147)(147)
Net current period other comprehensive (loss) income— (49)13,742 13,693 
Ending balance at September 30, 2019$(29,672)$(556)$17,614 $(12,614)
2020:



(in thousands)		Changes in pension plan assets and benefit obligationsUnrealized net holding gain (loss) on cash flow hedgeUnrealized gains (losses) on AFS debt securitiesTotal
Beginning balance at January 1, 2020$(26,674)$(454)$17,539 $(9,589)
Other comprehensive (loss) income before reclassifications0 (357)26,742 26,385 
Amounts reclassified from accumulated other comprehensive income— — (2,596)(2,596)
Net current period other comprehensive (loss) income0 (357)24,146 23,789 
Ending balance at September 30, 2020$(26,674)$(811)$41,685 $14,200 
Beginning balance at January 1, 2019$(29,672)$0 $(20,116)$(49,788)
Other comprehensive (loss) income before reclassifications (1)
0 (556)37,397 36,841 
Amounts reclassified from accumulated other comprehensive loss— — 333 333 
Net current period other comprehensive (loss) income0 (556)37,730 37,174 
Ending balance at September 30, 2019$(29,672)$(556)$17,614 $(12,614)

(in thousands)		Changes in pension plan assets and benefit obligationsUnrealized net holding gain (loss) on cash flow hedgeUnrealized gains (losses) on debt securities AFSTotal
Beginning balance at July 1, 2021$(34,421)$(460)$31,951 $(2,930)
Other comprehensive income (loss) before reclassifications— 117 (4,997)(4,880)
Net current period other comprehensive income (loss)— 117 (4,997)(4,880)
Ending balance at September 30, 2021$(34,421)$(343)$26,954 $(7,810)
Beginning balance at July 1, 2020$(26,674)$(922)$41,457 $13,861 
Amounts reclassified from accumulated other comprehensive income— — 21 21 
Other comprehensive income before reclassifications— 111 207 318 
Net current period other comprehensive income— 111 228 339 
Ending balance at September 30, 2020$(26,674)$(811)$41,685 $14,200 

(1)

(in thousands)		Changes in pension plan assets and benefit obligationsUnrealized net holding gain (loss) on cash flow hedgeUnrealized gains (losses) on debt securities AFSTotal
Beginning balance at January 1, 2021$(34,421)$(698)$40,690 $5,571 
Other comprehensive income (loss) before reclassifications— 355 (13,736)(13,381)
Net current period other comprehensive income (loss)— 355 (13,736)(13,381)
Ending balance at September 30, 2021$(34,421)$(343)$26,954 $(7,810)
Beginning balance at January 1, 2020$(26,674)$(454)$17,539 $(9,589)
Amounts reclassified from accumulated other comprehensive income— — (2,596)(2,596)
Other comprehensive (loss) income before reclassifications— (357)26,742 26,385 
Net current period other comprehensive (loss) income— (357)24,146 23,789 
Ending balance at September 30, 2020$(26,674)$(811)$41,685 $14,200 

During the three-month and nine-month periods ended September 30, 2019, Park transferred HTM securities with a fair value2021, there were no reclassifications out of $373.9 million to AFS classification. The transfer occurred at fair value and had a related unrealized gain of $24.2 million ($19.1 million net of taxes), recorded inaccumulated other comprehensive income.
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income (loss). During the three-month period ended September 30, 2020, there was $27,000 ($21,000 net of tax) reclassified out of accumulated other comprehensive income due to net losses on the sale of AFS debt securities.securities AFS. During the nine-month period ended September 30, 2020, there was $3.3 million ($2.6 million net of tax) reclassified out of accumulated other comprehensive income due to net gains on the sale of AFS debt securities. During the three-month period ended September 30, 2019, there was $186,000 ($147,000 net of tax) reclassified out of accumulated other comprehensive loss due to net gains on the sale of AFS debt securities. During the nine-month period ended September 30, 2019, there was $421,000 ($333,000 net of tax) reclassified out of accumulated other comprehensive loss due to net losses on the sale of AFS debt securities.securities AFS. These gains and losses were recorded within "Net (loss) gain on the sale of debt securities" on the Consolidated Condensed Statements of Income.

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Note 1716 – Earnings Per Common Share
 
The following table sets forth the computation of basic and diluted earnings per common share for the three months and nine months ended September 30, 20202021 and 2019.2020.
Three Months Ended
September 30,		Nine Months Ended
September 30,
(In thousands, except share and per common share data)2020201920202019
Numerator:  
Net income$30,846 $31,146 $82,723 $78,764 
Denominator:  
Weighted-average common shares outstanding16,300,720 16,382,798 16,300,250 16,198,294 
Effect of dilutive PBRSUs and TBRSUs93,072 92,943 98,100 89,401 
Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs16,393,792 16,475,741 16,398,350 16,287,695 
Earnings per common share:  
Basic earnings per common share$1.89 $1.90 $5.07 $4.86 
Diluted earnings per common share$1.88 $1.89 $5.04 $4.84 
Three Months Ended
September 30,		Nine Months Ended
September 30,
(In thousands, except share and per common share data)2021202020212020
Numerator:  
Net income$35,434 $30,846 $117,397 $82,723 
Denominator:  
Weighted-average common shares outstanding16,292,312 16,300,720 16,315,996 16,300,250 
Effect of dilutive PBRSUs and TBRSUs131,600 93,072 129,572 98,100 
Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs16,423,912 16,393,792 16,445,568 16,398,350 
Earnings per common share:  
Basic earnings per common share$2.17 $1.89 $7.20 $5.07 
Diluted earnings per common share$2.16 $1.88 $7.14 $5.04 

Park awarded 62,26561,890 and 58,74062,265 PBRSUs to certain employees during the nine months ended September 30, 2021 and 2020, and 2019, respectively. NaN PBRSUsNo PBRSU's were awarded during either of the three months ended September 30, 20202021 or 2019.

On April 1, 2019, Park issued 1,037,205 common shares to complete the Carolina Alliance acquisition and granted 15,700 TBRSUs to Carolina Alliance Division employees. These common shares have been included in average common shares outstanding beginning on that date.2020.

Park repurchased 84,603an aggregate of 137,659 common shares during both the three months and nine months ended September 30, 2019,2021, to fund the PBRSUs, the TBRSUs and common shares to be awarded to directors of Park and to directors of Park's subsidiary PNB (and its divisions) and pursuant to Park's previously announced stock repurchase authorizations. Park repurchased an aggregate of 76,000 and 421,253 common shares during the nine months ended September 30, 2020, and 2019, respectively, to fund the PBRSUs, the TBRSUs and common shares to be awarded to directors of Park and to directors of Park's subsidiary PNB (and its divisions) and pursuant to Park's previously announced stock repurchase authorizations. NaN. No common shares were repurchased during the three months ended September 30, 2020.

Note 1817 – Segment Information
 
The Corporation is a financial holding company headquartered in Newark, Ohio. The reportable segmentssegment for the Corporation areis its chartered national bank subsidiary, PNB (headquartered in Newark, Ohio), and GFSC.. "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 21 reportable segments,segment, as: (i) discrete financial information
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information is available for eachthis reportable segment and (ii) the segments aresegment 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
September 30, 2020		 Operating Results for the three months ended September 30, 2021
(In thousands)(In thousands)PNBGFSCAll OtherTotal(In thousands)PNBAll OtherTotal
Net interest income (expense)Net interest income (expense)$83,795 $893 $(848)$83,840 Net interest income (expense)$82,835 $(1,233)$81,602 
Provision for (recovery of) loan losses13,839 34 (37)13,836 
Provision for (recovery of) credit lossesProvision for (recovery of) credit losses4,276 (2,304)1,972 
Other incomeOther income35,430 60 1,068 36,558 Other income31,332 1,079 32,411 
Other expenseOther expense65,590 499 3,770 69,859 Other expense64,663 3,826 68,489 
Income (loss) before income taxesIncome (loss) before income taxes$39,796 $420 $(3,513)$36,703 Income (loss) before income taxes$45,228 $(1,676)$43,552 
Income tax expense (benefit)Income tax expense (benefit)6,908 88 (1,139)5,857 Income tax expense (benefit)8,777 (659)8,118 
Net income (loss)Net income (loss)$32,888 $332 $(2,374)$30,846 Net income (loss)$36,451 $(1,017)$35,434 
Assets (at September 30, 2020)$9,195,911 $16,045 $28,050 $9,240,006 
Assets (at September 30, 2021)Assets (at September 30, 2021)$10,012,868 $21,150 $10,034,018 
 Operating Results for the three months ended
September 30, 2019
(In thousands)PNBGFSCAll OtherTotal
Net interest income (expense)$76,180 $1,244 $(323)$77,101 
Provision for (recovery of) loan losses2,320 143 (496)1,967 
Other income24,842 59 3,235 28,136 
Other expense60,943 902 3,893 65,738 
Income (loss) before income taxes$37,759 $258 $(485)$37,532 
Income tax expense (benefit)6,811 55 (480)6,386 
Net income (loss)$30,948 $203 $(5)$31,146 
Assets (at September 30, 2019)$8,673,919 $27,481 $22,210 $8,723,610 
 Operating Results for the three months ended September 30, 2020
(In thousands)PNBAll OtherTotal
Net interest income$83,795 $45 $83,840 
Provision for (recovery of) loan losses13,839 (3)13,836 
Other income35,430 1,128 36,558 
Other expense65,590 4,269 69,859 
Income (loss) before income taxes$39,796 $(3,093)$36,703 
Income tax expense (benefit)6,908 (1,051)5,857 
Net income (loss)$32,888 $(2,042)$30,846 
Assets (at September 30, 2020)$9,195,911 $44,095 $9,240,006 

 Operating Results for the nine months ended
September 30, 2020
(In thousands)PNBGFSCAll OtherTotal
Net interest income (expense)$238,900 $3,070 $(661)$241,309 
Provision for (recovery of) loan losses32,256 338 (1,381)31,213 
Other income (loss)89,920 154 (66)90,008 
Other expense187,661 1,915 11,358 200,934 
Income (loss) before income taxes$108,903 $971 $(10,704)$99,170 
Income tax expense (benefit)19,357 204 (3,114)16,447 
Net income (loss)$89,546 $767 $(7,590)$82,723 
Operating Results for the nine months ended
September 30, 2019		 Operating Results for the nine months ended September 30, 2021
(In thousands)(In thousands)PNBGFSCAll OtherTotal(In thousands)PNBAll OtherTotal
Net interest income (expense)Net interest income (expense)$217,355 $3,786 $(413)$220,728 Net interest income (expense)$247,596 $(1,409)$246,187 
Provision for (recovery of) loan losses6,563 458 (637)6,384 
Recovery of credit lossesRecovery of credit losses(3,670)(3,253)(6,923)
Other incomeOther income68,224 142 4,603 72,969 Other income95,258 2,480 97,738 
Other expenseOther expense172,931 2,638 17,188 192,757 Other expense195,361 12,393 207,754 
Income (loss) before income taxesIncome (loss) before income taxes$106,085 $832 $(12,361)$94,556 Income (loss) before income taxes$151,163 $(8,069)$143,094 
Income tax expense (benefit)Income tax expense (benefit)19,063 179 (3,450)15,792 Income tax expense (benefit)28,694 (2,997)25,697 
Net income (loss)Net income (loss)$87,022 $653 $(8,911)$78,764 Net income (loss)$122,469 $(5,072)$117,397 

 Operating Results for the nine months ended September 30, 2020
(In thousands)PNBAll OtherTotal
Net interest income$238,900 $2,409 $241,309 
Provision for (recovery of) loan losses32,256 (1,043)31,213 
Other income89,920 88 90,008 
Other expense187,661 13,273 200,934 
Income (loss) before income taxes$108,903 $(9,733)$99,170 
Income tax expense (benefit)19,357 (2,910)16,447 
Net income (loss)$89,546 $(6,823)$82,723 
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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 nine-month periods ended September 30, 20202021 and 2019.2020. The reconciling amounts for consolidated total assets for the periods ended September 30, 20202021 and 20192020 consisted of the elimination of intersegment borrowings and the assets of the Parent Company, GFSC and SEPH which were not eliminated.

Note 1918 - Share-Based Compensation

The Park National Corporation 2013 Long-Term Incentive Plan (the "2013 Incentive Plan") was adopted by the Board of Directors of Park on January 28, 2013 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 22, 2013. The 2013 Incentive Plan made equity-based awards and cash-based awards available for grant to participants (who could have been employees or non-employee directors) in the form of incentive stock options, nonqualified stock options, SARs, restricted common shares (“Restricted Stock”), restricted stock unit awards that may be settled in common shares, cash or a combination of the two (“Restricted Stock Units”), unrestricted common shares (“Other Stock-Based Awards”) and cash-based awards. Under the 2013 Incentive Plan, 600,000 common shares were authorized to be delivered in connection with grants under the 2013 Incentive Plan. The common shares to be delivered under the 2013 Incentive Plan arewere 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. As of September 30, 2020,2021, there were 18,695no common shares subject to PBRSUs issued under the 2013 Incentive Plan which represented the only awards outstanding under the 2013 Incentive Plan.outstanding.

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, SARs, Restricted Stock, Restricted Stock Units, Other Stock-Based Awards and cash-based awards. Under the 2017 Employees LTIP, 750,000 common shares are authorized to be delivered in connection with grants under the 2017 Employees LTIP. The common shares to be delivered under the 2017 Employees LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At September 30, 2020, 537,7352021, 463,110 common shares were available for future grants under the 2017 Employees LTIP.

The Park National Corporation 2017 Long-Term Incentive Plan for Non-Employee Directors (the "2017 Non-Employee Directors LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. The 2017 Non-Employee Directors LTIP makes equity-based awards and cash-based awards available for grant to non-employee director participants in the form of nonqualified stock options, SARs, Restricted Stock, Restricted Stock Units, Other Stock-Based Awards, and cash-based awards. Under the 2017 Non-Employee Directors LTIP, 150,000 common shares are authorized to be delivered in connection with grants under the 2017 Non-Employee Directors LTIP. The common shares to be delivered under the 2017 Non-Employee Directors LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At September 30, 2020, 113,7002021, 100,250 common shares were available for future grants under the 2017 Non-Employee Directors LTIP.

The 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP have replaced the provisions of the 2013 Incentive Plan with respect to the grant of future awards. As a result of the approval of the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP, Park has not granted and will not grant any additional awards under the 2013 Incentive Plan after April 24, 2017. Awards made under the 2013 Incentive Plan prior to April 24, 2017 will remain in effect in accordance with their respective terms.have vested or have expired.

No awards were granted during the three months ended September 30, 2020 and 2019. During the nine months ended September 30, 2021 and 2020, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 61,890 and 62,265 common shares, respectively, to certain employees of Park and its subsidiaries. DuringNo awards were granted during either of the ninethree months ended September 30, 2019, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 58,740 common shares to certain employees of Park and its subsidiaries and granted awards of TBRSU, under the 2017 Employees LTIP, covering an aggregate of 15,700 shares to Carolina Alliance Bank Division employees.2021 or 2020.

As of September 30, 2020,2021, Park has nonvested PBRSUs as well as TBRSUs. 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 and are also subject to subsequent service-based vesting. The number of TBRSUs earned or settled arewill be subject to service-based vesting.

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A summary of changes in the common shares subject to nonvested PBRSUs and TBRSUs for the nine months ended September 30, 20202021 follows:

Common shares subject to PBRSUs and TBRSUs
Nonvested at January 1, 20202021194,722204,108 
Granted62,26561,890 
Vested(44,379)(48,106)
Forfeited(3,101)(1,458)
Adjustment for performance conditions of PBRSUs (1)
(5,399)(2,551)
Nonvested at September 30, 20202021 (2)
204,108213,883 

(1) The number of PBRSUs earned depends on the level of achievement with respect to certain performance criteria. Adjustment herein 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 and TBRSUs. As of September 30, 2020,2021, an aggregate of 174,087197,311 PBRSUs and TBRSUs are expected to vest.

DuringA summary of awards vested during the three months and nine months ended September 30, 2021 and 2020 an aggregate of 6,205 of the TBRSUs granted in 2018 vested in full due to the satisfaction of the service-based vesting requirement. A total of 1,860 common shares were withheld to satisfy employee income tax obligations. This resulted in a net number of 4,345 common shares being issued to employees of Park. During the three months ended June 30, 2020, an aggregate of 1,500 of the TBRSUs granted in 2019 vested in full due to the satisfaction of the service-based vesting requirement. A total of 530 common shares were withheld to satisfy employee income tax withholding obligations. This resulted in a net number of 970 common shares being issued to employees of Park. During the three months ended March 31, 2020, an aggregate of 36,674 of the PBRSUs granted in 2016 and 2017 vestedfollows:

in full due to the level of achievement with respect to certain performance criteria and the satisfaction of the service-based vesting requirement. A total of 11,646 common shares were withheld to satisfy employee income tax withholding obligations. This resulted in a net number of 25,028 common shares being issued to employees of Park. During the three months ended March 31, 2019, 27,719 of the PBRSUs granted in 2015 and 2016 vestedin full due to the level of achievement with respect to certain performance criteria and the satisfaction of the service-based vesting requirement. A total of 8,736 common shares were withheld to satisfy employee income tax withholding obligations. This resulted in a net number of 18,983 common shares being issued to employees of Park.
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
PBRSU and TBRSU vested4,4276,205 48,10644,379
Common shares withheld to satisfy employee income tax withholding obligations1,3481,860 18,42914,036
Net common shares issued3,079 4,345 29,677 30,343 

Share-based compensation expense of $1.2 million was recognized for each of the three-month periods ended September 30, 20202021 and 2019, respectively,2020, and share-based compensation expense of $3.7$4.5 million and $3.8$3.7 million was recognized for the nine-month periods ended September 30, 20202021 and 2019,2020, respectively.

The following table details expected additional share-based compensation expense related to PBRSUs and TBRSUs outstanding at September 30, 2020:2021:

(In thousands)
Three months ending December 31, 2020$1,198 
20213,644 
20222,401 
2023997 
2024161 
Total$8,401 

(In thousands)
Three months ending December 31, 2021$1,204 
20223,971 
20232,563 
20241,059 
2025169 
Total$8,966 

Note 2019 – 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 0no Pension Plan contributions for eitherany of the three-month or nine-month periods ended September 30, 20202021 and 2019.2020.
 
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The following table shows the components of net periodic pension benefit expense:

Three Months Ended
September 30,		Nine Months Ended
September 30,		Affected Line Item in the Consolidated
Condensed Statements of Income		Three Months Ended
September 30,		Nine Months Ended
September 30,		Affected Line Item in the Consolidated
Condensed Statements of Income
(In thousands)(In thousands)2020201920202019(In thousands)2021202020212020
Service costService cost$2,080 $1,468 $6,240 $4,404 Employee benefitsService cost$2,479 $2,080 $7,437 $6,240 Employee benefits
Interest costInterest cost1,320 1,373 3,960 4,119 Other components of net
periodic pension benefit income		Interest cost1,340 1,320 4,020 3,960 Other components of net
periodic pension benefit income
Expected return on plan assetsExpected return on plan assets(3,602)(3,026)(10,806)(9,078)Other components of net
periodic pension benefit income		Expected return on plan assets(3,933)(3,602)(11,799)(10,806)Other components of net
periodic pension benefit income
Recognized net actuarial loss and prior service costsRecognized net actuarial loss and prior service costs294 470 882 1,410 Other components of net
periodic pension benefit income		Recognized net actuarial loss and prior service costs555 294 1,665 882 Other components of net
periodic pension benefit income
Net periodic pension benefit expenseNet periodic pension benefit expense$92 $285 $276 $855 Net periodic pension benefit expense$441 $92 $1,323 $276 

Park has entered into Supplemental Executive Retirement Plan Agreements (the “SERP Agreements”) with certain key officers of the Corporation and its subsidiaries which provide defined pension benefits in excess of limits imposed by federal tax law. The expense for the Corporation related to the SERP Agreements for the three months and nine months ended September 30, 20202021 and 20192020 was as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,		Affected Line Item in the Consolidated
Condensed Statement of Income
(In thousands)2020201920202019
Service cost$218 $202 $801 $604 Employee benefits
Interest cost134 165 401 495 Miscellaneous expense
Total SERP expense$352 $367 $1,202 $1,099 

Three Months Ended
September 30,		Nine Months Ended
September 30,		Affected Line Item in the Consolidated
Condensed Statements of Income
(In thousands)2021202020212020
Service cost$203 $218 $611 $801 Employee benefits
Interest cost150 134 448 401 Miscellaneous expense
Total SERP expense$353 $352 $1,059 $1,202 

Note 2120 – 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 impairedindividually evaluated collateral dependent loans is typically based on the fair value of the underlying collateral, which is estimated through third-party appraisals in accordance with Park's valuation requirements under its commercial and real estate loan policies.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis:
 
The following table presents assets and liabilities measured at fair value on a recurring basis:
Fair Value Measurements at September 30, 2021 using:
(In thousands)Level 1Level 2Level 3Balance at September 30, 2021
Assets    
Investment securities:    
Obligations of states and political subdivisions$— $299,094 $— $299,094 
U.S. Government sponsored entities’ asset-backed securities— 857,149 — 857,149 
Collateralized loan obligations387,682 — — 387,682 
Corporate debt securities— 9,293 — 9,293 
Equity securities1,579 — 491 2,070 
Mortgage loans held for sale— 8,944 — 8,944 
Mortgage IRLCs— 404 — 404 
Loan interest rate swaps— 2,258 — 2,258 
Liabilities    
Fair value swap$— $— $226 $226 
Borrowing interest rate swap— 436 — 436 
Loan interest rate swaps— 2,258 — 2,258 
Fair Value Measurements at September 30, 2020 using:
(In thousands)Level 1Level 2Level 3Balance at September 30, 2020
Assets    
Investment securities:    
Obligations of states and political subdivisions— 304,506 304,506 
U.S. Government sponsored entities’ asset-backed securities— 726,297 — 726,297 
Corporate debt securities— 2,011 0 2,011 
Equity securities1,558 — 484 2,042 
Mortgage loans held for sale— 48,265 — 48,265 
Mortgage IRLCs— 2,878 — 2,878 
Loan interest rate swaps— 4,503 — 4,503 
Liabilities    
Fair value swap$— $— $226 $226 
Borrowing interest rate swap— 1,026 — 1,026 
Loan interest rate swaps— 4,503 — 4,503 
Fair Value Measurements at December 31, 2019 using:
(In thousands)Level 1Level 2Level 3Balance at December 31, 2019
Assets    
Investment securities:    
Obligations of states and political subdivisions$— $320,491 $— $320,491 
U.S. Government sponsored entities’ asset-backed securities— 889,210 — 889,210 
Equity securities1,537 — 456 1,993 
Mortgage loans held for sale— 12,278 — 12,278 
Mortgage IRLCs— 221 — 221 
Loan interest rate swaps— 1,870 — 1,870 
Liabilities    
Fair value swap$— $— $226 $226 
Borrowing interest rate swap— 575 — 575 
Loan interest rate swaps— 1,870 — 1,870 
Fair Value Measurements at December 31, 2020 using:
(In thousands)Level 1Level 2Level 3Balance at December 31, 2020
Assets    
Investment securities:    
Obligations of states and political subdivisions$— $305,218 $— $305,218 
U.S. Government sponsored entities’ asset-backed securities— 752,109 — 752,109 
Corporate debt securities— 2,014 — 2,014 
Equity securities2,026 — 485 2,511 
Mortgage loans held for sale— 31,666 — 31,666 
Mortgage IRLCs— 1,545 — 1,545 
Loan interest rate swaps— 3,934 — 3,934 
Liabilities    
Fair value swap$— $— $226 $226 
Borrowing interest rate swap— 885 — 885 
Loan interest rate swaps— 3,934 — 3,934 
 
The following methods and assumptions were used by the Company in determining the fair value of the financial assets and 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).
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For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows (Level 3).
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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.

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 tables below present a reconciliation of the beginning and ending balances of the Level 3 inputs for the three monthsthree-month and nine monthsnine-month periods ended September 30, 20202021 and 2019,2020, for financial instruments measured on a recurring basis and classified as Level 3:

Level 3 Fair Value Measurements
Three months ended September 30, 2020 and 2019
Level 3 Fair Value MeasurementsLevel 3 Fair Value Measurements
Three months ended September 30, 2021 and 2020Three months ended September 30, 2021 and 2020
(In thousands)(In thousands)Equity
Securities		Fair value
swap		(In thousands)Equity
Securities		Fair value
swap
Balance at July 1, 2021Balance at July 1, 2021$490 $(226)
Total gainsTotal gains  
Included in other incomeIncluded in other income1 — 
Balance at September 30, 2021Balance at September 30, 2021$491 $(226)
Balance at July 1, 2020Balance at July 1, 2020$471 $(226)Balance at July 1, 2020$471 $(226)
Total gainsTotal gains  Total gains  
Included in other incomeIncluded in other income13 — Included in other income13 — 
Balance at September 30, 2020Balance at September 30, 2020$484 $(226)Balance at September 30, 2020$484 $(226)
Balance at July 1, 2019$433 $(226)
Total gains  
Included in other income5 0 
Balance at September 30, 2019$438 $(226)

Level 3 Fair Value Measurements
Nine months ended September 30, 2020 and 2019

Level 3 Fair Value MeasurementsLevel 3 Fair Value Measurements
Nine months ended September 30, 2021 and 2020Nine months ended September 30, 2021 and 2020
(In thousands)(In thousands)Equity
Securities		Fair value
swap		(In thousands)Equity
Securities		Fair value
swap
Balance at January 1, 2021Balance at January 1, 2021$485 $(226)
Total gainsTotal gains  
Included in other incomeIncluded in other income6 — 
Balance at September 30, 2021Balance at September 30, 2021$491 $(226)
Balance at January 1, 2020Balance at January 1, 2020$456 $(226)Balance at January 1, 2020$456 $(226)
Total gainsTotal gains  Total gains  
Included in other incomeIncluded in other income28 — Included in other income28 — 
Balance at September 30, 2020Balance at September 30, 2020$484 $(226)Balance at September 30, 2020$484 $(226)
Balance at January 1, 2019$424 $(226)
Total gains  
Included in other income14 0 
Balance at September 30, 2019$438 $(226)

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:

Impaired Loans: At the timeWhen a loan is considered impaired, it is valued at the lower of cost or fair value. Collateral dependent impaired loans carried at fair value have been partially charged-off or receive specific allocations of the allowance for loancredit 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.
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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
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Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Additionally, updated independent valuations are obtained annually for all impaired loans in accordance with Company policy.

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

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

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

Other repossessed assets: Other repossessed assets are initially recorded at fair value less costs to sell when acquired. The carrying value of other repossessed assets 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. As of September 30, 20202021 and December 31, 2019,2020, other repossessed assets primarily consisted of aircraft acquired as part of a loan workout. Fair value is based on Aircraft Bluebook and VREF Aircraft Value Reference values based on the model of aircraft and adjustments for flight hours, features and other variables. Such adjustments result in a Level 3 classification of the inputs for determining fair value.

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.
 
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The following tables present assets and liabilities measured at fair value on a nonrecurring basis. Collateral dependent impaired 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. As of September 30, 2021 and December 31, 2020, there were no PCIPCD loans carried at fair value. A new cost basis is established at the time a property is initially recorded in OREO. OREO properties are carried at fair value if a devaluation has been taken with respect to the property's value subsequent to the initial measurement.

Fair Value Measurements at September 30, 2020 using:
Fair Value Measurements at September 30, 2021 using:Fair Value Measurements at September 30, 2021 using:
(In thousands)(In thousands)Level 1Level 2Level 3Balance at September 30, 2020(In thousands)Level 1Level 2Level 3Balance at September 30, 2021
Impaired loans recorded at fair value:Impaired loans recorded at fair value:    Impaired loans recorded at fair value:    
Commercial real estateCommercial real estate$— $— $16,054 $16,054 Commercial real estate$— $— $571 $571 
Residential real estateResidential real estate— — 172 172 Residential real estate— — 277 277 
Total impaired loans recorded at fair valueTotal impaired loans recorded at fair value$— $— $16,226 $16,226 Total impaired loans recorded at fair value$— $— $848 $848 
MSRsMSRs$— $11,029 $— $11,029 MSRs$— $14,286 $— $14,286 
OREO recorded at fair value:OREO recorded at fair value:OREO recorded at fair value:
Residential real estateResidential real estate— — 767 767 Residential real estate— — 735 735 
Total OREO recorded at fair valueTotal OREO recorded at fair value$— $— $767 $767 Total OREO recorded at fair value$— $— $735 $735 
Other repossessed assetsOther repossessed assets$— $— $3,392 $3,392 Other repossessed assets$— $— $3,164 $3,164 
Fair Value Measurements at December 31, 2019 using:
(In thousands)Level 1Level 2Level 3Balance at December 31, 2019
Impaired loans recorded at fair value:    
Commercial real estate$— $— $1,873 $1,873 
Residential real estate— — 217 217 
Total impaired loans recorded at fair value$— $— $2,090 $2,090 
MSRs$— $5,797 $— $5,797 
OREO recorded at fair value:
Commercial real estate— — 2,295 2,295 
Residential real estate— — 738 738 
Total OREO recorded at fair value$— $— $3,033 $3,033 
Other repossessed assets$— $— $3,599 $3,599 
Fair Value Measurements at December 31, 2020 using:
(In thousands)Level 1Level 2Level 3Balance at December 31, 2020
Impaired loans recorded at fair value:    
Commercial real estate$— $— $6,749 $6,749 
Residential real estate— — 175 175 
Total impaired loans recorded at fair value$— $— $6,924 $6,924 
MSRs$— $12,179 $— $12,179 
OREO recorded at fair value:
Residential real estate— — 735 735 
Total OREO recorded at fair value$— $— $735 $735 
Other repossessed assets$— $— $3,164 $3,164 

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The table below provides additional detail on those impaired loans which are recorded at fair value as well as the remaining impaired loan portfolio not included above. The remaining impaired loans consist of 1) loans which are not collateral dependent, as well as2) loans which are not secured by real estate, and 3) loans carried at cost as the fair value of the underlying collateral or the present value of expected future cash flows on each of the loans exceeded the book value for each respective credit.

September 30, 2020September 30, 2021
(In thousands)(In thousands)Recorded InvestmentPrior Charge-OffsSpecific Valuation AllowanceCarrying Balance(In thousands)Loan BalancePrior Charge-OffsSpecific Valuation AllowanceCarrying Balance
Impaired loans recorded at fair valueImpaired loans recorded at fair value$19,395 $247 $3,169 $16,226 Impaired loans recorded at fair value$1,028 $240 $180 $848 
Remaining impaired loansRemaining impaired loans96,785 316 5,497 91,288 Remaining impaired loans78,236 448 3,286 74,950 
Total impaired loansTotal impaired loans$116,180 $563 $8,666 $107,514 Total impaired loans$79,264 $688 $3,466 $75,798 

December 31, 2019December 31, 2020
(In thousands)(In thousands)Recorded InvestmentPrior Charge-OffsSpecific Valuation AllowanceCarrying Balance(In thousands)Recorded InvestmentPrior Charge-OffsSpecific Valuation AllowanceCarrying Balance
Impaired loans recorded at fair valueImpaired loans recorded at fair value$2,167 $313 $77 $2,090 Impaired loans recorded at fair value$8,256 $269 $1,332 $6,924 
Remaining impaired loansRemaining impaired loans75,324 406 5,153 70,171 Remaining impaired loans100,199 386 4,102 96,097 
Total impaired loansTotal impaired loans$77,491 $719 $5,230 $72,261 Total impaired loans$108,455 $655 $5,434 $103,021 

The expense(expense) income from credit adjustments related to impaired loans carried at fair value was $3.1$(83,000) and $(3.1) million and $135,000 for the three-month periods ended September 30, 20202021 and 2019,2020, respectively, and was $3.5$462,000 and $(3.5) million and $174,000 for the nine-month periods ended September 30, 20202021 and 2019,2020, respectively.

MSRs totaled $11.0$14.6 million at September 30, 2020.2021. Of this $11.0$14.6 million MSR carrying balance, $11.0$14.3 million was recorded at fair value and included a valuation allowance of $2.8$2.2 million. The remaining $11,000$0.3 million was recorded at cost, as the fair value exceeded cost at September 30, 2020.2021. At December 31, 2019,2020, MSRs totaled $10.1$12.2 million. Of this $10.1$12.2 million MSR carrying balance, $5.8$12.2 million was recorded at fair value and included a valuation allowance of $825,000.$3.2 million. The remaining $4.3 million$31,000 was recorded at cost, as the fair value exceeded cost at December 31, 2019.2020. The expense(expense) income related to MSRs carried at fair value during the three months ended September 30, 2021 and 2020 was $(39,000) and 2019 was $198,000 and $332,000,$(198,000), respectively, and was $2.0$1.0 million and $421,000$(2.0) million for the nine months ended September 30, 20202021 and 2019,2020, respectively.

Total OREO held by Park at September 30, 20202021 and December 31, 20192020 was $836,000$0.8 million and $4.0$1.4 million, respectively. Approximately 92%90% and 75%51% of OREO held by Park at September 30, 20202021 and December 31, 2019,2020, respectively, was carried at fair value due to fair value adjustments made subsequent to the initial OREO measurement. At both September 30, 20202021 and December 31, 2019,2020, OREO held at fair value, less estimated selling costs, amounted to $767,000 and $3.0 million, respectively.$735,000. There was no expense related to OREO fair value adjustments for either of the three-month or nine-month periods ended September 30, 2021. The net income (expense) related to OREO fair value adjustments was $115,000 and $(41,000)$80,000 for the three-month periods ended September 30, 2020 and 2019, respectively, and was $80,000 and $(123,000) for the nine-month periods ended September 30, 2020, and 2019, respectively.respectively

Other repossessed assets totaled $3.6 million at September 30, 2020,2021, of which $3.4$3.2 million waswere recorded at fair value. Other repossessed assets totaled $4.2$3.6 million at December 31, 2019,2020, of which $3.6$3.2 million waswere recorded at fair value. Expense related to fair value adjustments on other repossessed assets for each of the three-month periods and nine-month periods ended September 30, 2020 was $207,000. There was 0no expense related to fair value adjustments on other repossessed assets forduring either of the three-month periods or nine-month periods ended September 30, 2019.2021. There was $207,000 of expense related to fair value adjustments on other repossessed assets during the three-month and nine month periods ended September 30, 2020.

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The following tables present qualitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at September 30, 20202021 and December 31, 2019:2020:

September 30, 20202021
(In thousands)Fair ValueValuation TechniqueUnobservable Input(s)
Range

(Weighted Average)(1)
Impaired loans:    
Commercial real estate$16,054571 Sales comparison approachAdj to comparables0.0% - 139.0% (20.6%)
Income approachCapitalization rate9.0% - 20.0% (9.6%232.0% (25.9%)
Residential real estate$172277 Sales comparison approachAdj to comparables2.7%0.5% - 47.8% (10.6%64.3% (9.5%)
Cost approachAccumulated depreciation8.3% (8.3%)
Other real estate owned:
Residential real estate$767735 Sales comparison approachAdj to comparables7.6%5.0% - 11.2% (8.9%32.5% (19.1%)

Balance at December 31, 20192020
(In thousands)Fair ValueValuation TechniqueUnobservable Input(s)
Range

(Weighted Average)(1)
Impaired loans:    
Commercial real estate$1,8736,749 Sales comparison approachAdj to comparables0.0% - 56.0% (26.5%139.0% (11.8%)
Income approachCapitalization rate9.3% - 20.0% (10.3%)
Cost approachEntrepreneurial profit10.0% (10.0%)
Cost approachAccumulated depreciation93.1% (93.1%2.6% (2.6%)
Residential real estate$217175 Sales comparison approachAdj to comparables0.0%2.0% - 53.5% (10.8%47.8% (11.9%)
Other real estate owned:
Commercial real estate$2,295 Sales comparison approachAdj to comparables0.9% - 68.4% (34.7%)
Income approachCapitalization rate13.0% (13.0%)
Residential real estate$738735 Sales comparison approachAdj to comparables4.6%7.8% - 54.6% (39.2%9.9% (8.9%)

(1) Unobservable inputs were weighted by the relative fair value of the instruments.

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Assets Measured at Net Asset Value:

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.

At September 30, 20202021 and December 31, 2019,2020, Park had Partnership Investments with a NAV of $14.0$15.6 million and $11.9$15.4 million, respectively. At September 30, 20202021 and December 31, 2019,2020, Park had $7.0$5.7 million and $8.5$6.2 million, respectively, in unfunded commitments related to these Partnership Investments. For the three-month periods ended September 30, 20202021 and 2019,2020, Park recognized income of $1.3 million$513,000 and $3.3$1.3 million, respectively, and for the nine-month periods ended September 30, 20202021 and 2019,2020, Park recognized a lossincome (expense) of $41,000$2.4 million and income of $5.1 million,$(41,000), respectively, related to these Partnership Investments.

The fair value of certain financial instruments at September 30, 20202021 and December 31, 2019,2020, was as follows:

September 30, 2020
  Fair Value Measurements
(In thousands)Carrying valueLevel 1Level 2Level 3Total fair value
Financial assets:
Cash and money market instruments$246,709 $246,709 $— $— $246,709 
Investment securities (1)
1,032,814 — 1,032,814 — 1,032,814 
Other investment securities (2)
2,042 1,558 — 484 2,042 
Loans held for sale48,265 — 48,265 — 48,265 
Mortgage IRLCs2,878 0 2,878 0 2,878 
Impaired loans carried at fair value16,226 — — 16,226 16,226 
Other loans, net7,124,139 — — 7,168,180 7,168,180 
Loans receivable, net$7,191,508 $— $51,143 $7,184,406 $7,235,549 
Financial liabilities:     
Time deposits$931,201 $— $938,492 $— $938,492 
Other5,374 5,374 — — 5,374 
Deposits (excluding demand deposits)$936,575 $5,374 $938,492 $— $943,866 
Short-term borrowings$320,435 $— $320,435 $— $320,435 
Long-term debt135,000 — 142,849 — 142,849 
Subordinated notes187,668 — 180,209 — 180,209 
Derivative financial instruments - assets:
Loan interest rate swaps$4,503 $0 $4,503 $0 $4,503 
Derivative financial instruments - liabilities:     
Fair value swap$226 $— $— $226 $226 
Borrowing interest rate swap1,026 — 1,026 — 1,026 
Loan interest rate swaps4,503 — 4,503 — 4,503 

September 30, 2021
  Fair Value Measurements
(In thousands)Carrying valueLevel 1Level 2Level 3Total fair value
Financial assets:
Cash and money market instruments$877,395 $877,395 $— $— $877,395 
Investment securities (1)
1,553,218 387,682 1,165,536 — 1,553,218 
Other investment securities (2)
2,070 1,579 — 491 2,070 
Mortgage loans held for sale8,944 — 8,944 — 8,944 
Mortgage IRLCs404 — 404 — 404 
Impaired loans carried at fair value848 — — 848 848 
Other loans, net6,810,092 — — 6,834,592 6,834,592 
Loans receivable, net$6,820,288 $— $9,348 $6,835,440 $6,844,788 
Financial liabilities:     
Time deposits$725,203 $— $749,710 $— $749,710 
Other5,389 5,389 — — 5,389 
Deposits (excluding demand deposits)$730,592 $5,389 $749,710 $— $755,099 
Short-term borrowings$235,979 $— $235,979 $— $235,979 
Subordinated notes188,099 — 197,119 — 197,119 
Derivative financial instruments - assets:
Loan interest rate swaps2,258 — 2,258 — 2,258 
Derivative financial instruments - liabilities:     
Fair value swap226 — — 226 226 
Borrowing interest rate swap436 — 436 — 436 
Loan interest rate swaps2,258 — 2,258 — 2,258 
(1) Includes AFS debt securities.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, 2019
  Fair Value Measurements
(In thousands)Carrying valueLevel 1Level 2Level 3Total fair value
Financial assets:
Cash and money market instruments$159,956 $159,956 $— $— $159,956 
Investment securities (1)
1,209,701 — 1,209,701 — 1,209,701 
Other investment securities (2)
1,993 1,537 — 456 1,993 
Loans held for sale12,278 — 12,278 — 12,278 
Mortgage IRLCs221 0 221 0 221 
Impaired loans carried at fair value2,090 — — 2,090 2,090 
Other loans, net6,430,136 — — 6,426,869 6,426,869 
Loans receivable, net$6,444,725 $— $12,499 $6,428,959 $6,441,458 
Financial liabilities:     
Time deposits$1,139,131 $— $1,145,537 — $1,145,537 
Other1,273 1,273 — — 1,273 
Deposits (excluding demand deposits)$1,140,404 $1,273 $1,145,537 $— $1,146,810 
Short-term borrowings$230,657 $— $230,657 $— $230,657 
Long-term debt192,500 — 200,726 — 200,726 
Subordinated notes15,000 — 14,372 — 14,372 
Derivative financial instruments - assets:     
Loan interest rate swaps1,870 0 1,870 0 1,870 
Derivative financial instruments - liabilities:
Fair value swap$226 $— $— $226 $226 
Borrowing interest rate swap575 — 575 — 575 
Loan interest rate swaps1,870 — 1,870 — 1,870 

December 31, 2020
  Fair Value Measurements
(In thousands)Carrying valueLevel 1Level 2Level 3Total fair value
Financial assets:
Cash and money market instruments$370,474 $370,474 $— $— $370,474 
Investment securities (1)
1,059,341 — 1,059,341 — 1,059,341 
Other investment securities (2)
2,511 2,026 — 485 2,511 
Mortgage loans held for sale31,666 — 31,666 — 31,666 
Mortgage IRLCs1,545 — 1,545 — 1,545 
Impaired loans carried at fair value6,924 — — 6,924 6,924 
Other loans, net7,051,975 — — 7,072,339 7,072,339 
Loans receivable, net$7,092,110 $— $33,211 $7,079,263 $7,112,474 
Financial liabilities:     
Time deposits$864,573 $— $870,804 — $870,804 
Other1,379 1,379 — — 1,379 
Deposits (excluding demand deposits)$865,952 $1,379 $870,804 $— $872,183 
Short-term borrowings$342,230 $— $342,230 $— $342,230 
Long-term debt32,500 — 31,376 — 31,376 
Subordinated notes187,774 — 179,147 — 179,147 
Derivative financial instruments - assets:     
Loan interest rate swaps3,934 — 3,934 — 3,934 
Derivative financial instruments - liabilities:
Fair value swap$226 $— $— $226 $226 
Borrowing interest rate swap885 — 885 — 885 
Loan interest rate swaps3,934 — 3,934 — 3,934 
(1) Includes AFS debt securities and HTM 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 2221 - 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 nine-month periods ended September 30, 20202021 and September 30, 2019.2020.

Three Months Ended
September 30, 2020		Three Months Ended
September 30, 2021
Revenue by Operating Segment (in thousands)Revenue by Operating Segment (in thousands)PNBGFSCAll OtherTotalRevenue by Operating Segment (in thousands)PNBAll OtherTotal
Income from fiduciary activitiesIncome from fiduciary activitiesIncome from fiduciary activities
Personal trust and agency accounts Personal trust and agency accounts$2,290 $0 $0 $2,290  Personal trust and agency accounts$2,637 $— $2,637 
Employee benefit and retirement-related accounts Employee benefit and retirement-related accounts1,967 0 0 1,967  Employee benefit and retirement-related accounts2,506 — 2,506 
Investment management and investment advisory agency accounts Investment management and investment advisory agency accounts2,695 0 0 2,695  Investment management and investment advisory agency accounts3,220 — 3,220 
Other Other383 0 0 383  Other457 — 457 
Service charges on deposit accountsService charges on deposit accountsService charges on deposit accounts
Non-sufficient funds (NSF) fees Non-sufficient funds (NSF) fees1,201 0 0 1,201  Non-sufficient funds (NSF) fees1,498 — 1,498 
Demand deposit account (DDA) charges Demand deposit account (DDA) charges787 0 0 787  Demand deposit account (DDA) charges762 — 762 
Other Other130 0 0 130  Other129 — 129 
Other service income (1)
Other service income (1)
Other service income (1)
Credit card Credit card487 1 0 488  Credit card690 2 692 
HELOC HELOC108 0 0 108  HELOC100 — 100 
Installment Installment43 0 0 43  Installment34 — 34 
Real estate Real estate11,806 0 0 11,806  Real estate5,418 — 5,418 
Commercial Commercial567 0 35 602  Commercial281 143 424 
Debit card fee incomeDebit card fee income5,853 0 0 5,853 Debit card fee income6,453 — 6,453 
Bank owned life insurance income (2)
Bank owned life insurance income (2)
1,109 0 83 1,192 
Bank owned life insurance income (2)
1,022 440 1,462 
ATM feesATM fees491 0 0 491 ATM fees622 — 622 
Gain on sale of OREO, netGain on sale of OREO, net198 0 371 569 Gain on sale of OREO, net3 — 3 
Net loss on the sale of investment securities (2)
(27)0 0 (27)
Gain on equity securities, net (2)
Gain on equity securities, net (2)
739 0 462 1,201 
Gain on equity securities, net (2)
429 180 609 
Other components of net periodic pension benefit income (2)
Other components of net periodic pension benefit income (2)
1,940 24 24 1,988 
Other components of net periodic pension benefit income (2)
1,987 51 2,038 
Miscellaneous (3)
Miscellaneous (3)
2,663 35 93 2,791 
Miscellaneous (3)
3,084 263 3,347 
Total other incomeTotal other income$35,430 $60 $1,068 $36,558 Total other income$31,332 $1,079 $32,411 

(1) Of the $6.7 million of aggregate revenue included within "Other service income", approximately $1.3 million is within the scope of ASC 606, with the remaining $5.4 million consisting primarily of certain residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $3.3 million, all of which are within scope of ASC 606.
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Three Months Ended
September 30, 2020
Revenue by Operating Segment (in thousands)PNBAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$2,290 $— $2,290 
   Employee benefit and retirement-related accounts1,967 — 1,967 
   Investment management and investment advisory agency accounts2,695 — 2,695 
   Other383 — 383 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees1,201 — 1,201 
    Demand deposit account (DDA) charges787 — 787 
    Other130 — 130 
Other service income (1)
    Credit card487 1 488 
    HELOC108 — 108 
    Installment43 — 43 
    Real estate11,806 — 11,806 
    Commercial567 35 602 
Debit card fee income5,853 — 5,853 
Bank owned life insurance income (2)
1,109 83 1,192 
ATM fees491 — 491 
Gain on sale of OREO, net198 371 569 
Net loss on sale of debt securities (2)
(27)— (27)
Gain on equity securities, net (2)
739 462 1,201 
Other components of net periodic pension benefit income (2)
1,940 48 1,988 
Miscellaneous (3)
2,663 128 2,791 
Total other income$35,430 $1,128 $36,558 
(1) Of the $13.0 million of aggregate revenue included within "Other service income", approximately $1.3 million is within the scope of ASC 606, with the remaining $11.7 million consisting primarily of certain residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $2.8 million, all of which are within scope of ASC 606.

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Three Months Ended
September 30, 2019
Revenue by Operating Segment (in thousands)PNBGFSCAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$2,151 $0 $0 $2,151 
   Employee benefit and retirement-related accounts1,753 0 0 1,753 
   Investment management and investment advisory agency accounts2,547 0 0 2,547 
   Other391 0 0 391 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees1,911 0 0 1,911 
    Demand deposit account (DDA) charges784 0 0 784 
    Other169 0 0 169 
Other service income (1)
    Credit card586 1 0 587 
    HELOC71 0 1 72 
    Installment62 0 (88)(26)
    Real estate3,226 0 (1)3,225 
    Commercial262 0 140 402 
Debit card fee income5,313 0 0 5,313 
Bank owned life insurance income (2)
1,021 0 86 1,107 
ATM fees482 0 0 482 
Loss on sale of OREO, net(53)0 0 (53)
Net gain on the sale of investment securities (2)
186 0 0 186 
Gain on equity securities, net (2)
240 0 3,095 3,335 
Other components of net periodic pension benefit income (2)
1,147 13 23 1,183 
Miscellaneous (3)
2,593 45 (21)2,617 
Total other income$24,842 $59 $3,235 $28,136 

Nine Months Ended
September 30, 2021
Revenue by Operating Segment (in thousands)PNBAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$7,650 $— $7,650 
   Employee benefit and retirement-related accounts7,170 — 7,170 
   Investment management and investment advisory agency accounts9,345 — 9,345 
   Other1,397 — 1,397 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees3,776 — 3,776 
    Demand deposit account (DDA) charges2,325 — 2,325 
    Other374 — 374 
Other service income (1)
    Credit card1,906 2 1,908 
    HELOC288 — 288 
    Installment114 — 114 
    Real estate19,867 — 19,867 
    Commercial1,063 204 1,267 
Debit card fee income19,297 — 19,297 
Bank owned life insurance income (2)
3,169 607 3,776 
ATM fees1,807 — 1,807 
Loss on sale of OREO, net(26)— (26)
Gain on equity securities, net (2)
1,758 1,128 2,886 
Other components of net periodic pension benefit income (2)
5,960 154 6,114 
Miscellaneous (3)
8,018 385 8,403 
Total other income$95,258 $2,480 $97,738 
(1) Of the $4.3$23.4 million of aggregate revenue included within "Other service income", approximately $1.3$3.8 million is within the scope of ASC 606, with the remaining $3.0$19.6 million consisting primarily of certain residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $2.6$8.4 million, all of which are within scope of ASC 606.


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Nine Months Ended
September 30, 2020
Revenue by Operating Segment (in thousands)PNBGFSCAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$6,550 $0 $0 $6,550 
   Employee benefit and retirement-related accounts5,702 0 0 5,702 
   Investment management and investment advisory agency accounts7,852 0 0 7,852 
   Other1,137 0 0 1,137 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees3,644 0 0 3,644 
    Demand deposit account (DDA) charges2,289 0 0 2,289 
    Other389 0 0 389 
Other service income (1)
    Credit card1,544 4 0 1,548 
    HELOC319 0 0 319 
    Installment144 0 0 144 
    Real estate22,228 0 0 22,228 
    Commercial1,245 0 87 1,332 
Debit card fee income16,373 0 0 16,373 
Bank owned life insurance income (2)
3,452 0 167 3,619 
ATM fees1,341 0 0 1,341 
Gain on sale of OREO, net843 0 371 1,214 
Net gain on the sale of investment securities (2)
3,286 0 0 3,286 
Gain (loss) on equity securities, net (2)
113 0 (862)(749)
Other components of net periodic pension benefit income (2)
5,820 71 73 5,964 
Miscellaneous (3)
5,649 79 98 5,826 
Total other income$89,920 $154 $(66)$90,008 

Nine Months Ended
September 30, 2020
Revenue by Operating Segment (in thousands)PNBAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$6,550 $— $6,550 
   Employee benefit and retirement-related accounts5,702 — 5,702 
   Investment management and investment advisory agency accounts7,852 — 7,852 
   Other1,137 — 1,137 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees3,644 — 3,644 
    Demand deposit account (DDA) charges2,289 — 2,289 
    Other389 — 389 
Other service income (1)
    Credit card1,544 4 1,548 
    HELOC319 — 319 
    Installment144 — 144 
    Real estate22,228 — 22,228 
    Commercial1,245 87 1,332 
Debit card fee income16,373 — 16,373 
Bank owned life insurance income (2)
3,452 167 3,619 
ATM fees1,341 — 1,341 
Gain on sale of OREO, net843 371 1,214 
Net gain on sale of debt securities (2)
3,286 — 3,286 
Gain (loss) on equity securities, net (2)
113 (862)(749)
Other components of net periodic pension benefit income (2)
5,820 144 5,964 
Miscellaneous (3)
5,649 177 5,826 
Total other income$89,920 $88 $90,008 
(1) Of the $25.6 million of aggregate revenue included within "Other service income", approximately $3.7 million is within the scope of ASC 606, with the remaining $21.9 million consisting primarily of certain residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $5.8 million, all of which are within scope of ASC 606.



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Nine Months Ended
September 30, 2019
Revenue by Operating Segment (in thousands)PNBGFSCAll OtherTotal
Income from fiduciary activities
   Personal trust and agency accounts$6,757 $0 $0 $6,757 
   Employee benefit and retirement-related accounts5,185 0 0 5,185 
   Investment management and investment advisory agency accounts7,421 0 0 7,421 
   Other1,137 0 0 1,137 
Service charges on deposit accounts
    Non-sufficient funds (NSF) fees5,241 0 0 5,241 
    Demand deposit account (DDA) charges2,336 0 0 2,336 
    Other501 0 0 501 
Other service income (1)
    Credit card1,785 5 0 1,790 
    HELOC282 0 4 286 
    Installment203 0 (83)120 
    Real estate7,890 0 (10)7,880 
    Commercial901 0 141 1,042 
Debit card fee income14,909 0 0 14,909 
Bank owned life insurance income (2)
3,116 0 283 3,399 
ATM fees1,382 0 0 1,382 
Loss on sale of OREO, net(84)0 (140)(224)
Net loss on the sale of investment securities (2)
(421)0 0 (421)
Gain on equity securities, net (2)
972 0 4,337 5,309 
Other components of net periodic pension benefit income (2)
3,440 40 69 3,549 
Miscellaneous (3)
5,271 97 2 5,370 
Total other income$68,224 $142 $4,603 $72,969 

(1) Of the $11.1 million of aggregate revenue included within "Other service income", approximately $4.0 million is within the scope of ASC 606, with the remaining $7.1 million consisting primarily of residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $5.4 million, all of which are 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 its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, 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 its 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.

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Note 23 - Subordinated Debt

On August 20, 2020, Park completed the issuance and sale of $175.0 million aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030. The Subordinated Debt initially bears a fixed interest rate of 4.50% per year, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on March 1, 2021. Commencing on September 1, 2025, the Notes will bear interest at a floating rate per annum equal to the Benchmark rate, which is expected to be Three-Month Term SOFR, plus a spread of 439 basis points for each quarterly interest period during the floating rate period, payable quarterly in arrears; provided, however, that if the Benchmark rate is less than zero, then the Benchmark rate shall be deemed to be zero. The Company may, at its option, beginning with the interest payment date of September 1, 2025 and on any interest payment date thereafter, redeem the Notes, in whole or in part, from time to time, subject to obtaining the prior approval of the holders of the Company’s senior indebtedness and of the Board of Governors of the Federal Reserve System to the extent the approval of the Federal Reserve is then required under the capital adequacy rules of the Federal Reserve, at a redemption price equal to 100% of the principal amount of the Notes being redeemed, plus accrued and unpaid interest thereon to but excluding the date of redemption. The issuance costs of the Subordinated Debt totaled $2.4 million, which is being amortized through the Subordinated Debt call date. The Subordinated Debt, net of unamortized issuance costs, totaled $172.7 million at September 30, 2020, and qualifies as Tier 2 capital for Park under the guidelines by the Federal Reserve Bank.

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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:

•the ever-changing effects of the novel coronavirus (COVID-19) pandemic - - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants thereof - - on economies (local, national and international) and markets, and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social or other activities), the availability and effectiveness of vaccines, and the implementation of fiscal stimulus packages;
•the impact of future governmental and regulatory actions upon our participation in and execution of government programs related to the COVID-19 pandemic;
•Park's ability to execute our business plan successfully and within the expected timeframe as well as our ability to manage strategic initiatives in light of the impact of the COVID-19 pandemic and the various responses to the COVID-19 pandemic;
•general economic and financial market conditions, specifically in the real estate markets and the credit markets, either nationally or in the states in which Park and our subsidiaries do business, may experience a weaker recovery than anticipated, in addition to the continuing impact of the COVID-19 pandemic on our customers’ operations and financial condition, either 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;
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•factors that can impact the performance of our loan portfolio, including 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 and interest rate policies of the Federal Reserve Board) as well as disruption in the liquidity and functioning of U.S. financial markets, as a result of the COVID-19 pandemic and government policies implemented in response thereto, 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 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 results of the 2020 U.S. elections, including on the regulatory landscape, capital markets, tax policy, infrastructure spending and social programs;
•changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic and reactions thereto), legislative and regulatory initiatives (including those undertaken in response to the COVID-19 pandemic), or other factors may be different than anticipated;
•changes in unemployment levels in the states in which Park and our subsidiaries do business may be different than anticipated due to the continuing impact of the COVID-19 pandemic;
•changes in customers', suppliers', and other counterparties' performance and creditworthiness may be different than anticipated due to the continuing impact of and the various responses to the COVID-19 pandemic;
•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 more of our associates working remotely), asset/liability repricing, legal, compliance, strategic, cybersecurity, liquidity, credit and interest rate risks associated with Park's business;
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•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 our 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;
•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, including the extent to which the new current expected credit loss ("CECL") accounting standard issued by the FASB in June 2016 and in accordance with the CARES Act, the adoption of which can be deferred by Park (with retrospective application as of January 1, 2020) until the earlier of: (1) the date on which the national emergency concerning the COVID-19 outbreak terminates; or (2) December 31, 2020, 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, when adopted by Park, which may prove unreliable, inaccurate or not predictive of actual results;
•significant changes in the tax laws, which 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;
•the impact of Park's ability to anticipate and respond to technological changes on Park's ability to respond to customer needs and meet competitive demands;
•operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Park and our subsidiaries are highly dependent;
•the ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks;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 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
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agreements, trade wars and other changes in trade regulations 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 uncertainty surrounding the actions to be taken to implement the referendum by United Kingdom voters to exit the European Union;
•our litigation and regulatory compliance exposure, including the costs and effects of any adverse developments in legal proceedings or other claims and the costs and effects of unfavorable resolution of regulatory and other governmental examinations or other inquiries;
•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 on the economy and financial markets generally and on us or our counterparties specifically;
•any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially affect our business, including our customers' willingness to conduct banking transactions and their ability to pay on existing obligations;
•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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•risk and uncertainties associated with Park's entry into new geographic markets with our recent acquisitions, including expected revenue synergies and cost savings from recent acquisitions not being fully realized or realized within the expected time frame;
•the discontinuation of the LIBORLondon Inter-Bank Offered Rate (LIBOR) and other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;
•and other risk factors relating to the banking industry as detailed from time to time in Park's reports filed with the SEC including those described in "Item 1A. Risk Factors" of Part I of Park's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in "Item 1A. Risk Factors" of Part II of this Quarterly Report on Form 10-Q.2020.

Park does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions that may be made to update any forward-looking statement to reflect the events or circumstances after the date on which the forward-looking statement was made, or reflect the occurrence of unanticipated events, except to the extent required by law.


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Non-GAAP Financial Measures

Item 2 of Part I of of this Quarterly Report on Form 10-QThis 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 loancredit losses (aside from those related to former Vision Bank loan relationships), gains (losses)gain (loss) on equity securities, and asset valuation writedowns, 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 ourPark's performance and trends and allows management to ascertain which of such items, if any, to include or exclude from an analysis of ourPark'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-GAAP Ratios
Park's management uses certain non-GAAP financial measures to evaluate Park's performance. Specifically, management reviews the return on average tangible equity, the return on average tangible assets, the tangible equity to tangible assets ratio and the tangible book value per share.

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 and the annualized return on average tangible assets, for the three months and nine months ended and at September 30, 2021 and September 30, 2020. For purposes of calculating the annualized return on average tangible equity, a non-GAAP financial measure, net income for each period is divided by average tangible equity during the period. Average tangible equity equals average shareholders' equity during the applicable period less average goodwill and other intangible assets during the applicable period. For the purpose of calculating the annualized return on average tangible assets, a non-GAAP financial measure, net income for each period is divided by average tangible assets during the period. Average tangible assets equals average assets during the applicable period less average goodwill and other intangible assets during the applicable period. 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.


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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 and the tangible book value per share presents additional information to the reader of the consolidated financial statements, which, when read in conjunction with the consolidated financial statements prepared in accordance with U.S. GAAP, assists in analyzing Park's operating performance, ensures comparability of operating performance from period to period, and facilitates comparisons with the performance of Park's peer financial holding companies and bank holding companies, while eliminating certain non-operational effects of acquisitions. In the tables included within the "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 and tangible assets to total assets 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 and the tangible book value per share are substitutes for the annualized return on average equity, the annualized return on average assets, the total shareholders' equity to total assets ratio and the book value per share, respectively, as determined in accordance with U.S. GAAP.

FTE (fully taxable equivalent) Ratios
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 statutory corporate income tax rate of 21 percent. In the tables included within the "Net Interest Income""Items Impacting Comparability" section of this MD&A, Park has provided detail of FTE interest income solely for the purpose of complying with SEC Regulation G and not as an indication that FTE interest income, yields and ratios are substitutes for interest income, yields and ratios, as determined in accordance with U.S. GAAP.

Paycheck Protection Program ("PPP") Loans
Through September 30, 2021, Park had originated $543.1$768.5 million in loans as part of the PPP. These loans are not typical of Park's loan portfolio in that they are part of a specific government program to support businesses during the COVID-19 pandemic and are 100% guaranteed by the Small Business Administration ("SBA").SBA. As such, management considers growth in the loan portfolio excluding PPP loans, the total allowance for loancredit losses on originated loans to total originated loans ratio (excluding PPP loans), and general reserve on collectively evaluated loans as a %percentage of total originated loans (excluding acquisitions) less impaired commercialcollectively 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 20192020 Form 10-K, as updated in Note 2 of the Notes to Unaudited Consolidated Condensed Financial Statements in this Quarterly Report on Form 10-Q, 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.

The COVID-19 pandemic has caused significant, unprecedented disruption around the world that has affected daily living and negatively impacted the global economy. The effects of COVID-19 pandemic may meaningfully impact significant estimates such as the allowance for loancredit losses, goodwill, mortgage servicing rights, and pension plan obligations and related expenses.
 
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Park believes the determination of the allowance for loancredit losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for loancredit losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb probable incurredestimated credit losses inover the loan portfolio.life of an asset or an off-balance sheet credit exposure. Management’s determination of the adequacy of the allowance for loancredit 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 loan portfolio andcollectability of current economic conditions.the remaining cash flows over the contractual term of the financial assets. However, this evaluation has subjective components requiring material estimates, including expected default probabilities, the expected loss given default, the amounts and timing of expected future cash flows on impaired loans, and estimated losses based on historical loss experience and currentforecasted economic conditions. All of these factors may be susceptible to significant change. To the extent that actual results differ from management estimates, additional loan loss provisions for credit losses may be required that would adversely impact earnings in future periods. Refer to the “Credit Metrics and Provision for Loan(Recovery of) Credit Losses” section within this MD&A for additional discussion.

OREO, property acquired through foreclosure, is recorded at estimated fair value less anticipated selling costs (net realizable value). If the net realizable value is below the carrying value
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Table of the loan on the date of transfer, the difference is charged to the allowance for loan losses. Subsequent declines in value, OREO devaluations, are reported as adjustments to the carrying amount of OREO and are expensed within other income. Gains or losses not previously recognized, resulting from the sale of OREO, are recognized within other income on the date of sale.Contents

Fair Value:
U.S. GAAP requires management to establish a fair value hierarchy, which has the objective of maximizing the use of observable market inputs. U.S. GAAP also requires enhanced disclosures regarding the inputs used to calculate fair value. These are classified as Level 1, Level 2, and Level 3. Level 3 inputs are those with significant unobservable inputs that reflect a company’s own assumptions about the market for a particular instrument. Some of these inputs could be based on internal models and cash flow analyses. The large majority of Park’s assets whose fair value is determined using Level 2 inputs consists of AFS debt securities.securities AFS. The fair value of these AFS debt securities AFS is calculated largely through the use of matrix pricing, which is a mathematical technique widely used in the financial services industry to value debt securities without relying exclusively on quoted market prices for the specific debt securities but rather relying on the debt securities’ relationship to other benchmark quoted debt securities. Please see Note 2120 - Fair Value of the Notes to Unaudited Consolidated Condensed Financial Statements in this Quarterly Report on Form 10-Q for additional information on fair value.
 
Goodwill: Management believes that the accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies. U.S. GAAP establishes standards for the impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in each business acquired. Park’s goodwill, as of September 30, 2020,2021, relates to the value inherent in the banking industry and that value is dependent upon the ability of Park’s national bank subsidiary, PNB, to provide quality, cost-effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base, the inability to deliver cost-effective services over sustained periods or significant credit problems cancould lead to impairment of goodwill that could, in turn, adversely impact earnings in future periods.

U.S. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Park evaluates goodwill for impairment during the second quarter of each year, with financial data as of March 31. Based on the qualitative analysis performed as of April 1, 2020,2021, the Company determined that goodwill for Park's reporting unit, PNB, was not impaired. During each of the second and third quarters of 2020, management determined that the deterioration in generalManagement continues to monitor economic factors, including economic conditions as a result of the COVID-19 pandemic and responses thereto, represented a triggering event prompting an evaluation of goodwill impairment. Based on the analysis performed during each of the second and third quarters of 2020, the Company determined that goodwill was not impaired. Management continues to monitor economic factors to evaluate goodwill impairment. The fair value of the goodwill, which resides on the books of PNB, is estimated by reviewing the past and projected operating results for PNB, deposit and loan totals for PNB and banking industry comparable information.

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

Significant assumptions used to measure our annual pension expense include:

•the interest rate used to determine the present value of liabilities (discount rate);
•certain employee-related factors, such as turnover, retirement age and mortality;
•the expected return on assets in our funded pension plan; and
•the rate of salary increases where benefits are based on earnings.
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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. 

Comparison of Results of Operations
For the Three and Nine Months Ended September 30, 20202021 and 20192020
 
Summary Discussion of Results

Net income for the three months ended September 30, 20202021 was $30.8$35.4 million, compared to $31.1$30.8 million for the third quarter of 2019.2020. Diluted earnings per common share were $2.16 for the third quarter of 2021, compared to $1.88 for the third quarter of 2020, compared to $1.89 for the third quarter of 2019.2020. Weighted average diluted common shares outstanding were 16,393,79216,423,912 for the third quarter of 2020,2021, compared to 16,475,74116,393,792 weighted average diluted common shares outstanding for the third quarter of 2019.2020.

Net income for the nine months ended September 30, 20202021 was $82.7$117.4 million, compared to $78.8$82.7 million for the first nine months of 2019.2020. Diluted earnings per common share were $5.04$7.14 for the first nine months of 2020,2021, compared to $4.84$5.04 for the
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first nine months of 2019.2020. Weighted average diluted common shares outstanding were 16,398,35016,445,568 for the first nine months of 2020,2021, compared to 16,287,69516,398,350 weighted average diluted common shares outstanding for the first nine months of 2019.2020.

COVID-19 Considerations

Banking has been identified by federal and state governmental authorities to be an essential service and Park is fully committed to continue serving our customers and communities through the COVID-19 public health crisis. For those in our communities experiencing a financial hardship, Park has offered various methods of support including loan modifications, payment deferral programs, participation in the CARES Act Paycheck Protection Program ("PPP")PPP, participation in additional PPP loans authorized under the Consolidated Appropriations Act, 2021, and various other case by case accommodations. Throughout the pandemic, Park has implemented various physical distancing guidelines to help protect associates, such as allowing associates to work from home, where practical, while maintaining customer service via our online banking services, mobile app, and ATMs, by keeping drive-thru lanes open to serve customers, maintaining selective branch office openings, and offering other banking services by appointment when necessary. As of September 30, 2021, all branches have returned to normal operations.

During the first nine months of2021 and 2020, Park provided calamity pay and special one-time bonuses to certain associates.associates related to the COVID-19 pandemic. The cost of the calamity pay and special bonuses amounted to $0.8$744,000 for the three-month period ended September 30, 2020, and $1.5 million and $2.9 million for the three-month and nine-month periods ended September 30, 2021 and 2020, respectively, and is included within salaries expense. There was no calamity pay or special bonus paid during the three-month period ended September 30, 2021.

Paycheck Protection Program: Through September 30,During 2020, Park had approved and funded 4,439 loans totaling $543.1 million under the PPP.PPP's first round of loans. These first round PPP loans had an average principal balance of $122,000. Of the $543.1 million in first round PPP loans, 21 loans totaling $68.2 million had a principal balance that was greater than $2 million. For its assistance in making and retaining thesethe 4,439 loans, Park has received an aggregate of $20.2 million in fees from the SBA, of which $6.6$6.4 million and $13.7 million were recognized within loan interest income during the nine months ended September 30, 2020.2021 and the twelve months ended December 31, 2020, respectively. Park funded the PPP loans with excess on-balance sheet liquidity. At September 30, 2021, the remaining balance of the first round PPP loans funded in 2020 was $14.1 million.

During 2021, Park offered additional PPP loans as authorized under the Consolidated Appropriations Act, 2021, signed into law on December 27, 2020. Through September 30, 2021, Park had approved and funded 3,262 loans totaling $221.6 million under the second round of PPP loans. These additional second round PPP loans had an average principal balance of $68,000. None of the $221.6 million in additional second round PPP loans had a principal balance that was greater than $2 million. For its assistance in making and retaining the 3,262 second round of PPP loans, Park has received an aggregate of $12.9 million in fees from the SBA, of which $7.6 million was recognized within loan interest income during the nine months ended September 30, 2021. Park funded the second round PPP loans with excess on-balance sheet liquidity. At September 30, 2021, the remaining balance of second round PPP loans funded in 2021 was $122.3 million.

As of November 3, 2020,October 29, 2021, Park has submitted approximately 1,0726,458 repayment requests on behalf of borrowers under the PPP to the SBA and has received $51.1$653.4 million in payments from the SBA.

Loan Modifications: During the ninetwenty-one months ended September 30, 2020,2021, Park had modified 4,810a total of 5,131 consumer loans, with an aggregate balance of $111$79.5 million, and modified 1,386a total of 1,406 commercial loans, with an aggregate balance of $584$513.3 million, in each case related to a hardship caused by the COVID-19 pandemic and responses thereto. Park is workinghas worked with borrowers and providingprovided modifications in the form of either interest only deferral or principal and interest deferral, in each case, for initial periods of up to 90 days. As necessary, Park is makingmade available a second 90 day90-day interest only deferral or principal and interest deferral bringing the total potential deferral period to six months. Modifications arewere structured in a manner to best address each individual customer's then current situation. A majority of these modifications arewere excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. Modified loans will be
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are considered current and will continue to accrue interest during the deferral period.

Detail of COVID-19 modifications on Park's loan portfolios during the nine months ended September 30, 2020 follows:

(Dollars in thousands)September 30, 2020 Total BalanceSeptember 30, 2020 Balance ModifiedPercent Modified
Commercial$4,197,427 $583,701 13.9 %
Home equity194,445 3,594 1.8 %
Installment1,633,730 47,760 2.9 %
Real estate1,232,196 57,388 4.7 %
Guardian Financial Services Company ("GFSC")14,843 2,267 15.3 %
Other5,905 — — %
Total loans$7,278,546 $694,710 9.5 %


Of the $694.7$592.8 million of COVID-19 modifications during the ninetwenty-one months ended September 30, 2020, $3.92021, $30.8 million, or 0.45% of total loans, remained in deferral as of September 30, 2021 and $6.8 million were currently greater thanat least 30 days past due in accordance with the modified terms.

Detail of COVID-19 modifications on selected commercial loan portfolios during the nine months endedterms at September 30, 2020 follows:

(Dollars in thousands)September 30, 2020 Total BalanceSeptember 30, 2020 Balance ModifiedPercent Modified
Non-bank consumer finance companies$266,187 $— — %
Hotels and accommodations211,888 160,677 75.8 %
Restaurants and food service48,347 11,028 22.8 %
Arts and recreation46,648 16,963 36.4 %
Healthcare and social assistance250,402 37,282 14.9 %
Strip shopping centers236,575 71,613 30.3 %
Other real estate rental and leasing1,139,821 163,711 14.4 %
PPP loans542,761 — — %
Other commercial loans1,454,798 122,427 8.4 %
Total commercial loans$4,197,427 $583,701 13.9 %

2021.
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Many of the initial interest only deferrals or principal and interest deferrals were for an initial period of three months. Park has received requests for additional deferrals. Loans which have had multiple COVID-19 modifications through September 30, 2020 are detailed below along with the weighted average risk grade for commercial loans.


(Dollars in thousands)September 30, 2020 Balance - Multiple ModificationsWeighted Average Risk Grade
Hotels and accommodations$62,676 4.97 
Restaurants and food service1,140 4.20 
Arts and recreation4,085 4.29 
Strip shopping centers1,889 4.00 
Other real estate rental and leasing6,990 5.19 
Other commercial loans18,638 5.03 
Total commercial loans$95,418 4.94 
Home equity$298 N.A.
Installment5,746 N.A.
Real estate14,281 N.A.
GFSC1,062 N.A.
Other— N.A.
Total loans$116,805 N.A.

Commercial loans are graded from 1 to 8. 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) 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) are inadequately protected by the current sound worth and paying capacity of the obligor or the value of the collateral pledged, if any. Commercial loans that are graded a 7 (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. Any commercial loan graded an 8 (loss) is completely charged-off.

Park considers a loan out of deferral when the first regular payment is due and that payment is subsequently made. The table below details the status of loans with COVID-19 deferrals at September 30, 2020.

(Dollars in thousands)September 30, 2020 Balance - Out of DeferralSeptember 30, 2020 Balance - In DeferralPercent in Deferral as a Percent of Total DeferredPercent in Deferral as a Percent of Total Loans
Hotels and accommodations$109,648 $51,029 31.8 %24.1 %
Restaurants and food service10,041 987 8.9 %2.0 %
Arts and recreation12,844 4,119 24.3 %8.8 %
Healthcare and social assistance37,104 178 0.5 %0.1 %
Strip shopping centers69,724 1,889 2.6 %0.8 %
Other real estate rental and leasing156,143 7,568 4.6 %0.7 %
Other commercial loans102,082 20,345 16.6 %1.4 %
Total commercial loans$497,586 $86,115 14.8 %2.1 %
Home equity$3,287 $307 8.5 %0.2 %
Installment44,636 3,124 6.5 %0.2 %
Real estate48,788 8,600 15.0 %0.7 %
GFSC2,121 146 6.4 %1.0 %
Total loans$596,418 $98,292 14.1 %1.4 %


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Financial Results by Segment

The table below reflects the net income (loss) by segment for the first, second and third quarters of 2020,2021, for the first nine months of each of 20202021 and 20192020 and for the years ended December 31, 20192020 and 2018.2019. Park's segments include PNB GFSC and "All Other" which primarily consists of Park as the "Parent Company", GFSC, and SEPH. SEPH is a non-bank subsidiary of Park, holding former Vision Bank OREO property and non-performing loans.
Net income (loss) by segment
(In thousands)Q3 2020Q2 2020Q1 2020Nine months YTD 2020Nine months YTD 201920192018
PNB$32,888 $30,750 $25,908 $89,546 $87,022 $113,600 $109,472 
GFSC332 323 112 767 653 762 521 
All Other(2,374)(1,568)(3,648)(7,590)(8,911)(11,662)394 
   Total Park$30,846 $29,505 $22,372 $82,723 $78,764 $102,700 $110,387 
(In thousands)Q3 2021Q2 2021Q1 2021Nine months YTD 2021Nine months YTD 202020202019
PNB$36,451 $40,896 $45,122 $122,469 $89,546 $123,730 $113,600 
All Other(1,017)(1,764)(2,291)(5,072)(6,823)4,193 (10,900)
   Total Park$35,434 $39,132 $42,831 $117,397 $82,723 $127,923 $102,700 

Net income for the nine months ended September 30, 20202021 of $82.7$117.4 million represented a $4.0$34.7 million, or 5.0%41.9%, increase compared to $78.8$82.7 million for the nine months ended September 30, 2019.2020. Net income for each of the three and nine months ended September 30, 20202021 and the three and nine months September 30, 20192020 included several items of income and expense that impact comparability of period results. These items are detailed in the "Items Impacting Comparability" section within this management's discussionMD&A.

During the first quarter of 2021, Park adopted FASB Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 established the CECL methodology for estimating the allowance for credit losses. This standard was adopted prospectively on January 1, 2021, resulting in a $6.1 million increase to the allowance for credit losses and analysis.a $3.9 million increase to the allowance for unfunded credit losses. A cumulative effect adjustment resulting in a $8.0 million decrease to retained earnings and a $2.1 million increase to deferred tax assets was also recorded as of the adoption of ASU 2016-13. Refer to the “Credit Metrics and Provision for (Recovery of) Credit Losses” section for further detail.

The following discussion provides additional information regarding the two segmentssegment that makeis made up Park's ongoing operations,of PNB, followed by additional information regarding All Other, which consists of the Parent Company, GFSC and SEPH.

The Park National Bank (PNB)

The table below reflects PNB's net income for the first, second and third quarters of 2020,2021, for the first nine months of each 2020of 2021 and 20192020 and for the years ended December 31, 20192020 and 2018.2019.

(In thousands)(In thousands)Q3 2020Q2 2020Q1 2020Nine months YTD 2020Nine months YTD 201920192018(In thousands)Q3 2021Q2 2021Q1 2021Nine months YTD 2021Nine months YTD 202020202019
Net interest incomeNet interest income$83,795 $79,891 $75,214 $238,900 $217,355 $293,130 $258,547 Net interest income$82,835 $82,675 $82,086 $247,596 $238,900 $326,375 $293,130 
Provision for loan losses13,839 12,883 5,534 32,256 6,563 8,356 7,569 
Provision for (recovery of) credit losses (1)
Provision for (recovery of) credit losses (1)
4,276 (3,752)(4,194)(3,670)32,256 30,813 8,356 
Other incomeOther income35,430 31,009 23,481 89,920 68,224 92,392 88,981 Other income31,332 31,126 32,800 95,258 89,920 124,231 92,392 
Other expenseOther expense65,590 60,703 61,368 187,661 172,931 237,433 206,843 Other expense64,663 67,122 63,576 195,361 187,661 268,938 237,433 
Income before income taxesIncome before income taxes$39,796 $37,314 $31,793 $108,903 $106,085 $139,733 $133,116 Income before income taxes$45,228 $50,431 $55,504 $151,163 $108,903 $150,855 $139,733 
Income tax expenseIncome tax expense6,908 6,564 5,885 19,357 19,063 26,133 23,644 Income tax expense8,777 9,535 10,382 28,694 19,357 27,125 26,133 
Net incomeNet income$32,888 $30,750 $25,908 $89,546 $87,022 $113,600 $109,472 Net income$36,451 $40,896 $45,122 $122,469 $89,546 $123,730 $113,600 
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of September 30, 2021 and the related provision for (recovery of) credit losses for the three months ended March 31, 2021, June 30, 2021, and September 30, 2021 and the nine months ended September 30, 2021 were calculated utilizing this new guidance.

Net interest income of $247.6 million for the nine months ended September 30, 2021 represented a $8.7 million, or 3.6%, increase compared to $238.9 million for the nine months ended September 30, 2020 represented a $21.5 million, or 9.9%, increase compared to $217.4 million for the nine months ended September 30, 2019.2020. The increase was a result of a $23.9$16.9 million decrease in interest expense, partially offset by a $2.4$8.2 million decrease in interest income.

The $2.4$8.2 million decrease in interest income was primarily due to a $7.6$1.9 million decrease in investment income partially offset byand a $5.2$6.3 million increasedecrease in interest income on loans.Theloans. The decrease in investment income was partiallyprimarily the result of a $190.2 million decrease in averagethe
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yield on investments, from $1.38 billionwhich decreased 31 basis points to 2.31% for the nine months ended September 30, 20192021, compared to $1.19 billion2.62% for the nine months ended September 30, 2020. The decrease in investmentinterest income on loans was alsoprimarily the result of a decrease in the yield on investments,loans, which decreased 1622 basis points to 2.62%4.44% for the nine months ended September 30, 2020,2021, compared to 2.78%4.66% for the nine months ended September 30, 2019.2020. The increasedecrease in interest incomeyield on loans was partially the result ofoffset by a $774.0$169.4 million increase in average loans from $6.11 billion for the nine months ended September 30, 2019, to $6.89 billion for the nine months ended September 30, 2020. The increase in average loans was partially offset by the decrease in the yield on loans, which decreased 49 basis points2020 to 4.66%$7.06 billion for the nine months ended September 30, 2020, compared to 5.15% for the nine months
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ended September 30, 2019. Interest income2021. The increase in average loans was impacted by the acquisitionaddition of CAB Financial Corporation, the parentaverage PPP loans of Carolina Alliance on April 1, 2019. The Carolina Alliance Bank Division contributed an aggregate of $22.7approximately $309.0 million to interest income at PNB during the nine months ended September 30, 2020, compared to $16.9and $312.2 million for the nine months ended September 30, 2019.2021 and 2020, respectively, and also resulted in interest and fee income of $15.5 million and $8.7 million for the nine months ended September 30, 2021 and 2020, respectively. Excluding the impact of PPP loans, the yield on loans was 4.33% for the nine months ended September 30, 2021, a decrease of 38 basis points compared to 4.71% for the nine months ended September 30, 2020.

The $23.9$16.9 million decrease in interest expense was primarily due to an $19.4a $13.8 million decrease in interest expense on deposits as well as a $4.5$3.1 million decrease in interest expense on borrowings. The decrease in interest expense on deposits was partially the result of a decrease in the cost of deposits of 5634 basis points, from 1.03% for the nine months ended September 30, 2019 to 0.47% for the nine months ended September 30, 2020. This was partially offset by a $383.5 million increase in average interest-bearing deposits from $4.96 billion2020 to 0.13% for the nine months ended September 30, 2019, to2021. The decrease was also the result of a $63.7 million decrease in average on-balance sheet interest bearing deposits from $5.35 billion for the nine months ended September 30, 2020. Interest expense was impacted by the acquisition of Carolina Alliance. The Carolina Alliance Bank Division contributed an aggregate of $2.6 million2020, to interest expense at PNB during both$5.28 billion for the nine months ended September 30, 2021. The decrease in on-balance sheet interest bearing deposits consisted of declines in both higher-cost time deposits and transaction accounts and was partially offset by an increase in savings deposits. During the nine months ended September 30, 2021 and the year ended December 31, 2020, and 2019. Park made the decision to participate in a one-way sell (OWS) program in order to manage the balance sheet. This decision also contributed to a decline in interest bearing deposits.

The decrease in interest expense on borrowings was partially the result of a $180.1$78.3 million decrease in average borrowings from $580.3 million for the nine months ended September 30, 2019, to $400.1 million for the nine months ended September 30, 2020.2020, to $321.8 million for the nine months ended September 30, 2021. The cost of borrowings also decreased by 5791 basis points, from 2.10% for the nine months ended September 30, 2019 to 1.53% for the nine months ended September 30, 2020.2020 to 0.62% for the nine months ended September 30, 2021.

The recovery of credit losses of $3.7 million for the nine months ended September 30, 2021 represented a difference of $35.9 million, compared to a provision for loancredit losses of $32.3 million for the nine months ended September 30, 2020 represented an increase of $25.7 million, compared to $6.6 million for the nine months ended September 30, 2019.2020. Refer to the “Credit Metrics and Provision for Loan(Recovery of) Credit Losses” section for additional details regarding the level of the provision for loan(recovery of) credit losses recognized in each period presented above.

Other income of $95.3 million for the nine months ended September 30, 2021 represented an increase of $5.3 million, or 5.9%, compared to $89.9 million for the nine months ended September 30, 2020 represented an increase of $21.7 million, or 31.8%, compared to $68.2 million for the nine months ended September 30, 2019.2020. The $21.7$5.3 million increase was primarily related to (i) a $14.4$4.3 million increase in income from fiduciary activities; (ii) a $2.9 million increase in debit card fee income; (iii) a $2.4 million increase in miscellaneous income, primarily related to a refund of a consumer insurance product, an increase in income from printed check sales and an increase in gain on sale of assets; and (iv) a $1.6 million increase in gain (loss) on equity securities, net. These increases were partially offset by a $3.3 million decrease in gain on sale of debt securities and a $2.2 million decrease in other service income, which was primarily due to a decline in investor rate locks and mortgage loans held for sale, partially offset by an increase in fee income from mortgage loan originations and investor rate locks; a $3.7 million increase in gain on salethe valuation of debt securities; a $2.4 million increase in other components of net periodic benefit income; a $1.5 million increase in debit card fee income; a $927,000 increase in gain (loss) on sale of OREO, net; a $741,000 increase in income from fiduciary activities; and a $376,000 increase in miscellaneous income, primarily related to an increase in operating lease income. These increases were partially offset by a $1.8 million decrease in service charges on deposits and a $728,000 decrease in gains (losses) from capital investments. Other income was impacted by the acquisition of Carolina Alliance. The Carolina Alliance Bank Division contributed an aggregate of $6.2 million to other income at PNB during the nine months ended September 30, 2020 and $2.5 million during the nine months ended September 30, 2019.

mortgage servicing rights.

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A summary of mortgage originations for the nine months ended September 30, 2021 and 2020, and 2019as well as the quarters within each nine-month period, as follows. Of total

(In thousands)Q1 2021Q2 2021Q3 2021Nine months ended September 30, 2021Q1 2020Q2 2020Q3 2020Nine months ended September 30, 2020
Mortgage Origination Volume
Sold$191,116 $142,398 $123,757 $457,271 $85,030 $248,339 $355,755 $689,124 
Portfolio82,613 74,670 66,718 224,001 56,018 64,351 61,227 181,596 
Construction28,987 37,266 28,486 94,739 33,109 33,754 40,560 107,423 
Service released1,266 2,204 4,537 8,007 3,794 2,362 2,275 8,431 
Total mortgage originations$303,982 $256,538 $223,498 $784,018 $177,951 $348,806 $459,817 $986,574 
Refinances as a % of Total Originations71.1 %50.0 %44.8 %56.7 %48.1 %67.8 %68.5 %64.6 %

Total mortgage loan originations shown below for 2020, refinances comprised 48.1% in the first quarter of 2020, 67.8% in the second quarter of 2020, 68.5% in the third quarter of 2020 and 64.6%decreased $202.6 million, or 20.5%, to $784.0 million for the nine months ended September 30, 2020. Of total mortgage originations shown below for 2019, refinances comprised 32.5% in the first quarter of 2019, 29.7% in the second quarter of 2019, 41.3% in the third quarter of 2019 and 35.2%2021 compared to $986.6 million for the nine months ended September 30, 2019.

(In thousands)Q1 2020Q2 2020Q3 2020Nine months YTD 2020
Mortgage Origination Volume
Sold$85,030 $248,339 $355,755 $689,124 
Portfolio56,018 64,351 61,227 $181,596 
Construction33,109 33,754 40,560 $107,423 
Service released3,794 2,362 2,275 $8,431 
Total mortgage originations$177,951 $348,806 $459,817 $986,574 
Q1 2019Q2 2019Q3 2019Nine months YTD 2019
Mortgage Origination Volume
Sold$30,011 $54,802 $83,867 $168,680 
Portfolio31,492 59,613 69,351 160,456 
Construction20,481 22,245 21,280 64,006 
Service released4,407 22,818 28,408 55,633 
Total mortgage originations$86,391 $159,478 $202,906 $448,775 
2020.

The table below reflects PNB's other expense for the nine months ended September 30, 20202021 and 2019.2020.

(In thousands)Nine months YTD 2020Nine months YTD 2019change% change
Other expense:
Salaries$86,736 $80,447 $6,289 7.8 %
Employee benefits29,113 27,258 1,855 6.8 %
Occupancy expense10,395 9,264 1,131 12.2 %
Furniture and equipment expense13,834 12,686 1,148 9.0 %
Data processing fees8,338 7,868 470 6.0 %
Professional fees and services16,961 15,160 1,801 11.9 %
Marketing4,073 4,246 (173)(4.1)%
Insurance4,090 2,343 1,747 74.6 %
Communication2,894 3,953 (1,059)(26.8)%
State tax expense2,792 2,213 579 26.2 %
Amortization of intangible assets1,738 1,732 6 0.3 %
Miscellaneous6,697 5,761 936 16.2 %
Total other expense$187,661 $172,931 $14,730 8.5 %

(Dollars in thousands)20212020change% change
Other expense:
Salaries$86,194 $86,736 $(542)(0.6)%
Employee benefits30,451 29,113 1,338 4.6 %
Occupancy expense9,440 10,395 (955)(9.2)%
Furniture and equipment expense8,157 13,834 (5,677)(41.0)%
Data processing fees22,426 8,338 14,088 169.0 %
Professional fees and services14,332 16,961 (2,629)(15.5)%
Marketing4,354 4,073 281 6.9 %
Insurance4,080 4,090 (10)(0.2)%
Communication2,650 2,894 (244)(8.4)%
State tax expense2,986 2,792 194 6.9 %
Amortization of intangible assets1,378 1,738 (360)(20.7)%
FHLB prepayment penalty— 1,793 (1,793)N.M.
Foundation contributions4,000 — 4,000 N.M.
Miscellaneous4,913 4,904 9 0.2 %
Total other expense$195,361 $187,661 $7,700 4.1 %

Other expense of $195.4 million for the nine months ended September 30, 2021 represented an increase of $7.7 million, or 4.1%, compared to $187.7 million for the nine months ended September 30, 2020 represented an increase of $14.7 million, or 8.5%, compared to $172.9 million for the nine months ended September 30, 2019.2020. The increasedecrease in salaries expense was primarily related to increasesa decrease in base salary expense and additional compensation incentives, including COVID-19 special one-time bonuses,expense, partially offset by increases in officer incentive expense and officer incentiveshare-based compensation expense. The increase in employee benefits expense was primarily related to increased pension plan expense, payroll tax expense and defined contribution plan expense, partially offset by a decrease in
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group insurance costs. The increasedecrease in occupancy expense was primarily the result of increased depreciation on premises and a write-down in the right-of-use lease asset related to branches that closed September 30, 2020.a decrease in lease expense. The increasedecrease in furniture and equipment expense was primarily related to increased expensesa change in the classification under which software and related to repairsmaintenance costs are expensed, which are now classified under data processing fees. The impact of this decrease in furniture and maintenanceequipment expense was partially offset by an increase in depreciation expense on equipment, which also included software maintenance and costs, as well as increased depreciation on furniture and equipment. The increase in data processing fees was related to increased mortgage processing costs, debit card processing costs
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and other data processing costs. Excludingand software costs, partially due to the impact of the Carolina Alliance Bank Division,previously mentioned change in classification from furniture and equipment expense and a change in expensing software costs from other fees within professional fees and services to data processing fees increased $1.0 million, or 14.3%.fees. The increasedecrease in professional fees and services was primarily related to increaseddecreased title, appraisal and credit costs and decreases in other fees (due to the change in expensing software costs under data processing fees), partially offset by increases in management and consulting fees, as well as increased insured cash sweep (ICS) fees, partially offset by a $312,000expenses. The decrease in temporary wage expense. The increase in insurance expensethe FHLB prepayment penalty was primarily due to a $1.1 million assessment credit which had been utilized for the FDIC expense for the nine months ended September 30, 2019 (and not repeated in 2020), as well as an increase in the assessment base for the nine months ended September 30, 2020, compared to the same period of 2019. The decrease in communications expense was primarily related to a change in statement mailing and production costs, which resulted in lower direct postage expense, but an increase in supply expense which is included in miscellaneous expense. The additional increase in miscellaneous expense was primarily related to a $1.8 million prepayment penalty on FHLB borrowings of $50 million repaid during the nine months ended September 30, 2020, partially offset by2020; there was no similar prepayment in the same period of 2021. The increase in foundation contributions was due to a decrease in training and travel related expenses as well as decreased non loan related losses.

Other expense was impacted by the acquisition of Carolina Alliance. Of the $187.7$4.0 million of total other expense forcontribution to Park's charitable foundation during the nine months ended September 30, 2020, the Carolina Alliance Bank Division's total other expense was $14.4 million. Of the $172.9 million of total other expense for2021, with no similar contribution made during the nine months ended September 30, 2019,2020. The 2020 contribution to Park's charitable foundation was made during the Carolina Alliance Bank Division's total other expense was $11.4 million.fourth quarter of 2020. Park does not expect to make any additional contributions to Park's charitable foundation in 2021.

The table below reflects PNB's other expense less the impact of Carolina Alliance Bank Division for the nine months ended September 30, 2020 and 2019. This table is provided to provide insight into changes in Park's expenses excluding the impact of this acquisition.
(In thousands)Nine months YTD 2020Nine months YTD 2019change% change
Other expense:
Salaries$80,171 $75,368 $4,803 6.4 %
Employee benefits27,134 26,212��922 3.5 %
Occupancy expense9,218 8,434 784 9.3 %
Furniture and equipment expense13,230 12,239 991 8.1 %
Data processing fees8,054 7,047 1,007 14.3 %
Professional fees and services16,243 14,518 1,725 11.9 %
Marketing3,938 4,011 (73)(1.8)%
Insurance3,632 2,162 1,470 68.0 %
Communication2,791 3,845 (1,054)(27.4)%
State tax expense2,789 2,213 576 26.0 %
Amortization of intangible assets903 906 (3)(0.3)%
Miscellaneous5,186 4,568 618 13.5 %
Total other expense$173,289 $161,523 $11,766 7.3 %


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The table below provides certain balance sheet information and financial ratios for PNB as of or for the nine months ended September 30, 20202021 and 20192020 and as of or for the twelve monthsyear ended December 31, 2019.2020.

(In thousands)September 30, 2020December 31, 2019September 30, 2019% change from 12/31/19% change from 09/30/19
Loans$7,263,380 $6,481,644 $6,382,673 12.06 %13.80 %
Allowance for loan losses85,249 54,692 53,865 55.87 %58.26 %
Net loans7,178,131 6,426,952 6,328,808 11.69 %13.42 %
Investment securities1,088,149 1,271,817 1,321,018 (14.44)%(17.63)%
Total assets9,195,911 8,521,537 8,673,919 7.91 %6.02 %
Total deposits7,725,562 7,125,111 7,234,450 8.43 %6.79 %
Average assets (1)
9,171,998 8,425,536 8,353,174 8.86 %9.80 %
Efficiency ratio (2)
56.70 %61.12 %60.09 %(7.23)%(5.64)%
Return on average assets (3)
1.30 %1.35 %1.39 %(3.70)%(6.47)%

(Dollars in thousands)September 30, 2021December 31, 2020September 30, 2020% change from 12/31/20% change from 9/30/20
Loans less PPP$6,773,762 $6,834,269 $6,720,619 (0.89)%0.79 %
Loans6,905,245 7,165,840 7,263,380 (3.64)%(4.93)%
Allowance for credit losses (1)
87,992 84,321 85,249 4.35 %3.22 %
Net loans6,817,253 7,081,519 7,178,131 (3.73)%(5.03)%
Investment securities1,601,376 1,114,742 1,088,149 43.65 %47.17 %
Total assets10,012,868 9,236,915 9,195,911 8.40 %8.88 %
Total deposits8,603,171 7,820,983 7,725,562 10.00 %11.36 %
Average assets (2)
9,819,220 9,198,141 9,171,998 6.75 %7.06 %
Efficiency ratio (3)
56.63 %59.31 %56.70 %(4.52)%(0.12)%
Return on average assets (4)
1.67 %1.35 %1.30 %23.70 %28.46 %
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of September 30, 2021 and the related provision for (recovery of) credit losses for the nine months ended September 30, 2021 were calculated utilizing this new guidance.
(2) Average assets for the nine months ended September 30, 20202021 and 20192020 and for the year ended December 31, 2019.2020.
(2)(3) Calculated utilizing fully taxable equivalent net interest income which includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustments were $2.2$2.1 million for both the nine months ended September 30, 2020 and 2019, and $3.02021, $2.2 million for the year ended December 31, 2019.
(3) Annualized for the nine months ended September 30, 2020 and 2019.$2.9 million for the year ended December 31, 2020.
(4) Annualized for the nine months ended September 30, 2021 and 2020.

Loans outstanding at September 30, 20202021 were $7.26$6.91 billion, compared to $6.48$7.17 billion at December 31, 2019, an increase2020, a decrease of $781.7$260.6 million, or 12.1%3.6%. Loans outstanding at September 30, 20202021 were $7.26$6.91 billion, compared to $6.38$7.26 billion at September 30, 2019, an increase2020, a decrease of $880.7$358.1 million, or 13.8%4.9%. Excluding $131.5 million, $331.6 million and $542.8 million of PPP loans at September 30, 2021, December 31, 2020 and September 30, 2020, respectively, loans outstanding were $6.77 billion at September 30, 2021, compared to $6.83 billion at December 31, 2020, a decrease of $60.5 million, or 0.9%, and an increase of
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$53.1 million, or 0.8%, compared to $6.72 billion at September 30, 2020, compared to $6.48 billion at December 31, 2019, an increase of $239.0 million, or 3.7%, and reflected an increase of $337.9 million, or 5.3%, compared to $6.38 billion at September 30, 2019.2020. The table below breaks out the change in loans outstanding, by loan type.

(In thousands)September 30, 2020December 31, 2019September 30, 2019change from 12/31/19% change from 12/31/19change from 9/30/19% change from 9/30/19
(Dollars in thousands)(Dollars in thousands)September 30, 2021December 31, 2020September 30, 2020change from 12/31/20% change from 12/31/20change from 9/30/20% change from 9/30/20
Home equityHome equity$194,445 $224,857 $231,112 $(30,412)(13.5)%$(36,667)(15.9)%Home equity$166,557 $182,131 $194,445 $(15,574)(8.55)%$(27,888)(14.34)%
InstallmentInstallment1,633,730 1,431,197 1,411,475 202,533 14.2 %222,255 15.7 %Installment1,711,781 1,650,620 1,633,730 61,161 3.71 %78,051 4.78 %
Real estateReal estate1,232,196 1,275,154 1,269,594 (42,958)(3.4)%(37,398)(2.9)%Real estate1,165,045 1,213,820 1,232,196 (48,775)(4.02)%(67,151)(5.45)%
Commercial (excluding PPP)Commercial (excluding PPP)3,654,342 3,545,467 3,466,201 108,875 3.1 %188,141 5.4 %Commercial (excluding PPP)3,725,362 3,784,153 3,654,342 (58,791)(1.55)%71,020 1.94 %
PPP loansPPP loans542,761 — — 542,761 N.M.542,761 N.M.PPP loans131,483 331,571 542,761 (200,088)(60.35)%(411,278)(75.78)%
OtherOther5,906 4,969 4,291 937 18.9 %1,615 37.6 %Other5,017 3,545 5,906 1,472 41.52 %(889)(15.05)%
Total loansTotal loans$7,263,380 $6,481,644 $6,382,673 $781,736 12.1 %$880,707 13.8 %Total loans$6,905,245 $7,165,840 $7,263,380 $(260,595)(3.64)%$(358,135)(4.93)%
Total loans (excluding PPP)Total loans (excluding PPP)$6,773,762 $6,834,269 $6,720,619 $(60,507)(0.89)%$53,143 0.79 %

PNB's allowance for loancredit losses increased by $30.6$3.7 million, or 55.9%4.4%, to $85.2$88.0 million at September 30, 2020,2021, compared to $54.7$84.3 million at December 31, 2019.2020. This increase included a $6.7 million increase to the allowance for credit losses as the result of the adoption of ASU 2016-13. Net charge-offsrecoveries were $1.7 million,$638,000, or 0.03%0.01% of total average loans, (annualized), for the nine months ended September 30, 20202021 and net charge-offs were $2.7$1.2 million, or 0.04%0.02% of total average loans, for the twelve monthsyear ended December 31, 2019.2020. Refer to the “Credit Metrics and Provision for Loan(Recovery of) Credit Losses” section for additional information regarding PNB's loan portfolio and the level of provision for loan(recovery of) credit losses recognized in each period presented.


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Total deposits at September 30, 20202021 were $7.73$8.60 billion, compared to $7.13$7.82 billion at December 31, 2019,2020, an increase of $600.5$782.2 million, or 8.4%. Total deposits at September 30, 2020 were $7.73 billion, compared to $7.23 billion at September 30, 2019, an increase of $491.1 million, or 6.8%10.0%. During the threenine months ended September 30, 2021 and the year ended December 31, 2020, Park made the decision to participate in a one-way sell (OWS) program in order to manage growth of the balance sheet.sheet, as deposits increased significantly throughout the COVID-19 pandemic. At September 30, 2021, December 31, 2020 PNBand September 30, 2020, Park had $818.3 million, $710.1 million and $773.3 million, respectively, in OWS insured cash sweep deposits which were off-balance sheet. Total deposits would have increased 19.3%$890.4 million, or 10.4%, compared to December 31, 20192020 had the $818.3 million and 17.5%$710.1 million remained on the balance sheet at the respective dates. Total deposits would have increased $922.7 million, or 10.9%, compared to September 30, 2019,2020 had the $818.3 million and $773.3 million remained on the balance sheet.sheet at the respective dates. The table below breaks out the change in deposit balances, by deposit type.

(In thousands)September 30, 2020December 31, 2019September 30, 2019change from 12/31/19% change from 12/31/19change from 9/30/19% change from 9/30/19
Non-interest bearing deposits$2,831,767 $2,036,359 $2,011,587 $795,408 39.1 %$820,180 40.8 %
Transaction accounts1,365,783 1,628,741 1,736,605 (262,958)(16.1)%(370,822)(21.4)%
Savings and clubs2,596,811 2,320,880 2,358,893 275,931 11.9 %237,918 10.1 %
Certificates of deposits931,201 1,139,131 1,127,365 (207,930)(18.3)%(196,164)(17.4)%
Total deposits$7,725,562 $7,125,111 $7,234,450 $600,451 8.4 %$491,112 6.8 %

Guardian Financial Services Company (GFSC)

The table below reflects GFSC's net income for the first, second and third quarters of 2020, for the first nine months of each of 2020 and 2019 and for the years ended December 31, 2019 and 2018. During the first quarter of 2020, Park made the decision to no longer seek new loans through the GFSC subsidiary.

(In thousands)Q3 2020Q2 2020Q1 2020Nine months YTD 2020Nine months YTD 201920192018
Net interest income$893 $1,025 $1,152 $3,070 $3,786 $5,013 $5,048 
Provision for loan losses34 27 277 338 458 754 1,328 
Other income60 62 32 154 142 170 187 
Other expense499 651 765 1,915 2,638 3,478 3,245 
Income before income taxes$420 $409 $142 $971 $832 $951 $662 
    Income tax expense88 86 30 204 179 189 141 
Net income$332 $323 $112 $767 $653 $762 $521 


The table below provides certain balance sheet information and financial ratios for GFSC as of or for the nine months ended September 30, 2020 and 2019 and as of or for the twelve months ended December 31, 2019.

(In thousands)September 30, 2020December 31, 2019September 30, 2019% change from 12/31/19% change from 09/30/19
Loans$16,589 $28,143 $27,964 (41.05)%(40.68)%
Allowance for loan losses1,789 1,987 1,988 (9.96)%(10.01)%
Net loans14,800 26,156 25,976 (43.42)%(43.02)%
Total assets16,045 27,593 27,481 (41.85)%(41.61)%
Average assets (1)
23,011 29,119 29,713 (20.98)%(22.56)%
Return on average assets (2)
4.45 %2.62 %2.94 %69.85 %51.36 %

(1) Average assets for the nine months ended September 30, 2020 and 2019 and for the year ended December 31, 2019.
(2) Annualized for the nine months ended September 30, 2020 and 2019.
(Dollars in thousands)September 30, 2021December 31, 2020September 30, 2020change from 12/31/20% change from 12/31/20change from 9/30/20% change from 9/30/20
Non-interest bearing deposits$3,221,859 $2,978,005 $2,831,767 $243,854 8.2 %$390,092 13.8 %
Transaction accounts1,620,375 1,381,479 1,365,783 238,896 17.3 %254,592 18.6 %
Savings3,035,734 2,596,926 2,596,811 438,808 16.9 %438,923 16.9 %
Certificates of deposits725,203 864,573 931,201 (139,370)(16.1)%(205,998)(22.1)%
Total deposits$8,603,171 $7,820,983 $7,725,562 $782,188 10.0 %$877,609 11.4 %
OWS insured cash sweep deposits818,340 710,101 773,273 108,239 15.2 %45,067 5.8 %
Total deposits including OWS deposits$9,421,511 $8,531,084 $8,498,835 $890,427 10.4 %$922,676 10.9 %


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All Other

The table below reflects All Other net (loss) income for the first, second and third quarters of 2020,2021, for the first nine months of each of 20202021 and 20192020 and for the years ended December 31, 20192020 and 2018.2019.

(In thousands)(In thousands)Q3 2020Q2 2020Q1 2020Nine month YTD 2020Nine months YTD 201920192018(In thousands)Q3 2021Q2 2021Q1 2021Nine months YTD 2021Nine months YTD 202020202019
Net interest (expense) incomeNet interest (expense) income$(848)$270 $(83)$(661)$(413)$(406)$3,303 Net interest (expense) income$(1,233)$1,176 $(1,352)$(1,409)$2,409 $1,255 $4,607 
Recovery of loan losses(37)(686)(658)(1,381)(637)(2,939)(952)
Other income (loss)1,068 (107)(1,027)(66)4,603 4,631 11,933 
Recovery of credit losses (1)
Recovery of credit losses (1)
(2,304)(288)(661)(3,253)(1,043)(18,759)(2,185)
Other incomeOther income1,079 112 1,289 2,480 88 1,433 4,801 
Other expenseOther expense3,770 3,445 4,143 11,358 17,188 23,077 18,667 Other expense3,826 4,278 4,289 12,393 13,273 17,657 26,555 
Net loss before income tax benefit$(3,513)$(2,596)$(4,595)$(10,704)$(12,361)$(15,913)$(2,479)
Net (loss) income before income tax benefitNet (loss) income before income tax benefit$(1,676)$(2,702)$(3,691)$(8,069)$(9,733)$3,790 $(14,962)
Income tax benefit Income tax benefit(1,139)(1,028)(947)(3,114)(3,450)(4,251)(2,873) Income tax benefit(659)(938)(1,400)(2,997)(2,910)(403)(4,062)
Net (loss) incomeNet (loss) income$(2,374)$(1,568)$(3,648)$(7,590)$(8,911)$(11,662)$394 Net (loss) income$(1,017)$(1,764)$(2,291)$(5,072)$(6,823)$4,193 $(10,900)
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of September 30, 2021 and the related provision for (recovery of) credit losses for the three months ended March 31, 2021, June 30, 2021, and September 30, 2021 and the nine months ended September 30, 2021 were calculated utilizing this new guidance.

The net interest (expense) income for All Other included, for all periods presented, interest income on subordinated debt investments in PNB, which were 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 included for the three and nine months ended September 30, 2021 and 2020 and the year ended December 31, 2020, 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 2020.2020 (the "Park Subordinated Notes").

Net interest (expense) income reflected net interest expense of $661,000$1.4 million for the nine months ended September 30, 2020,2021, compared to net interest expenseincome of $413,000$2.4 million for the nine months ended September 30, 2019.2020. The change was largely the result of an increase in borrowing interest expense on borrowings of $4.6 million, mainly related to the Park Subordinated Notes, and a decrease of $2.0 million in net interest income from GFSC, which were partially offset by an increase of $3.0 million in loan interest income related to payment collections at SEPH.income.

SEPH had net recoveries of $2.6 million for the nine months ended September 30, 2021, compared to net recoveries of $1.4 million for the nine months ended September 30, 2020, compared toand GFSC had net recoveries of $637,000$11,000 for the nine months ended September 30, 2019.

All Other had an other loss2021, compared to net charge-offs of $66,000$536,000 for the nine months ended September 30, 2020, compared2020. 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 $4.6$2.5 million for the nine months ended September 30, 2019.2021, compared to $88,000 for the nine months ended September 30, 2020. The change was largely due to a $4.4$1.0 million decreaseincrease in income related to partnership investments,Partnership Investments, which went from a $4.2 million gain for the nine months ended September 30, 2019 to a $203,000 loss for the nine months ended September 30, 2020 to a $767,000 gain for the nine months ended September 30, 2021, and a $818,000 decrease$844,000 difference in gain (loss) on equity securities, net, which went from a $159,000 gain for the nine months ended September 30, 2019 to a $659,000 loss for the nine months ended September 30, 2020.2020 to a $185,000 gain for the nine months ended September 30, 2021.

All Other had other expense of $11.4$12.4 million for the nine months ended September 30, 2020,2021, compared to $17.2$13.3 million for the nine months ended September 30, 2019.2020. The decrease was largely due to a $6.4 million$600,000 decrease in merger relatedmerger-related expenses related toassociated with the NewDominion and Carolina Alliance acquisitions.acquisition.

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The table below provides certain balance sheet information for All Other as of or for the nine months ended September 30, 2021 and 2020 and as of or for the year ended December 31, 2020.

(Dollars in thousands)September 30, 2021December 31, 2020September 30, 2020% change from 12/31/20% change from 9/30/20
Loans$3,172 $11,945 $15,166 (73.44)%(79.08)%
Allowance for credit losses (1)
137 1,354 1,789 (89.88)%(92.34)%
Net loans3,035 10,591 13,377 (71.34)%(77.31)%
Total assets21,150 42,106 44,095 (49.77)%(52.04)%
Average assets (2)
34,237 43,492 44,497 (21.28)%(23.06)%
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of September 30, 2021 and the related provision for (recovery of) credit losses for the three months ended March 31, 2021, June 30, 2021, and September 30, 2021 and the nine months ended September 30, 2021 were calculated utilizing this new guidance.
(2) Average assets for the nine months ended September 30, 2021 and 2020 and for the year ended December 31, 2020.

Park National Corporation

The table below reflects Park's consolidated net income for the first, second and third quarters of 2020,2021, for the first nine months of each of 20202021 and 20192020 and for the years ended December 31, 20192020 and 2018.
(In thousands)Q3 2020Q2 2020Q1 2020Nine months YTD 2020Nine months YTD 201920192018
Net interest income$83,840 $81,186 $76,283 $241,309 $220,728 $297,737 $266,898 
Provision for loan losses13,836 12,224 5,153 31,213 6,384 6,171 7,945 
Other income36,558 30,964 22,486 90,008 72,969 97,193 101,101 
Other expense69,859 64,799 66,276 200,934 192,757 263,988 228,755 
Income before income taxes$36,703 $35,127 $27,340 $99,170 $94,556 $124,771 $131,299 
    Income tax expense5,857 5,622 4,968 16,447 15,792 22,071 20,912 
Net income$30,846 $29,505 $22,372 $82,723 $78,764 $102,700 $110,387 
2019.

(In thousands)Q3 2021Q2 2021Q1 2021Nine months YTD 2021Nine months YTD 202020202019
Net interest income$81,602 $83,851 $80,734 $246,187 $241,309 $327,630 $297,737 
Provision for (recovery of) credit losses (1)
1,972 (4,040)(4,855)(6,923)31,213 12,054 6,171 
Other income32,411 31,238 34,089 97,738 90,008 125,664 97,193 
Other expense68,489 71,400 67,865 207,754 200,934 286,595 263,988 
Income before income taxes$43,552 $47,729 $51,813 $143,094 $99,170 $154,645 $124,771 
    Income tax expense8,118 8,597 8,982 25,697 16,447 26,722 22,071 
Net income$35,434 $39,132 $42,831 $117,397 $82,723 $127,923 $102,700 
(1) Park adopted ASU 2016-13 effective January 1, 2021. The allowance for credit losses as of September 30, 2021 and the related provision for (recovery of) credit losses for the three months ended March 31, 2021, June 30, 2021, and September 30, 2021 and the nine months ended September 30, 2021 were calculated utilizing this new guidance.

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Net Interest Income

Park’s principal source of earnings is net interest income, the difference between total interest income and total interest expense. Net interest income results from average balances outstanding for interest earning assets and interest bearing liabilities in conjunction with the average rates earned and paid on them.

Comparison for the Third Quarters of 20202021 and 20192020
 
Net interest income increaseddecreased by $6.7$2.2 million, or 8.7%2.7%, to $81.6 million for the third quarter of 2021, compared to $83.8 million for the third quarter of 2020, compared to $77.1 million for the third quarter of 2019.2020. See the discussion under the table below.
Three months ended 
September 30, 2020		Three months ended 
September 30, 2019
(Dollars in thousands)Average
balance		InterestTax
equivalent 
yield/cost		Average
balance		InterestTax
equivalent 
yield/cost
Loans (1)
$7,247,021 $82,780 4.54 %$6,371,323 $84,365 5.25 %
Taxable investments976,389 4,841 1.97 %1,027,115 6,326 2.44 %
Tax-exempt investments (2)
280,085 2,588 3.68 %306,867 2,817 3.64 %
Money market instruments223,563 63 0.11 %298,441 1,825 2.43 %
Interest earning assets$8,727,058 $90,272 4.12 %$8,003,746 $95,333 4.73 %
Interest bearing deposits$5,309,718 3,465 0.26 %$5,287,851 14,343 1.08 %
Short-term borrowings320,871 217 0.27 %180,470 478 1.05 %
Long-term debt231,581 2,044 3.51 %373,125 2,667 2.84 %
Interest bearing liabilities$5,862,170 $5,726 0.39 %$5,841,446 $17,488 1.19 %
Excess interest earning assets$2,864,888 $2,162,300  
Tax equivalent net interest income$84,546 $77,845 
Net interest spread 3.73 % 3.54 %
Net interest margin 3.85 % 3.86 %
Three months ended 
September 30, 2021		Three months ended 
September 30, 2020
(Dollars in thousands)Average
balance		InterestTax
equivalent 
yield/cost		Average
balance		InterestTax
equivalent 
yield/cost
Loans (1)
$6,956,064 $78,304 4.47 %$7,247,021 $82,780 4.54 %
Taxable investments1,121,281 4,904 1.74 %976,389 4,841 1.97 %
Tax-exempt investments (2)
277,810 2,569 3.67 %280,085 2,588 3.68 %
Money market instruments895,784 360 0.16 %223,563 63 0.11 %
Interest earning assets$9,250,939 $86,137 3.69 %$8,727,058 $90,272 4.12 %
Interest bearing deposits$5,459,400 1,446 0.11 %$5,309,718 3,465 0.26 %
Short-term borrowings273,538 187 0.27 %320,871 217 0.27 %
Long-term debt197,610 2,185 4.39 %231,581 2,044 3.51 %
Interest bearing liabilities$5,930,548 $3,818 0.26 %$5,862,170 $5,726 0.39 %
Excess interest earning assets$3,320,391 $2,864,888  
Tax equivalent net interest income$82,319 $84,546 
Net interest spread 3.43 % 3.73 %
Net interest margin 3.53 % 3.85 %
(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $163,000$177,000 for the three months ended September 30, 20202021 and $152,000$163,000 for the same period of 2019.2020.
(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 $543,000$540,000 for the three months ended September 30, 20202021 and $592,000$543,000 for the same period of 2019.2020.
 
Average interest earning assets for the third quarter of 20202021 increased by $723$523.9 million, or 9.0%6.0%, to $8,727$9,251 million, compared to $8,004$8,727 million for the third quarter of 2019.2020. The average yield on interest earning assets decreased by 6143 basis points to 3.69% for the third quarter of 2021, compared to 4.12% for the third quarter of 2020, compared to 4.73% for the third quarter of 2019.2020.
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Interest income for the three months ended September 30, 20202021 and 20192020 included purchase accounting accretion of $1.0 million$799,000 and $1.8$1.0 million, respectively, related to the acquisitions of NewDominion and Carolina Alliance. Excluding the impactAlliance, as well as $414,000 and $8,000, respectively, of thisinterest income the yieldrelated to payments received on loans was 4.48% and 5.13%certain SEPH impaired loan relationships, some of which are participated with PNB. Interest income for the three months ended September 30, 2021 and 2020 also included $4.6 million and 2019,$5.1 million, respectively, of income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the yield on loans was 4.25% and 4.54% for the three months ended September 30, 2021 and 2020, respectively, and the yield on earning assets was 4.06%3.52% and 4.63%4.08% for the three months ended September 30, 20202021 and 2019,2020, respectively.

Average interest bearing liabilities for the third quarter of 20202021 increased by $21$68.4 million, or 0.4%1.2%, to $5,862$5,931 million, compared to $5,841$5,862 million for the third quarter of 2019.2020. The average cost of interest bearing liabilities decreased by 8013 basis points to 0.26% for the third quarter of 2021, compared to 0.39% for the third quarter of 2020, compared to 1.19% for the third quarter of 2019.2020. During the three months ended September 30, 2020, Park made the decision to participate in a OWS program in order to manage growth of the balance sheet. At September 30, 2021 and 2020, Park had $818.3 million and $773.3 million, respectively, in OWS insured cash sweep deposits which were off-balance sheet. Excluding the impact of these off-balance sheet OWS deposits, the average cost of interest bearing liabilities would have been 0.35%0.22% and 0.34% for the third quarter of 2020.2021 and 2020, respectively.

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Interest expense for the three months ended September 30, 20202021 and 20192020 included a benefit from purchase accounting accretion of $42,000$8,000 and $182,000,$42,000, respectively, related to the acquisitions of NewDominion and Carolina Alliance. Excluding the impact of this income, the average cost of interest bearing liabilities was unchanged at 0.26% for the three months ended September 30, 2021 and 0.39% for the three months ended September 30, 2020 and was 1.20% for the three months ended September 30, 2019.2020.

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 impaired loan relationships and the interest income related to PPP loans, the net interest margin was 3.80%3.35% and 3.75%3.80% for the three months ended September 30, 20202021 and 2019,2020, respectively.

Yield on Loans: Average loan balances increased $876decreased $291.0 million, or 13.7%4.0%, to $6,956 million for the third quarter of 2021, compared to $7,247 million for the third quarter of 2020, compared to $6,371 million for the third quarter of 2019.2020. The average yield on the loan portfolio decreased by 717 basis points to 4.47% for the third quarter of 2021, compared to 4.54% for the third quarter of 2020, compared to 5.25% for the third quarter of 2019.2020. Average loans for the third quarterquarters of 2021 and 2020 included $194.8 million and $542.8 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 September 30, 20202021 and 2019.
Three months ended 
September 30, 2020		Three months ended 
September 30, 2019
(Dollars in thousands)Average
balance		Tax
equivalent 
yield		Average
balance		Tax
equivalent 
yield
Home equity loans$199,299 3.78 %$234,887 5.79 %
Installment loans1,599,373 5.13 %1,407,812 5.34 %
Real estate loans1,284,116 4.02 %1,262,851 4.45 %
Commercial loans (1)
4,160,079 4.51 %3,460,626 5.47 %
Other4,154 9.28 %5,147 10.83 %
Total loans and leases before allowance$7,247,021 4.54 %$6,371,323 5.25 %

2020.
Three months ended 
September 30, 2021		Three months ended 
September 30, 2020
(Dollars in thousands)Average
balance		Tax
equivalent 
yield		Average
balance		Tax
equivalent 
yield
Home equity loans$166,796 3.67 %$199,299 3.78 %
Installment loans1,711,240 4.76 %1,599,373 5.13 %
Real estate loans1,173,116 3.69 %1,284,116 4.02 %
Commercial loans (1)
3,901,243 4.60 %4,160,079 4.51 %
Other3,669 9.15 %4,154 9.28 %
Total loans and leases before allowance$6,956,064 4.47 %$7,247,021 4.54 %
(1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $163,000$177,000 for the three months ended September 30, 20202021 and $152,000$163,000 for the same period of 2019.2020.

Loan interest income for the three months ended September 30, 20202021 and 20192020 included the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance.Alliance, interest income related to payments on certain SEPH impaired loan relationships and interest income related to PPP loans. Excluding thisthe impact of the purchase accounting accretion, SEPH income, and PPP income, (a) the yield on home equity loans was 3.38%, the yield on installment loans was unchanged at 4.76%, the yield on real estate loans was 3.65%, the yield on commercial loans was 4.24% and the yield on total loans and leases before allowance was 4.25% for the three months ended September 30, 2021; and (b) the yield on home equity loans was 3.61%, the yield on installment loans was unchanged at 5.13%, the yield on real estate loans was 4.00%, the yield on commercial loans was 4.42%4.52% and the yield on total loans and leases before allowance was 4.48%unchanged at 4.54% for the three months ended September 30, 2020, and the yield on home equity loans was 5.38%, the yield on installment loans was 5.33%, the yield on real estate loans was 4.39%, the yield on commercial loans was 5.29% and the yield on total loans and leases before allowance was 5.13% for the three months ended September 30, 2019.2020.

Cost of Deposits: Average interest bearing deposit balances increased $22$149.7 million, or 0.4%2.8%, to $5,310$5,459 million for the third quarter of 2020,2021, compared to $5,288$5,310 for the third quarter of 2019.2020. The average cost of funds on deposit balances decreased by 8215 basis points to 0.11% for the third quarter of 2021, compared to 0.26% for the third quarter of 2020, compared to 1.08% for the third quarter of 2019.2020.

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The table below shows for the three months ended September 30, 20202021 and 2019,2020, the average balance and cost of funds by type of deposit.
Three months ended 
September 30, 2021		Three months ended 
September 30, 2020
(Dollars in thousands)Average
balance		Cost of fundsAverage
balance		Cost of funds
Transaction accounts$1,643,234 0.02 %$1,732,893 0.07 %
Savings deposits and clubs3,071,014 0.04 %2,609,808 0.08 %
Time deposits745,152 0.54 %967,017 1.10 %
Total interest bearing deposits$5,459,400 0.11 %$5,309,718 0.26 %

Three months ended 
September 30, 2020		Three months ended 
September 30, 2019
(Dollars in thousands)Average
balance		Cost of fundsAverage
balance		Cost of funds
Transaction accounts$1,732,893 0.07 %$1,784,784 0.88 %
Savings deposits and clubs2,609,808 0.08 %2,354,172 0.96 %
Time deposits967,017 1.10 %1,148,895 1.62 %
Total interest bearing deposits$5,309,718 0.26 %$5,287,851 1.08 %
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Deposit interest expense for the three months ended September 30, 20202021 and 20192020 included the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance.Alliance of $8,000 and $42,000, respectively. Excluding this income, the cost of funds for time deposits was unchanged 0.54% and the cost of total interest bearing deposits was unchanged at 0.11% for the three months ended September 30, 2021, and the cost of funds for time deposits was 1.11% and the cost of total interest bearing deposits was unchanged at 0.26% for the three months ended September 30, 2020, and the cost of funds for time deposits was 1.68% and the cost of total interest bearing deposits was 1.09% for the three months ended September 30, 2019.2020.

Comparison for the First Nine Months of 20202021 and 20192020
 
Net interest income increased by $20.6$4.9 million, or 9.3%2.0%, to $246.2 million for the first nine months of 2021, compared to $241.3 million for the first nine months of 2020, compared to $220.7 million for the first nine months of 2019.2020. See the discussion under the table below.
Nine months ended 
September 30, 2020		Nine months ended 
September 30, 2019
(Dollars in thousands)Average
balance		InterestTax
equivalent 
yield/cost		Average
balance		InterestTax
equivalent 
yield/cost
Loans (1)
$6,904,900 $243,913 4.72 %$6,133,386 $239,122 5.21 %
Taxable investments905,665 15,398 2.27 %1,077,566 20,240 2.51 %
Tax-exempt investments (2)
292,672 8,096 3.69 %311,213 8,545 3.67 %
Money market instruments286,909 667 0.31 %158,395 2,994 2.53 %
Interest earning assets$8,390,146 $268,074 4.27 %$7,680,560 $270,901 4.72 %
Interest bearing deposits$5,350,009 18,945 0.47 %$4,967,106 38,381 1.03 %
Short-term borrowings264,842 912 0.46 %218,939 1,977 1.21 %
Long-term debt190,285 4,754 3.34 %380,284 7,585 2.67 %
Interest bearing liabilities$5,805,136 $24,611 0.57 %$5,566,329 $47,943 1.15 %
Excess interest earning assets$2,585,010  $2,114,231  
Tax equivalent net interest income$243,463 $222,958 
Net interest spread 3.70 % 3.57 %
Net interest margin 3.88 % 3.88 %
Nine months ended 
September 30, 2021		Nine months ended 
September 30, 2020
(Dollars in thousands)Average
balance		InterestTax
equivalent 
yield/cost		Average
balance		InterestTax
equivalent 
yield/cost
Loans (1)
$7,062,336 $238,568 4.52 %$6,904,900 $243,913 4.72 %
Taxable investments969,628 13,760 1.90 %905,665 15,398 2.27 %
Tax-exempt investments (2)
278,379 7,719 3.71 %292,672 8,096 3.69 %
Money market instruments724,561 689 0.13 %286,909 667 0.31 %
Interest earning assets$9,034,904 $260,736 3.86 %$8,390,146 $268,074 4.27 %
Interest bearing deposits$5,284,664 5,102 0.13 %$5,350,009 18,945 0.47 %
Short-term borrowings296,132 552 0.25 %264,842 912 0.46 %
Long-term debt211,857 6,746 4.26 %190,285 4,754 3.34 %
Interest bearing liabilities$5,792,653 $12,400 0.29 %$5,805,136 $24,611 0.57 %
Excess interest earning assets$3,242,251 $2,585,010  
Tax equivalent net interest income$248,336 $243,463 
Net interest spread 3.57 % 3.70 %
Net interest margin 3.67 % 3.88 %
(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $454,000$528,000 for the nine months ended September 30, 20202021 and $435,000$454,000 for the same period of 2019.2020.
(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 $1.7$1.6 million for the nine months ended September 30, 20202021 and $1.8$1.7 million for the same period of 2019.2020.
 
Average interest earning assets for the first nine months of 20202021 increased by $709$644.8 million, or 9.2%7.7%, to $8,390$9,035 million, compared to $7,681$8,390 million for the first nine months of 2019.2020. The average yield on interest earning assets decreased by 4541 basis points to 3.86% for the first nine months of 2021, compared to 4.27% for the first nine months of 2020, compared to 4.72% for the first nine months of 2019.2020.

Interest income for the nine months ended September 30, 20202021 and 20192020 included purchase accounting accretion of $3.6$2.7 million and $3.4$3.6 million, respectively, related to the acquisitions of NewDominion and Carolina Alliance. Excluding the impactAlliance, as well as $3.4 million and $351,000, respectively, of thisinterest income the yieldrelated to payments received on loans was 4.64% and 5.13%certain SEPH impaired loan relationships, some of which are participated with PNB. Interest income for the nine months ended September 30, 2021 and 2020 also included $15.5 million and 2019,$8.7 million, respectively, of income related to PPP loans. Excluding the impact of the purchase accounting accretion, SEPH income, and PPP income, the yield on loans was 4.29% and 4.68% for the nine months ended September 30, 2021 and 2020, respectively, and the yield on earning assets was 4.21%3.66% and 4.65%4.22% for the nine months ended September 30, 2021 and 2020, and 2019, respectively.
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Average interest bearing liabilities for the first nine months of 2020 increased2021 decreased by $239$12.5 million, or 4.3%0.2%, to $5,805$5,793 million, compared to $5,566$5,805 million for the first nine months of 2019.2020. The average cost of interest bearing liabilities decreased by 5828 basis points to 0.29% for the first nine months of 2021, compared to 0.57% for the first nine months of 2020, compared to 1.15% for the first nine months of 2019.2020. During the threenine months ended September 30, 2020, Park made the decision to participate in a OWS program in order to manage the growth of the balance sheet. At September 30, 2021 and 2020, Park had $818.3 million and $773.3 million, respectively, in OWS insured cash sweep deposits which were off-balance sheet. Excluding the impact of these off-balance sheet OWS deposits, the average cost of interest bearing liabilities would have been 0.25% and 0.55% for the first nine months of 2020.2021 and 2020, respectively.

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Interest expense for the nine months ended September 30, 20202021 and 20192020 included a benefit from purchase accounting accretion of $194,000$39,000 and $456,000,$194,000, respectively, related to the acquisitions of NewDominion and Carolina Alliance. Excluding the impact of this income, the average cost of interest bearing liabilities was unchanged at 0.57%0.13% for the nine months ended September 30, 20202021 and was 1.16%0.48% for the nine months ended September 30, 2019.2020.

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 impaired loan relationships and the interest income related to PPP loans, the net interest margin was 3.47% and 3.81% for both the nine months ended September 30, 2021 and 2020, and 2019.respectively.

Yield on Loans: Average loan balances increased $772$157 million, or 12.6%2.3%, to $7,062 million for the first nine months of 2021, compared to $6,905 million for the first nine months of 2020, compared to $6,133 million for the first nine months of 2019.2020. The average yield on the loan portfolio decreased by 4920 basis points to 4.52% for the first nine months of 2021, compared to 4.72% for the first nine months of 2020, compared to 5.21% for the first nine months of 2019.2020. Average loans for the first nine months of 2021 and 2020 included an average of$309.0 million and $312.2 million, respectively, of PPP loans.

The table below shows the average balance and tax equivalent yield by type of loan for the nine months ended September 30, 20202021 and 2019.
Nine months ended 
September 30, 2020		Nine months ended 
September 30, 2019
(Dollars in thousands)Average
balance		Tax
equivalent 
yield		Average
balance		Tax
equivalent 
yield
Home equity loans$211,421 4.11 %$230,570 5.75 %
Installment loans1,510,580 5.23 %1,354,589 5.33 %
Real estate loans1,284,858 4.14 %1,237,805 4.35 %
Commercial loans (1)
3,893,807 4.74 %3,305,559 5.44 %
Other4,234 10.10 %4,863 11.45 %
Total loans and leases before allowance$6,904,900 4.72 %$6,133,386 5.21 %

2020.
Nine months ended 
September 30, 2021		Nine months ended 
September 30, 2020
(Dollars in thousands)Average
balance		Tax
equivalent 
yield		Average
balance		Tax
equivalent 
yield
Home equity loans$169,892 3.79 %$211,421 4.11 %
Installment loans1,684,026 4.83 %1,510,580 5.23 %
Real estate loans1,185,141 3.79 %1,284,858 4.14 %
Commercial loans (1)
4,020,498 4.63 %3,893,807 4.74 %
Other2,779 12.21 %4,234 10.10 %
Total loans and leases before allowance$7,062,336 4.52 %$6,904,900 4.72 %
(1) Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate. The taxable equivalent adjustment was $454,000$528,000 for the nine months ended September 30, 20202021 and $435,000$454,000 for the same period of 2019.2020.

Loan interest income for the nine months ended September 30, 20202021 and 20192020 included the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance.Alliance, interest income related to payments on certain SEPH impaired loan relationships and interest income related to PPP loans. Excluding thisthe impact of the purchase accounting accretion, SEPH income, and PPP income, (a) the yield on home equity loans was 3.43%, the yield on installment loans was unchanged at 4.83%, the yield on real estate loans was 3.76%, the yield on commercial loans was 4.25% and the yield on total loans and leases before allowance was 4.29% for the nine months ended September 30, 2021; and (b) the yield on home equity loans was 3.93%, the yield on installment loans was unchanged at 5.23%, the yield on real estate loans was 4.10%, the yield on commercial loans was 4.63%4.69% and the yield on total loans and leases before allowance was 4.64%4.68% for the nine months ended September 30, 2020, and the yield on home equity loans was 5.53%, the yield on installment loans was 5.32%, the yield on real estate loans was 4.31%, the yield on commercial loans was 5.32% and the yield on total loans and leases before allowance was 5.13% for the nine months ended September 30, 2019.2020.

Cost of Deposits: Average interest bearing deposit balances increased $383decreased $65.3 million, or 7.7%1.2%, to $5,350$5,285 million for the first nine months of 2020,2021, compared to $4,967 million$5,350 for the first nine months of 2019.2020. The average cost of funds on deposit balances decreased by 5634 basis points to 0.13% for the first nine months of 2021, compared to 0.47% for the first nine months of 2020, compared to 1.03% for the first nine months of 2019.2020.

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The table below shows for the nine months ended September 30, 20202021 and 2019,2020, the average balance and cost of funds by type of deposit.
Nine months ended 
September 30, 2021		Nine months ended 
September 30, 2020
(Dollars in thousands)Average
balance		Cost of fundsAverage
balance		Cost of funds
Transaction accounts$1,543,451 0.02 %$1,780,253 0.26 %
Savings deposits and clubs2,947,088 0.04 %2,538,193 0.27 %
Time deposits794,125 0.65 %1,031,563 1.33 %
Total interest bearing deposits$5,284,664 0.13 %$5,350,009 0.47 %

Nine months ended 
September 30, 2020		Nine months ended 
September 30, 2019
(Dollars in thousands)Average
balance		Cost of fundsAverage
balance		Cost of funds
Transaction accounts$1,780,253 0.26 %$1,626,095 0.81 %
Savings deposits and clubs2,538,193 0.27 %2,233,237 0.94 %
Time deposits1,031,563 1.33 %1,107,774 1.55 %
Total interest bearing deposits$5,350,009 0.47 %$4,967,106 1.03 %
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Deposit interest expense for the nine months ended September 30, 20202021 and 20192020 included the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina Alliance.Alliance of $39,000 and $194,000, respectively. Excluding this income, the cost of funds for time deposits was 0.66% and the cost of total interest bearing deposits was unchanged at 0.13% for the nine months ended September 30, 2021, and the cost of funds for time deposits was 1.36% and the cost of total interest bearing deposits was 0.48% for the nine months ended September 30, 2020, and the cost of funds for time deposits was 1.60% and the cost of total interest bearing deposits was 1.05% for the nine months ended September 30, 2019.2020.

Yield on Average Interest Earning Assets: The following table shows the tax equivalent yield on average interest earning assets for the nine months ended September 30, 20202021 and for the years ended December 31, 2020, 2019 2018 and 2017.2018.

Loans (1) (3)
Investments (2)
Money Market
Instruments
Total(3)
Loans (1) (3)
Investments (2)
Money Market
Instruments
Total(3)
2017 - year4.69 %2.47 %1.18 %4.08 %
2018 - year2018 - year4.98 %2.72 %1.93 %4.46 %2018 - year4.98 %2.72 %1.93 %4.46 %
2019 - year2019 - year5.19 %2.76 %2.33 %4.70 %2019 - year5.19 %2.76 %2.33 %4.70 %
2020 - first nine months4.72 %2.62 %0.31 %4.27 %
2020 - year2020 - year4.71 %2.66 %0.26 %4.28 %
2021 - first nine months2021 - first nine months4.52 %2.30 %0.13 %3.86 %
(1) Loan interest income includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate for 2020, 2019 and 2018 and a 35% federal corporate income tax rate for 2017.rate. The taxable equivalent adjustment was $454,000$528,000 for the nine months ended September 30, 2020,2021, and $623,000, $576,000 $528,000 and $1.1 million$528,000 for the years ended December 31, 2020, 2019 2018 and 2017,2018, respectively.
(2) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate for 2020, 2019 and 2018 and a 35% federal corporate income tax rate for 2017.rate. The taxable equivalent adjustment was $1.7$1.6 million for the nine months ended September 30, 2020,2021, and $2.2 million, $2.4 million $2.3 million and $3.9$2.3 million for the years ended December 31, 2020, 2019 2018 and 2017,2018, respectively.
(3) Interest income for the nine months ended September 30, 20202021 and for the years ended December 31, 2020, 2019 and 2018 and 2017 included $351,000, $256,000, $3.4 million, $453,000, $256,000 and $2.3$3.4 million, respectively, related to payments received on former Vision Bankcertain SEPH impaired loan relationships, some of which are participated with PNB, as well as $3.6$2.7 million, $4.4 million, $5.2 million and $1.1 million, respectively, of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion and Carolina AllianceAlliance. Interest income for the nine months ended September 30, 20202021 and for the yearsyear ended December 31, 20192020 included $15.5 million and 2018.$16.7 million, respectively, of income related to PPP loans. Excluding all of these sources of income, the yield on loans was 4.64%4.29%, 4.63%, 5.09%, and 4.89% and 4.66%, for the nine months ended September 30, 2020,2021, and for the years ended December 31, 2020, 2019 2018, and 2017,2018, respectively, and the yield on earning assets was 3.66%, 4.20%, 4.62%, and 4.40% and 4.05%, for the nine months ended September 30, 20202021 and for the years ended December 31, 2020, 2019 2018 and 2017,2018, respectively.

Cost of Average Interest Bearing Liabilities: The following table shows the cost of funds on average interest bearing liabilities for the nine months ended September 30, 20202021 and for the years ended December 31, 2020, 2019 2018 and 2017.2018.

Interest bearing deposits (1)
Short-term borrowingsLong-term debt
Total (1)
Interest bearing deposits (1)
Short-term borrowingsLong-term debt
Total (1)
2017 - year0.44 %0.43 %2.86 %0.80 %
2018 - year2018 - year0.72 %0.74 %2.38 %0.86 %2018 - year0.72 %0.74 %2.38 %0.86 %
2019 - year2019 - year1.01 %1.15 %2.77 %1.12 %2019 - year1.01 %1.15 %2.77 %1.12 %
2020 - first nine months0.47 %0.46 %3.34 %0.57 %
2020 - year2020 - year0.41 %0.40 %3.55 %0.52 %
2021 - first nine months2021 - first nine months0.13 %0.25 %4.26 %0.29 %
(1) Interest expense for the nine months ended September 30, 20202021 and the years ended December 31, 2020, 2019 and 2018 included $194,000,$39,000, $226,000, $593,000 and $287,000, respectively, of the accretion of purchase accounting adjustments related to the acquisitions of NewDominion (for all of these periods) and Carolina Alliance (for the nine months ended September 30, 20202021 and the yearyears ended December 31, 2020 and 2019). Excluding this income, for the nine months ended September 30, 20202021 and the years ended December 31, 2020, 2019 and 2018, the cost of funds on interest bearing deposits was 0.48%0.13%, 0.41%, 1.02% and 0.73%, respectively, and the cost of interest bearing liabilities was 0.57%0.29%, 0.53%, 1.13% and 0.86%, respectively.

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Credit Metrics and Provision for Loan(Recovery of) Credit Losses

The provision for loancredit losses is the amount added to the allowance for loan and leasecredit losses to ensure the allowance is sufficient to absorb probable, incurred loan losses.estimated credit losses over the life of a loan. The amount of the provision for loancredit losses is determined by management after reviewing thebased 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 loan portfolio, historicremaining cash flows over the contractual term of the financial assets.

Section 4014 of the CARES Act provided financial institutions with optional temporary relief from having to comply with ASU 2016-13 including the CECL methodology for estimating the allowance for credit losses. This temporary relief was set to expire on the earlier of the date on which the national emergency concerning COVID-19 terminated or December 31, 2020, with adoption being effective retrospectively as of January 1, 2020.

Section 540 of the Consolidated Appropriations Act, 2021, amended Section 4014 of the CARES Act by extending the relief period provided in the CARES Act. The Consolidated Appropriations Act, 2021, modified the CARES Act so that temporary
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relief will expire on the earlier of the first day of the fiscal year that begins after the date on which the national emergency concerning COVID-19 terminates or January 1, 2022.

Park elected to delay the implementation of ASU 2016-13 following the approval of the CARES Act and current loancontinued to use the incurred loss experiencemethodology for estimating the allowance for credit losses in 2020. ASU 2016-13 requires financial institutions to calculate an allowance utilizing a reasonable and current economic conditions.supportable forecast period which Park has established as a one-year period. In the unprecedented circumstances surrounding the COVID-19 pandemic and the response thereto, Park believed that adopting ASU 2016-13 in the first quarter of 2020 would have added an unnecessary level of subjectivity and volatility to the calculation of the allowance for credit losses. With the approval of the Consolidated Appropriations Act, 2021, management elected to further delay adoption of ASU 2016-13 to January 1, 2021. This allowed Park to utilize the CECL standard for the entire year of adoption.

The adoption of ASU 2016-13 on January 1, 2021 resulted in a $6.1 million increase to the allowance for credit losses and a $3.9 million increase to the allowance for unfunded credit losses. A cumulative effect adjustment resulting in an $8.0 million decrease to retained earnings and a $2.1 million increase to deferred tax assets was also recorded.

The table below provides additional information on the provision for loan(recovery of) credit losses for the three-month and nine-month periods ended September 30, 20202021 and 2019.
Three Months Ended
September 30,		Nine Months Ended
September 30,
(Dollars in thousands)2020201920202019
Allowance for loan losses:
Beginning balance$73,476 $54,003 $56,679 $51,512 
Charge-offs1,529 2,479 6,344 8,394 
Recoveries1,255 2,362 5,490 6,351 
Net charge-offs274 117 854 2,043 
Provision for loan losses13,836 1,967 31,213 6,384 
Ending balance$87,038 55,853 $87,038 55,853 
Net charge-offs as a % of average loans (annualized)0.02 %0.01 %0.02 %0.04 %
Loans acquired as part of the acquisitions of NewDominion and Carolina Alliance were recorded at fair value on the date of acquisition. An allowance is only established on these loans as a result of credit deterioration post acquisition.2020.

SEPH, as a non-bank subsidiary of Park, does not carry an ALLL balance, but recognizes a provision for loan losses when a charge-off is taken and recognizes a recovery of loan losses when a recovery is received.
Three Months Ended
September 30,		Nine Months Ended
September 30,
(Dollars in thousands)2021202020212020
Allowance for credit losses:
Beginning balance$83,577 $73,476 $85,675 $56,679 
Cumulative change in accounting principle; adoption of ASU 2016-13— — 6,090 — 
Charge-offs1,002 1,529 3,773 6,344 
Recoveries3,582 1,255 7,060 5,490 
Net (recoveries) charge-offs(2,580)274 (3,287)854 
Provision for (recovery of) credit losses1,972 13,836 (6,923)31,213 
Ending balance$88,129 87,038 $88,129 87,038 
Net (recoveries) charge-offs as a % of average loans (annualized)(0.15)%0.02 %(0.06)%0.02 %


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The following table provides additional information related to the allowance for loancredit losses for Park including information related to specific reserves and general reserves, at September 30, 2020,2021, December 31, 20192020 and September 30, 2019.2020. Also included is the January 1, 2021 allowance for credit losses calculated under the CECL methodology prescribed in ASU 2016-13.

Park - Allowance for Loan Losses
(In thousands)September 30, 2020December 31, 2019September 30, 2019
Total allowance for loan losses$87,038 $56,679 $55,853 
Allowance on PCI loans103 268 — 
Allowance on other purchased loans371 — — 
Specific reserves8,666 5,230 3,083 
General reserves on originated loans$77,898 $51,181 $52,770 
Total loans$7,278,546 $6,501,404 $6,403,647 
PCI loans (1)
11,877 14,331 20,486 
Other purchased loans393,752 548,436 604,399 
Impaired commercial loans116,138 77,459 74,424 
Originated loans excluding impaired commercial loans$6,756,779 $5,861,178 $5,704,338 
Total allowance for loan losses to total loans ratio1.20 %0.87 %0.87 %
Total allowance for loan losses on originated loans to total originated loans ratio1.26 %0.95 %0.97 %
Total allowance for loan losses on originated loans to total originated loans ratio (excluding PPP loans) (2)
1.36 %N.A.N.A.
General reserves as a % of total originated loans less impaired commercial loans1.15 %0.87 %0.93 %
General reserves as a % of total originated loans less impaired commercial loans (excluding PPP loans) (2)
1.24 %N.A.N.A.

Park - Allowance for Credit Losses
(Dollars in thousands)9/30/2021 (CECL methodology)1/1/2021 (CECL methodology)12/31/2020 (Incurred Loss methodology)9/30/2020 (Incurred Loss methodology)
Total allowance for credit losses$88,129 $91,764 $85,675 $87,038 
Allowance on PCD loans (PCI loans for the periods ended in 2020)— 52 167 103 
Allowance on purchased loans excluded from the general reserve— — 678 371 
Specific reserves on individually evaluated loans3,466 5,434 5,434 8,666 
General reserves on collectively evaluated loans$84,663 $86,278 $79,396 $77,898 
Total loans$6,908,417 $7,177,537 $7,177,785 $7,278,546 
PCD loans (PCI loans for periods ended in 2020)8,705 10,903 11,153 11,877 
Purchased loans excluded from collectively evaluated loans— — 360,056 393,752 
Individually evaluated loans79,264 108,274 108,407 116,138 
Collectively evaluated loans$6,820,448 $7,058,360 $6,698,169 $6,756,779 
Allowance for credit losses as a % of period end loans1.28 %1.28 %1.19 %1.20 %
Allowance for credit losses as a % of period end loans (excluding PPP loans) (1)
1.30 %1.34 %1.25 %1.28 %
General reserve as a % of collectively evaluated loans1.24 %1.22 %1.19 %1.15 %
General reserve as a % of collectively evaluated loans (excluding PPP loans) (1)
1.27 %1.28 %1.24 %1.24 %
(1) Excludes PCI$131.5 million of PPP loans which are individually evaluated for impairment due to additional credit deterioration post acquisition. These loans had a balance of $0, $5,000 and $11,000$136,000 in related allowance at September 30, 2020,2021; $331.6 million of PPP loans and $337,000 in related allowance at January 1, 2021; $331.6 million of PPP loans and $337,000 in related allowance at December 31, 20192020; and September 30, 2019, respectively.
(2) Excludes $542.8 million of PPP loans and $543,000 in related allowance at September 30, 2020. No PPP loans were outstanding at December 31, 2019 or September 30, 2019.

The allowance for loancredit losses of $87.0$88.1 million at September 30, 20202021 represented a $30.4$3.6 million, or 53.6%4.0%, increasedecrease compared to $56.7$91.8 million at December 31, 2019. This increaseJanuary 1, 2021 as calculated under the CECL methodology. The decline since January 1, 2021 was largely the result ofdue to a $26.7$1.6 million increasedecrease in general reserves, on originated total loans and a $3.4 million increase in specific reserves. As of September 30, 2020, a $371,000 allowance had been established for performing acquired loans and a $103,000 allowance had been established for PCI loans. In addition totaking into consideration improved economic forecasts while balancing the established allowance related to acquired loans, as of September 30, 2020, these loans have a remaining purchase accounting discount of $8.1 million. The $26.7 million increase in general reserves was the result of the estimated increase in incurred losses as a result of the impact ofrisks associated with the COVID-19 pandemic. This estimate was established based on consideration of Park's existing environmental loss factors, modification programs Park has putpandemic and the Delta variant, particularly in place, and balances of high risk portfolios such as hotels and accommodations, restaurants and food service and strip shopping centers. Much is still unknown about the long-term economic impact of the COVID-19 pandemic and management will continueAdditionally, there was a $2.0 million decrease in specific reserves on individually evaluated loans from $5.4 million at January 1, 2021 to evaluate this estimate of incurred losses as new information becomes available.$3.5 million at September 30, 2021. See the section entitled "Allowance for loan losses"Credit Losses" for further details.

Generally, management obtains updated valuations for all nonperforming loans at least annually. 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: Nonperforming assets include: (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) OREO which results from taking possession of property that served as collateral for a defaulted loan; and (5) other nonperforming assets. At September 30, 2020,2021, December 31, 20192020 and September 30, 2019,2020, other nonperforming assets consisted of aircraft acquired as part of a loan workout.


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The following table compares Park’s nonperforming assets at September 30, 2020,2021, December 31, 20192020 and September 30, 2019.2020.
 
Park National Corporation - Nonperforming Assets 
(In thousands)(In thousands)September 30, 2020December 31, 2019September 30, 2019(In thousands)September 30, 2021December 31, 2020September 30, 2020
Nonaccrual loansNonaccrual loans$123,050 $90,080 $89,555 Nonaccrual loans$87,791 $117,368 $123,050 
Accruing TDRsAccruing TDRs23,774 21,215 18,382 Accruing TDRs18,797 20,788 23,774 
Loans past due 90 days or moreLoans past due 90 days or more1,618 2,658 3,247 Loans past due 90 days or more284 1,458 1,618 
Total nonperforming loansTotal nonperforming loans$148,442 $113,953 $111,184 Total nonperforming loans$106,872 $139,614 $148,442 
OREOOREO836 4,029 3,779 OREO813 1,431 836 
Other nonperforming assets - PNB3,392 3,599 3,598 
Other nonperforming assetsOther nonperforming assets3,164 3,164 3,392 
Total nonperforming assetsTotal nonperforming assets$152,670 $121,581 $118,561 Total nonperforming assets$110,849 $144,209 $152,670 
Percentage of nonaccrual loans to total loansPercentage of nonaccrual loans to total loans1.69 %1.39 %1.40 %Percentage of nonaccrual loans to total loans1.27 %1.64 %1.69 %
Percentage of nonperforming loans to total loansPercentage of nonperforming loans to total loans2.04 %1.75 %1.74 %Percentage of nonperforming loans to total loans1.55 %1.95 %2.04 %
Percentage of nonperforming assets to total loansPercentage of nonperforming assets to total loans2.10 %1.87 %1.85 %Percentage of nonperforming assets to total loans1.60 %2.01 %2.10 %
Percentage of nonperforming assets to total assetsPercentage of nonperforming assets to total assets1.65 %1.42 %1.36 %Percentage of nonperforming assets to total assets1.10 %1.55 %1.65 %
 
Included in the nonaccrual loan totals above were $1.6 million of SEPH nonaccrual loans at September 30, 2019. There were no SEPH nonaccrual loans at September 30, 2020 or December 31, 2019. Included in the OREO totals above were $594,000 of SEPH OREO at each of September 30, 2020, $929,000 at2021, December 31, 20192020 and $797,000 at September 30, 2019.2020.

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 daydays for commercial loans and 120 days for all other loans. As a result, loans may be classified as nonaccrual despite being current with their contractual terms. The following table details the delinquency status of nonaccrual loans at September 30, 2020,2021, December 31, 20192020 and September 30, 2019.2020. Loans are classified as current if they are less than 30 days past due.

September 30, 2020December 31, 2019September 30, 2019September 30, 2021December 31, 2020September 30, 2020
(In thousands)(In thousands)BalancePercent of Total LoansBalancePercent of Total LoansBalancePercent of Total Loans(In thousands)BalancePercent of Total LoansBalancePercent of Total LoansBalancePercent of Total Loans
Nonaccrual loans - currentNonaccrual loans - current$101,551 1.39 %$66,282 1.02 %$65,718 1.03 %Nonaccrual loans - current$67,722 0.98 %$92,600 1.29 %$101,551 1.39 %
Nonaccrual loans - past dueNonaccrual loans - past due21,499 0.30 %23,798 0.37 %23,837 0.37 %Nonaccrual loans - past due20,069 0.29 %24,768 0.35 %21,499 0.30 %
Total nonaccrual loansTotal nonaccrual loans$123,050 1.69 %$90,080 1.39 %$89,555 1.40 %Total nonaccrual loans$87,791 1.27 %$117,368 1.64 %$123,050 1.69 %
 
Credit Quality Indicators: When determining the quarterly loancredit 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 loan loss reserve percentagePD is allocatedapplied 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 loan loss reserve percentagePD is allocatedapplied 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. Any commercial loan graded an 8 (loss) is completely charged-off.

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The following table highlights the credit trends within the commercial loan portfolio.

Commercial loans * (In thousands)September 30, 2020December 31, 2019September 30, 2019
Pass-rated$3,959,026 $3,418,159 $3,321,981 
Special mention103,570 27,367 43,192 
Substandard1,147 973 1,587 
Impaired116,138 77,459 74,424 
Accruing PCI11,018 13,364 19,042 
Total$4,190,899 $3,537,322 $3,460,226 

Commercial loans * (In thousands)September 30, 2021December 31, 2020September 30, 2020
Pass-rated$3,676,310 $3,893,205 $3,959,026 
Special mention92,659 102,812 103,570 
Substandard39 109 1,147 
Impaired79,264 108,407 116,138 
Accruing PCI8,187 10,296 11,018 
Total$3,856,459 $4,114,829 $4,190,899 
* 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.

At September 30, 2020, Park had $104.7$92.7 million of non-impairedcollectively evaluated commercial loans included on the watch list at September 30, 2021, compared to $28.3$102.9 million at December 31, 20192020, and compared to $44.8$104.7 million at September 30, 2019.2020. 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 $76.4$92.7 million increase in non-impairedof collectively evaluated commercial watch list loans from December 31, 2019 toas of September 30, 20202021 is elevated compared to pre-pandemic levels, an increase of $65.9 million compared to $26.8 million at March 31, 2020. This $65.9 million increase was largely due to $72.4$68.3 million of hotels and accommodationaccommodations loans that were downgraded to special mention or substandard as a result of the impact of COVID-19. In addition to the $72.4$68.3 million in hotels and accommodationaccommodations loans whichthat were downgraded to special mention, $22.4$15.6 million in hotels and accommodationaccommodations loans were downgraded to impaired status. Park is closely monitoring the impact of COVID-19 on its borrowersborrowers' ability to repay their loans in accordance with contractual terms. As additional information becomes available, management will continue to evaluate loans to ensure appropriate risk classification.

Delinquencies have remained low over the past 33 months since January 1, 2019. Delinquent and accruing loans were $14.3 million, or 0.21% of total loans at September 30, 2021, compared to $20.1 million, or 0.28% of total loans at December 31, 2020, and $23.8 million, or 0.37% of total loans at December 31, 2019.
Impaired
Individually Evaluated Loans: Park’s allowance for loan losses includesLoans that do not share risk characteristics are evaluated on an allocationindividual basis. Park has determined that any commercial loans which have been placed on nonaccrual status or classified as TDRs will be individually evaluated and are labeled as impaired. Individual analysis will establish a specific reserve for loans specifically identified as impaired under U.S. GAAP. At September 30, 2020, loans considered to be impaired consisted substantially of commercial loans graded as "substandard" or “doubtful” and placed on non-accrual status.in scope.  Specific reserves on impaired 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 amount different from management’s estimates.estimate.

Impaired commercial loans were $79.3 million at September 30, 2021, a decrease of $29.1 million, compared to $108.4 million at December 31, 2020 and a decrease of $36.9 million, compared to $116.1 million at September 30, 2020, an increase of $38.7 million, compared to $77.5 million at December 31, 2019.2020. The $116.1$79.3 million of impaired commercial loans at September 30, 20202021 included $11.9$8.2 million of loans modified in a TDR which arewere then currently on accrual status and performing in accordance with the restructured terms, updown from $8.4$8.8 million at December 31, 2019.2020.

At September 30, 2020,2021, Park had taken partial charge-offs of $563,000$688,000 related to the $116.1$79.3 million of commercial loans considered to be impaired, compared to partial charge-offs of $719,000$655,000 related to the $77.5$108.4 million of impaired commercial loans at December 31, 2019.2020.

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 which 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 which were recorded at the initial fair value of $18.4 million.million

Upon adoption of CECL on January 1, 2021, $52,000 of the credit discount on PCD loans was reclassified to the allowance for credit losses. At September 30, 2021, there was no allowance for credit losses on PCD loans. The carrying amount of loans
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acquired with deteriorated credit quality at September 30, 2021 and December 31, 2020 was $11.9$8.7 million of which none were considered impaired due to additional credit deterioration or modification post acquisition. The $11.9and $11.2 million, were not included in impaired loan totals. The carrying amount of loans acquired with deteriorated credit quality at December 31, 2019 was $14.3 million, of which $5,000 was considered impaired due to additional credit deterioration or modification post acquisition. The remaining $14.3 million were not included in impaired loan totals.respectively.

Allowance for loan losses:Credit Losses: Loss factorsThe allowance for credit losses is calculated on a quarterly basis. The methodology for calculating the ACL and assumptions made as of September 30, 2021 are reviewed quarterly and updated at least annually to reflect recent loan loss history and incorporate current risks and trends which may not be recognized in historical data.detailed below.

For all loan types, management considers the following factorsQuantitative Considerations
The ACL is primarily calculated utilizing a DCF model. Key inputs and assumption used in determining loan collectability and the appropriate level of the allowance:this model are discussed below:

•ChangesForecast 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 residential real estate portfolio segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer portfolio segments. Park plans to update the LDA annually; however, due to the impact of COVID-19, the LDA analysis was last updated in the fourth quarter of 2019.
•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 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 2020.
•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 January 1, 2021, the date of CECL adoption, Park weighted a "most likely" scenario 80%, a "slower near-term growth" scenario 10%, and a "moderate recession" scenario 10%. As of January 1, 2021, the "most likely" scenario forecasted Ohio unemployment to range between 5.31% and 5.79% during the next four quarters.
◦As of March 31, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease significantly, to a range between 3.70% and 4.93% during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2021, management considered this improved economic forecast while balancing the risks associated with the COVID-19 pandemic, including the risk of pandemic-related losses lagging behind the projected improvement in unemployment. Management determined it was appropriate to weight the "most likely" scenario 50% and the "moderate recession" scenario 50%.
◦As of June 30, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease significantly, to a range between 2.85% and 3.92% during the next four quarters. In determining the appropriate weighting of scenarios at June 30, 2021, management considered this improved economic forecast and other positive economic indicators while balancing the risks associated with the COVID-19 pandemic, including the continued risk of pandemic-related losses lagging behind the projected improvement in unemployment. Management determined it was appropriate to weight the "most likely" scenario 55% and the "moderate recession" scenario 45% at June 30, 2021. Management believed that the resulting quantitative reserve appropriately balanced economic improvement with the ongoing risks.
◦As of September 30, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease, to a range between 3.03% and 4.02%, during the next four quarters. In determining the appropriate weighting of scenarios at September 30, 2021, management considered a number of less optimistic economic indicators, including: a slight uptick in Ohio unemployment, which was contrary to the forecast; increased COVID cases; decreased consumer confidence; and decreased occupancy, among others. Considering these factors, management determined it was appropriate to return to the March 31, 2021 weighting and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at September 30, 2021.


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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 portfolioexistence, growth, and ineffect of any concentrations of credit and the termsvolume and severity of loans, including:
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Tablepast due financial assets, the volume of Contentsnonaccrual 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 PNB and GFSC.Park.
◦Level of and trend in loan delinquencies, troubled loans, commercial watch list loans and impairednonperforming loans.
◦Level of and trend in new nonaccrual loans.
◦Level of and trend in loan charge-offs and recoveries.
•Changes inPark's lending policies and procedures, including changes in lending strategies, underwriting standards and collection, charge-off,practices for collections, write-offs, and recovery practices.recoveries.
•Changes in nationalThe quality of Park’s credit review function.
•The experience, ability, and local economicdepth of Park’s lending, investment, collection, and business conditionsother relevant management and developments that affect the collectability of the portfolio.staff.
•The effect of other external factors such as competition andthe regulatory, legal and regulatory requirements on the level of estimated losses in Park's existing portfolio.

The judgmental increases discussed below incorporate management’s evaluation of the impact of environmental qualitative factors which pose additional riskstechnological environments; competition; and assignment of a component of the allowance for loan losses in consideration of these factors. Such environmental qualitative factors include: global, national and local economic trends and conditions; experience, ability and depth of lending management and staff; effects of any changes in lending policies and procedures; and levels of, and trends in, consumer bankruptcies, delinquencies, impaired loans and charge-offs and recoveries. The determination of this component of the allowance for loan losses requires considerable management judgment. Actual loss experience may be moreevents such as natural disasters or less than the amount allocated.

Commercial Loans
Excluding acquired loans, the allowance for loan losses related to performing commercial loans was $55.8 million, or 1.49% of the outstanding principal balance of performing commercial loans at September 30, 2020. Excluding acquired loans, at September 30, 2020, the coverage level within the commercial loan portfolio was approximately 5.25 years compared to 3.40 years at December 31, 2019. Historical loss experience, defined as charge-offs plus changes in specific reserves, over the 120-month period ended December 31, 2019, for the commercial loan portfolio was 0.34%. This 120-month loss experience includes only the performance of the PNB loan portfolio and excludes the impact of PNB participations in Vision Bank loans.

Excluding acquired loans, the overall reserve of 1.49% for other accruing commercial loans breaks down as follows: PPP loans are reserved at 0.10%; pass-rated commercial loans are reserved at 1.64%; special mention commercial loans are reserved at 2.68%; and substandard commercial loans are reserved at 3.56%. The reserve levels for pass-rated, special mention and substandard commercial loans in excess of the 120-month loss experience of 0.34% are due to the following factors which management reviews on a quarterly or annual basis:

pandemics.
•Historical Loss Factor: Management updated the historical loss calculation during the fourth quarter of 2019, incorporating net charge-offs plusActual and expected changes in specific reserves through December 31, 2019. With the addition of 2019 historical losses, management extended the historical loss period to 120 months from 108 months. The 120-month historical loss period captures all annual periods subsequent to June 2009, the end of the most recent recession, thus encompassing the full economic cycle to date.

•Loss Emergence Period Factor:At least annually, management calculates the loss emergence period for each commercial loan segment. The loss emergence period is calculated based upon the average period of time it takes from the probable occurrence of a loss event to the loan being moved to nonaccrual. If the loss emergence period for any commercial loan segment is greater than one year, management applies additional general reserves to all performing loans within that segment of the commercial loan portfolio. The loss emergence period was last updated in the fourth quarter of 2019.

During the third quarter of 2020, Park made the decision to extend the loss emergence period on all commercial loan types by six months. Management believes that the start of the COVID-19 pandemic in March 2020 represents the loss event. Management continues to refine estimated losses as a result of this March 2020 loss event. Approximately six months following the start of the pandemic, Park has experienced very little, if any, increase in delinquencies and charge-offs. Management believes that this is due to the unprecedented level of economic stimulus and CARES Act accommodations provided by the U.S. government which has delayed loan defaults and losses.

•Loss Migration Factor:Park’s commercial loans are individually risk graded. If loan downgrades occur, the probability of default increases, and accordingly, management allocates a higher percentage reserve to those accruing
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commercial loans graded special mention and substandard. Annually, management calculates a loss migration factor for each commercial loan segment for special mention and substandard credits based on a review of losses over the period of time a loan takes to migrate from pass-rated to impaired. The loss migration factor was last updated in the fourth quarter of 2019.

•Environmental Loss Factor: Management has identified certain macroeconomic factors that trend in accordance with losses in Park’s commercial loan portfolio. Certain environmental loss factors have been determined to correlate with higher charge-offs while other adjustments are based on a subjective evaluation of other environmental loss factors. Environmental factors applicable to the commercial loan portfolio include: the Ohio unemployment rate, percent change in Ohio GDP, the consumer confidence index, the prevalence of fixed rate loans in the portfolio and other environmental factors. In evaluating the ongoing relevance and amount of the other environmental factors, management considers: changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices, changes ininternational, national, regional, and local economic and business conditions and developments in which Park operates that affect the collectabilitycollectibility of financial assets.
•Where the portfolio, and the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated losses in Park's existing portfolio. All of these factors are evaluated in relation to the historical look back period. At September 30, 2020 and December 31, 2019, such subjective environmental loss factor inputs accounted for 39% and 42%, respectively, of the allowance for loan losses driven by environmental loss factors.U.S. economy is within a given credit cycle.
•The extent that there is government assistance (stimulus).

These macroeconomic factors are reviewed quarterly and the adjustments made to the environmental loss factor impacting each segment in the performing commercial loan portfolio correlate to changes in the macroeconomic environment. The environmental loss factors were updated in the first, second, and third quarters ofDuring 2020, to consider the economic impact of the COVID-19 pandemic. These factors were increased from 0.60% of applicable loans at December 31, 2019 to 0.675% of applicable loans at March 31, 2020 to 0.75% of applicable loans at June 30, 2020, and to 0.825% at September 30, 2020. The increase in the first and second quarters of 2020 was the result of upwards adjustments to the factors for Ohio unemployment, percent change in Ohio GDP and consumer confidence. The increase in the third quarter of 2020 was due to the increased uncertainty in the overall economic environment, the unknown length and severity of the pandemic and the limitations in the incurred loss model to capture all probable incurred losses during such uncertain times. Management will continue to evaluate this estimate of incurred losses as new information becomes available.

In addition to the increases in the environmental loss factor, in the second quarter, Park added an additional reservesreserve for three industries at particularly high risk due to the COVID-19 pandemic: hotels and accommodations,accommodations; restaurants and food service,service; and strip shopping centers. These industries have hadexperienced high levels of deferrals and have been particularly impacted by shut downs of non-essential businesses, increased health department regulations, and changes in consumer behavior. Management expects that a highrelatively higher percentage of the 4-rated credits in these portfolios will eventually migrate to special mention, substandard, or impaired status. In adopting CECL, management determined it was appropriate to retain this qualitative adjustment as this adjustment takes into account the additional risk in these portfolios, which is not captured in the quantitative calculation. As a result,of September 30, 2021, additional reserves totaling $3.9$4.6 million were added for these portfolios on top of thatthe quantitative reserve already calculated. This amount wasis an increase from $3.4 million as of June 30, 2021 and $4.5 million as of March 31, 2021 and reflects the previously discussed uncertainty regarding sustained economic improvement due to COVID-19. The $4.6 million in additional COVID-19-related reserves as of September 30, 2021 is also an increase compared to $3.8 million as of December 31, 2020, which had been calculated by applyingunder the previous incurred loss factor for special mention credits to all 4-rated loans in these portfolios. methodology.

A breakout of the 4-rated balances within these portfolios and the additional reserve related to these portfolios is detailed in the following table.

September 30, 2020September 30, 2021
(in thousands)(in thousands)4-Rated Balance4-Rated Balance - Originated4-Rated Balance - PurchasedAdditional Reserve(in thousands)4-Rated BalanceAdditional Reserve
Hotels and accommodationsHotels and accommodations$86,041 $85,050 $991 $1,435 Hotels and accommodations$123,249 $1,854 
Restaurants and food serviceRestaurants and food service34,263 28,291 5,972 658 Restaurants and food service33,373 754 
Strip shopping centersStrip shopping centers181,517 158,790 22,727 1,789 Strip shopping centers177,635 1,961 
TotalTotal$301,821 $272,131 $29,690 $3,882 Total$334,257 $4,569 

Additionally, management applied a 1%1.00% reserve to all hotelhotels and accommodations loans in the general reserve population to account for increased valuation risk. This is an increase from 0.50% at June 30, 2021 and considers some decline in various conditions due to the Delta variant and a decline in hotel occupancy rates. At September 30, 2020,2021, Park's originated hotels and accommodationsaccommodation loans had a balance of $178.8$193.8 million with an additional reserve specificrelated to valuation risks of $1.8$1.9 million.

There is still a significant amount of uncertainty related to the economic impact of COVID-19, including the duration of the pandemic, the risk related to new variants, future government programs that may be established in response to the pandemic, and the resiliency of the U.S. economy. Management will continue to evaluate its estimate of expected credit losses as new information becomes available.

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As of September 30, 2020,2021, Park had $542.8$131.5 million of PPP loans which arewere 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 was calculated for these loans to reflect minimal credit risk.

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Consumer Loans
Generally, consumer loans are not individually graded. Consumer loans include: (1) mortgage and installment loans included in the construction real estate segment of the loan portfolio; (2) mortgage, home equity lines of credit ("HELOC"), and installment loans included in the residential real estate segment of the loan portfolio; and (3) all loans included in the consumer segment of the loan portfolio. The amount of loan loss reserve assigned to these loans is based on historical loss experience over the past 120 months, through December 31, 2019. Management generally considers a one-year coverage period (the “Historical Loss Factor”) appropriate because the probable loss on any given loan in the consumer loan pool should ordinarily become apparent in that time frame. However, management may incorporate adjustments to the Historical Loss Factor as circumstances warrant additional reserves (e.g., increased loan delinquencies, improving or deteriorating economic conditions, changes in lending management and changes in underwriting standards). Excluding acquired loans, at September 30, 2020, the coverage level within the consumer loan portfolio was approximately 2.38 years compared to 1.90 years at December 31, 2019. Historical loss experience, over the 120-month period ended December 31, 2019, for the consumer loan portfolio was 0.30%.

For the consumer portfolio, a specific COVID-19 factor was added to each segment equal to 50% of the 120-month historical loss factor. This increase considers the payment deferrals being provided to consumer loan customers as well as the likely delays in delinquencies and charge-offs as a result.

Much is still unknown about the economic impact of COVID-19, including the duration of the pandemic, future government programs that may be established as a result of the pandemic, and the resiliency of the U.S. economy. Management will continue to evaluate this estimate of incurred losses as new information becomes available. Given uncertainty about the magnitude and length of the COVID-19 pandemic and related economic shutdown, additional loan loss provisions may be required that would adversely impact earnings in future periods.

Purchased Loans
Loans acquired as part of the acquisitions of NewDominion and Carolina Alliance were recorded at fair value on the respective dates of acquisition. An allowance is only established on these loans as a result of credit deterioration post acquisition. At September 30, 2020, there was a $371,000 allowance related to performing acquired loans. At September 30, 2020, a reserve of $103,000 had been established related to PCI loans. At December 31, 2019, there was no allowance related to performing acquired loans, and a reserve of $268,000 related to PCI loans.

Current Expected Credit Losses: In June 2016, the FASB issued ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new accounting guidance in this ASU replaces the incurred loss model with an expected loss model, which is referred to as the CECL model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, HTM debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. The CECL model requires an entity to estimate credit losses over the life of an asset or off-balance sheet credit exposure. The new accounting guidance was to have been effective for Park for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019.

Section 4014 of the CARES Act provides financial institutions with optional temporary relief from having to comply with the CECL methodology for estimating the allowance for credit losses. This temporary relief will expire on the earlier of the date on which the national emergency concerning the COVID-19 outbreak terminates or December 31, 2020, with adoption being effective retrospectively as of January 1, 2020.

Park elected to delay the implementation of CECL following the effectiveness of the CARES Act. The CECL standard requires financial institutions to calculate an allowance utilizing a reasonable and supportable forecast period which Park has established as a one-year period. Much is still unknown about the economic impact of COVID-19 including the duration of the pandemic, the duration and impact of future government programs that may be established as a result of the pandemic, and the resiliency of the U.S. economy, making any forecast subject to large fluctuations in the coming months. In this unprecedented situation, Park believes that adopting the CECL model in the first quarter 2020 would have added an unnecessary level of subjectivity and volatility to the calculation of the allowance for credit losses.

With the delay, management is currently evaluating the impact of the adoption of this new accounting guidance on Park's consolidated financial statements. Adoption will be applied through a one-time cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Management has developed a quantitative credit model and is completing the process of validation. Management is still finalizing the analysis of qualitative factors to capture inherent risks which are not included within the quantitative credit model. Management, along with Park's
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CECL Committee, is in the process of implementing the accounting, processes, controls and governance required to comply with the new accounting guidance.

Based on a preliminary analysis performed as of December 31, 2019 and forecasts of macroeconomic conditions and exposures as of December 31, 2019, the transition adjustment that was to have been effective January 1, 2020 was not expected to generate an allowance to loans ratio more than 120% of the then current recorded allowance at December 31, 2019. The Company is using a blend of multiple economic forecasts to estimate expected credit losses over a one-year reasonable and supportable forecast period and then revert, over a one-year period, to longer term historical loss experience to arrive at lifetime expected credit losses. The estimated increase in the allowance for credit losses as compared to Park's historical ALLL is primarily due to required increases for residential mortgage, home equity, and installment loans to address the requirement to estimate lifetime expected credit losses and the remaining length of time to maturity for these loans as well as an increase in reserves on acquired non-impaired loans which have low reserve levels under the incurred loss accounting guidance. Offsetting declines in the allowance are expected for commercial and commercial real estate loans due to their short-term nature. Additionally, management expects an increase in the allowance for credit losses for unfunded commitments.

While it is expected that the adoption of this ASU could increase the allowance for credit losses, many factors will determine the ultimate calculation at December 31, 2020. The adoption of this ASU will not, however, change the overall credit risk in the Company's loan, lease and investment securities portfolios or the ultimate losses therein. The transition adjustment to increase the allowance will primarily result in a decrease to shareholders' equity, net of income taxes. The ultimate impact of the adoption of this ASU will depend on the composition of the loan, lease and investment securities portfolios, finalization of credit loss models, and macroeconomic conditions and forecast that exist at the date of adoption.

On March 27, 2020, interagency guidance was released with respect to the CECL Interim Final Capital Rule which allows banks that adopt CECL as of January 1, 2020 to use a transitional amount in regulatory capital for eight quarters, followed by a three-year transition period to phase out the aggregate amount of such capital benefit. Park will be able to take advantage of this regulatory capital relief upon the adoption of ASU 2016-13.

Other Income
 
Other income increaseddecreased by $8.4$4.1 million to $36.6$32.4 million for the quarter ended September 30, 2020,2021, compared to $28.1$36.6 million for the third quarter of 20192020 and increased by $17.0$7.7 million to $97.7 million for the first nine months of 2021, compared to $90.0 million for the first nine months of 2020, compared to $73.0 million for the first nine months of 2019. Other income was impacted by the acquisition of Carolina Alliance. The Carolina Alliance Bank Division contributed an aggregate of $6.2 million and $2.5 million to other income at Park for the nine months ended September 30, 2020 and 2019, respectively.2020.

The increasedecrease for the three months ended September 30, 20202021 compared to the three months ended September 30, 20192020 was primarily duedue: (a) to increasesdecreases in other service income; other components of net periodic pension benefit income; gain (loss)gains on sale of OREO, net; and gains on equity securities, net; (b) partially offset by increases in income from fiduciary activities; service charges on deposit accounts; debit card fee income; bank owned life insurance income; and income from fiduciary activities, partially offset by declines in gain (loss) on equity securities, net; and service charges on deposit accounts.miscellaneous income.

The increase for the nine months ended September 30, 20202021 compared to the nine months ended September 30, 20192020 was primarily due toto: (a) increases in other service income; netincome from fiduciary activities; gain (loss) on the sale of investment securities; other components of net periodic pension benefit income;equity securities, net; debit card fee income; ATM fees; and miscellaneous income; (b) partially offset by declines in other service income; gain (loss) on sale of OREO, net; and income from fiduciary activities; partially offset by declines innet (loss) gain (loss) on equity securities, net; and service charges on deposit accounts.sale of debt securities.

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The following table is a summary of the changes in the components of other income:
Three months ended
September 30,		Nine months ended
September 30,
(In thousands)20202019Change20202019Change
Income from fiduciary activities$7,335 $6,842 $493 $21,241 $20,500 $741 
Service charges on deposit accounts2,118 2,864 (746)6,322 8,078 (1,756)
Other service income13,047 4,260 8,787 25,571 11,118 14,453 
Debit card fee income5,853 5,313 540 16,373 14,909 1,464 
Bank owned life insurance income1,192 1,107 85 3,619 3,399 220 
ATM fees491 482 9 1,341 1,382 (41)
Gain (loss) on sale of OREO, net569 (53)622 1,214 (224)1,438 
Net (loss) gain on the sale of investment securities(27)186 (213)3,286 (421)3,707 
Gain (loss) on equity securities, net1,201 3,335 (2,134)(749)5,309 (6,058)
Other components of net periodic pension benefit income1,988 1,183 805 5,964 3,549 2,415 
Miscellaneous2,791 2,617 174 5,826 5,370 456 
Total other income$36,558 $28,136 $8,422 $90,008 $72,969 $17,039 
Three months ended
September 30,		Nine months ended
September 30,
(In thousands)20212020Change20212020Change
Income from fiduciary activities$8,820 $7,335 $1,485 $25,562 $21,241 $4,321 
Service charges on deposit accounts2,389 2,118 271 6,475 6,322 153 
Other service income6,668 13,047 (6,379)23,444 25,571 (2,127)
Debit card fee income6,453 5,853 600 19,297 16,373 2,924 
Bank owned life insurance income1,462 1,192 270 3,776 3,619 157 
ATM fees622 491 131 1,807 1,341 466 
Gain (loss) on sale of OREO, net3 569 (566)(26)1,214 (1,240)
Net (loss) gain on sale of debt securities— (27)27 — 3,286 (3,286)
Gain (loss) on equity securities, net609 1,201 (592)2,886 (749)3,635 
Other components of net periodic pension benefit income2,038 1,988 50 6,114 5,964 150 
Miscellaneous3,347 2,791 556 8,403 5,826 2,577 
Total other income$32,411 $36,558 $(4,147)$97,738 $90,008 $7,730 
 
Income from fiduciary activities increased by $493,000,$1.5 million, or 7.2%20.2%, to $7.3$8.8 million for the three months ended September 30, 2020,2021, compared to $6.8$7.3 million for the same period of 2019,2020 and increased $741,000,$4.3 million, or 3.6%20.3%, to $21.2$25.6 million for the nine months ended September 30, 2020,2021, compared to $20.5$21.2 million for the same period of 2019.in 2020. Fiduciary fees charged are generally based on the market value of customer accounts. The average market value forof assets under management for the ninethree months ended September 30, 20202021 was $6,023$7,548 million compared to $5,756$6,301 million for the same period in 2020. The average market value of assets under management for the first nine months of 2021 was $7,355 million compared to $6,023 million for the same period in 2020.

Service charges on deposit accounts increased by $271,000, or 12.8%, to $2.4 million for the three months ended September 30, 2021, compared to $2.1 million for the same period of 2020 and increased $153,000, or 2.4%, to $6.5 million for the nine months ended September 30, 2019.2021, compared to $6.3 million for the same period of 2020. The changes for both the three and nine month periods ended September 30, 2021 compared to September 30, 2020 were due mostly to increases in NSF income. Park implemented an NSF fee increase in December 2020.

Service charges on deposit accounts
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Other service income decreased by $746,000,$6.4 million, or 26.0%48.9%, to $2.1$6.7 million for the three months ended September 30, 2020,2021, compared to $2.9$13.0 million for the same period of 2019,2020, and decreased $1.8$2.1 million, or 21.7%8.3%, to $6.3$23.4 million for the nine months ended September 30, 2020,2021, compared to $8.1$25.6 million for the same period of 2019.in 2020. The declines were largely a result of a decline in non-sufficient funds (NSF) fee income.

Other service income increased by $8.8 million, to $13.0 millionprimary reasons for the decrease for the three months ended September 30, 2020,2021 compared to $4.2 million for the same period of 2019,2020 was a decrease in fee income from mortgage loan originations of $5.0 million, and increased by $14.5 million, to $25.6 milliona decrease in mortgage servicing rights income of $1.3 million. The primary reason for the decrease for the nine months ended September 30, 2020,2021 compared to $11.1 million for the same period of 2019. The primary reasons for the increase for the three months ended September 30, 2020 werewas a $6.9$5.1 million increase in fee income related to mortgage loan originations to be sold in the secondary market, and a $1.7 million increase in mortgage servicing rights income. The primary reasons for the increase for the nine months ended September 30, 2020 were a $10.1 million increase in fee income related to mortgage loan originations to be sold in the secondary market, a $2.8 million increasedecrease in income related to investor rate locks and loans held for sale, andoffset by a $1.2$1.4 million increase in mortgage servicing rights income. Mortgage origination volumeincome and a $324,000 increase in fee income from mortgage loan originations.

Debit card fee income increased by $537.8$600,000, or 10.3%, to $6.5 million for the three months ended September 30, 2021, compared to $5.9 million for the same period of 2020 and increased $2.9 million, or 17.9%, to $19.3 million for the nine months ended September 30, 2020,2021, compared to the same period of 2019.

Debit card fee income increased $540,000, or 10.2%, to $5.9 million for the three months ended September 30, 2020, compared to $5.3$16.4 million for the same period in 2019, and increased $1.5 million, or 9.8%, to $16.4 million2020. The increases in 2021 for the nine months ended September 30, 2020, compared to $14.9 million for the same period in 2019. The increase in 2020 wasthree-month and nine-month periods were attributable to a continued increase in the sales volume and dollar value of debit card transactions and changes in Park's point of sale network.transactions. The sales volume of debit card transactions for the nine months ended September 30, 20202021 increased 12.9% fromby 10.3% compared to the same period in 2019.2020 and the dollar value of transactions increased 17.7% compared to the same period in 2020.

ATM fees increased $131,000, or 26.7%, to $622,000 for the three months ended September 30, 2021, compared to $491,000 for the same period of 2020, and increased $466,000, or 34.8%, to $1.8 million for the nine months ended September 30, 2021, compared to $1.3 million for the first nine months of 2020. The increase in ATM fee income was primarily due to Park implementing additional charges for ATM balance inquiries and transfers during the second quarter of 2021.

Gain (loss) on sale of OREO, net increaseddecreased by $622,000,$566,000, to a net gain of $3,000 for the three months ended September 30, 2021, compared to a net gain of $569,000 for the three months ended September 30,same period of 2020, comparedand decreased by $1.2 million, to a net loss of $53,000$26,000 for the same period of 2019, and increased by $1.4 million,nine months ended September 30, 2021, compared to a net gain of $1.2 million for the nine months ended September 30, 2020, compared to a net loss of $224,000 for the same period of 2019.2020. The increasedecrease for the three months ended September 30, 20202021 was primarily due to a $379,000 gain on the sale of one OREO property at SEPH during the three months ended September 30, 2020 that did not occur in the three months ended September 30, 2021, and the increasedecrease during first nine months of 20202021 was due to minimal OREO sale activity during the resultfirst nine months of 2021 compared to a $1.2 million gain on the sale of two OREO properties during the first nine months of 2020, one of which was participated to PNB from SEPH.

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debt securities during the three and nine months ended September 30, 2021. During the three months ended September 30, 2020, investment securities with a book value of $253.4 million were sold at a net loss of $27,000. During the nine months ended September 30, 2020, investment securities with a book value of $308.9 million were sold at a net gain of $3.3 million. During the three months ended September 30, 2019, investment securities with a book value of $34.5 million were sold at a net gain of $186,000, and during the nine months ended September 30, 2019, investment securities with a book value of $91.5 million were sold at a net loss of $421,000.

Gain (loss) on equity securities, net decreased $2.1 million,$592,000, to a net gain of $609,000 for the three months ended September 30, 2021, compared to a net gain of $1.2 million for the three months ended September 30,same period in 2020 comparedand increased $3.6 million to a net gain of $3.3$2.9 million for the same period in 2019, and decreased $6.1 million, to a net loss of $749,000 for the nine months ended September 30, 2020,2021 compared to a net gainloss of $5.3 million for$749,000 during the same time period of 2019.in 2020. The $2.1 million$592,000 decrease for the three months ended September 30, 20202021 was related to a $2.0 million$778,000 decrease in the gain (loss) on equity securities held at NAV, which went from a $3.3 million gain for the three months ended September 30, 2019 to a $1.3 million gain for the three months ended September 30, 2020 andto a $147,000 decrease$512,000 gain for the three months ended September 30, 2021, offset by a $186,000 increase in unrealized gain (loss) on equity securities, which went from a $58,000 unrealized gain for the three months ended September 30, 2019 to aan $89,000 unrealized loss for the three months ended September 30, 2020.2020 to a $97,000 unrealized gain for the three months ended September 30, 2021. The $6.1$3.6 million decreaseincrease for the nine months ended September 30, 20202021 was related to a $5.1$2.4 million decreaseincrease in the gain (loss) on equity securities held at NAV, which went from a $5.1$40,000 loss for the nine months ended September 30, 2020 to a $2.4 million gain for the nine months ended September 30, 2019 to a $41,000 loss for the nine months ended September 30, 2020,2021, and a $949,000 decrease$1.0 million increase in unrealized gain (loss) on equity securities, which went from a $241,000 unrealized gain for the nine months ended September 30, 2019 to a $708,000 unrealized loss for the nine months ended September 30, 2020 to a $316,000 unrealized gain for the nine months ended September 30, 2021. During the nine months ended September 30, 2021, equity securities with a book value of $757,000 were sold at a gain of $177,000. There were no equity securities sold during the three months ended September 30, 2021 and 2020 and during the nine months ended September 30, 2020.

Other components of net periodic pension benefitMiscellaneous income increased by $805,000,$556,000, or 68.0%19.9%, to $2.0$3.3 million for the three months ended September 30, 2020,2021, compared to $1.2$2.8 million for the same period in 2019of 2020 and increased $2.4$2.6 million, or 68%44.2%, to $6.0$8.4 million for the nine months ended September 30, 2020,2021 compared to $3.6$5.9 million for the same period in 2019.of 2020 The increases in each case were largely due toincrease for the three months period ended September 30, 2021 was primarily a result of an increase in printed check sales income, an increase in wire transfer fees, an increase in VISA incentive income, and a decrease in the expected returnloss on plan assets as asales of assets. The increase for the nine months period ended September 30, 2021 was primarily the result of the increased value of plan assets. These increases corresponds with the increased pension service cost expense which is part of employee benefits expense described below.an increase in printed check sales income, an insurance refund received on a consumer loan insurance product, an increase in VISA incentive income, and an increase in wire transfer fees.

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Other Expense

Other expense increaseddecreased by $4.1$1.4 million to $68.5 million for the three months ended September 30, 2021, compared to $69.9 million for the quarter ended September 30,same period of 2020 compared to $65.7 million for the third quarter of 2019, and increased by $8.2$6.8 million to $200.9$207.8 million for the nine months ended September 30, 2020,2021, compared to $192.8$200.9 million for the first nine months of 2019. Other expense was impacted by the acquisition of Carolina Alliance. The Carolina Alliance Bank Division contributed an aggregate of $14.4 million and $11.4 million to other expense at Park during the nine months ended September 30, 2020 and 2019, respectively.2020.

The following table is a summary of the changes in the components of other expense:
 Three months ended
September 30,		Nine months ended
September 30,
(In thousands)20212020Change20212020Change
Salaries$29,433 $31,632 $(2,199)$89,632 $90,760 $(1,128)
Employee benefits10,640 10,676 (36)30,897 29,799 1,098 
Occupancy expense3,211 3,835 (624)9,878 10,571 (693)
Furniture and equipment expense2,797 4,687 (1,890)8,163 13,856 (5,693)
Data processing fees7,817 3,275 4,542 22,679 8,344 14,335 
Professional fees and services6,973 7,977 (1,004)19,610 21,944 (2,334)
Marketing1,574 1,454 120 4,355 4,076 279 
Insurance1,403 1,541 (138)4,370 4,568 (198)
Communication796 958 (162)2,688 2,987 (299)
State tax expense1,113 1,125 (12)3,324 3,386 (62)
Amortization of intangible assets420 525 (105)1,378 1,738 (360)
Foundation contribution— — — 4,000 — 4,000 
Miscellaneous2,312 2,174 138 6,780 8,905 (2,125)
Total other expense$68,489 $69,859 $(1,370)$207,754 $200,934 $6,820 

 Three months ended
September 30,		Nine months ended
September 30,
(In thousands)20202019Change20202019Change
Salaries$31,632 $30,713 $919 $90,760 $88,611 $2,149 
Employee benefits10,676 10,389 287 29,799 27,833 1,966 
Occupancy expense3,835 3,226 609 10,571 9,460 1,111 
Furniture and equipment expense4,687 4,177 510 13,856 12,713 1,143 
Data processing fees3,275 2,935 340 8,344 7,973 371 
Professional fees and services7,977 6,702 1,275 21,944 22,814 (870)
Marketing1,454 1,604 (150)4,076 4,285 (209)
Insurance1,541 276 1,265 4,568 2,813 1,755 
Communication958 1,387 (429)2,987 4,095 (1,108)
State tax expense1,125 746 379 3,386 2,805 581 
Amortization of intangible assets525 741 (216)1,738 1,732 6 
Miscellaneous2,174 2,842 (668)8,905 7,623 1,282 
Total other expense$69,859 $65,738 $4,121 $200,934 $192,757 $8,177 
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Salaries increaseddecreased by $919,000,$2.2 million, or 3.0%7.0%, to $31.6$29.4 million for the three months ended September 30, 2020,2021, compared to $30.7$31.6 million for the same period in 2019, and increased by $2.1 million, or 2.4%, to $90.8 million for the nine months ended September 30, 2020, compared to $88.6 million for the same period in 2019.2020. The increase for the three-month perioddecrease was due to a $1.0$1.1 million increasedecrease in officer incentive compensation, expense,and a $479,000 increase$934,000 decrease in additional compensation expense, and a $250,000 increase in vacation accrual expense, partially offset by a $764,000 decrease in salary expense. The increase for the nine-month period was due to a $2.4 million increase in salary expense, of which $982,000 was related to the addition of employees of the Carolina Alliance Bank Division, and a $250,000 increase in vacation accrual expense, partially offset by a $462,000 decrease in additional compensation expense. The changes in additional compensation expense for both the three-month and nine-month periods was primarily related to one-time merger expense for both the three and nine months ended September 30, 2019 of $546,000 and $3.2 million, respectively, which was offset by increased additional compensation expense related to increased mortgage originations and other incentive programs for the three and nine months ended September 30, 2020. Included in salary expense for the three-month and nine-month periods ended September 30, 2020 is $744,000 and $2.9 million of calamity pay and special one-time bonuses to certain associates as a result of the COVID-19 public health crisis.

Employee benefits increased $2.0Salaries decreased by $1.1 million, or 7.1%1.2%, to $29.8$89.6 million for the nine months ended September 30, 2020,2021, compared to $27.8$90.8 million for the same period in 2019.2020. The $2.0decrease was due to a $1.7 million decrease in base salary expense and a $906,000 decrease in additional compensation expense, partially offset by a $1.0 million increase in officer incentive compensation expense and a $746,000 increase in share-based compensation expense.

Employee benefits decreased $36,000, or 0.3%, to $10.6 million for the three months ended September 30, 2021, compared to $10.7 million for the same period in 2020, and increased $1.1 million, or 3.7%, to $30.9 million for the nine months ended September 30, 2021, compared to $29.8 million for the same period in 2020. The $36,000 decrease for the three months ended September 30, 2021 was due to a $365,000 decrease in group insurance costs and a $87,000 decrease in employer payroll taxes partially offset by an increase of $399,000 in pension service cost expense. The $1.1 million increase for the nine months ended September 30, 20202021 was due to a $1.8$1.2 million increase in pension service cost expense and a $379,000$112,000 increase in payroll taxes, and a $266,000 increase related to Park's voluntary salary deferral plan,group insurance cost, partially offset by a $462,000$201,000 decrease in group insurance costs.miscellaneous employee benefits expense.

OccupancyFurniture and equipment expense increaseddecreased by $609,000,$1.9 million, or 18.9%40.3%, to $3.8$2.8 million for the three months ended September 30, 2020,2021, compared to $3.2$4.7 million for the same period in 20192020, and increased $1.1decreased $5.7 million, or 11.7%41.1%, to $10.6$8.2 million for the nine months ended September 30, 2020,2021, compared to $9.5$13.9 million for the same period in 2019.2020. The increasesdecrease for both the three-month and nine-month periods ended September 30, 2020 werewas primarily related to increaseda change in the classification under which software and related maintenance costs are expensed, which are now classified under data processing fees, partially offset by increases in depreciation expenseof furniture and rental expense related to the write-down of right-of-use lease assets.equipment.

Furniture and equipment expense
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Data processing fees increased by $510,000, or 12.2%,$4.5 million, to $4.7$7.8 million for the three months ended September 30, 2020,2021, compared to $4.2$3.3 million for the same period in 2019,of 2020, and increased $1.1by $14.3 million, or 9.0%, to $13.9$22.7 million for the nine months ended September 30, 2020,2021, compared to $12.7$8.3 million for the same period in 2019.of 2020. The increasesincrease for both the three and nine months were primarilyperiods was related to increased other data processing and software costs, partially due to the previously mentioned change in classification from furniture and equipment expense and a change in expensing software costs from other fees within professional fees and services to data processing fees. The change in data processing fees was also impacted by changes in debit card processing costs. During the three months ended September 30, 2021, debit card processing costs declined $68,000 compared to the same period of 2020 and increased by $770,000 for the maintenance and repairnine months ended September 30, 2021 compared to the same period of software and equipment and depreciation expense.2020.

Professional fees and services increased $1.3decreased $1.0 million, or 19.0%12.6%, to $8.0$7.0 million for the three months ended September 30, 2020,2021, compared to $6.7$8.0 million for the same period in 2019,of 2020 and decreased $870,000,$2.3 million, or 3.8%10.6%, to $21.9$19.6 million for the nine months ended September 30, 2020,2021 compared to $22.8$21.9 million for the same period in 2019.of 2020. The increase in professional fees and services expense$1.0 million decrease for the three months ended September 30, 20202021 was primarily due to decreases in other fees (due to the change in expensing software costs under data processing fees), credit costs and recruiting expense, partially offset by increases in management andlegal expense, appraisal fees, consulting fees, and increased costs related to loan origination volume.filing fees. The decrease in professional fees and services expense for the nine months was largely related to a $2.5$2.3 million decrease in system conversion costs related to the Carolina Alliance acquisition, as well temporary wages, partially offset by increased management and consulting expense and increased costs related to loan origination volume.

Insurance expense increased by $1.3 million, to $1.5 million for the three months ended September 30, 2020, compared to $276,000 for the same period in 2019, and increased $1.8 million for the nine months ended September 30, 2020, compared2021 was primarily due to $2.8 million fordecreases in other fees (due to the same periodchange in 2019. expensing software costs under data processing fees), decreased title and credit costs and ICS promontory fees, partially offset by increases in consulting fees, recruiting expense, legal expense and membership dues.

The Foundation contribution increase for both the three months and nine months ended September 30, 2021, compared to the same period of 2020, was relateddue to a $1.1$4.0 million FDIC assessment credit which had been utilized forcontribution to Park's charitable foundation during the FDIC expense for the threenine months ended September 30, 2019 (and2021 and no similar contribution during the nine months ended September 30, 2020. The 2020 contribution was made during the fourth quarter of 2020. Park does not repeatedexpect to make any additional contributions to Park's charitable foundation in 2020), as well as increased FDIC insurance costs, due to both an increased assessment base and rate.2021.

The subcategory "miscellaneous" other expense includes expenses for supplies, travel charitable contributions, and other miscellaneous expense. The subcategory miscellaneous other expense decreased $668,000,$2.1 million, or 23.9%, to $2.2$6.8 million for the threenine months period ended September 30, 2020,2021, compared to $2.8$8.9 million for the same period of 2019, and increased $1.32020. The $2.1 million to $8.9 million for the nine months ended September 30, 2020, compared to $7.6 million for the same period in 2019. The $668,000 decrease was related to a $665,000 decrease in training and travel expense. The $1.3 million increase for the nine months ended September 30, 2020 was relatedprimarily due to a $1.8 million prepayment penalty on FHLB borrowings a $1.4 million increase in supplies expense (primarily related to outsourcingpaid during the nine months ended September 30, 2020 and no similar prepayment during the first nine months of statement printing and mailing which were2021 partially offset by reduced postage costs, which reside in the communications expense subcategory), and a $446,000an increase in operating lease depreciation, partially offset by a $1.4 million decreaseexpense related to the allowance for unfunded credit losses and an increase in training and travel expense, and a $445,000 decrease in fraudnon-loan related losses.


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Items Impacting Comparability

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

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

THREE MONTHS ENDEDNINE MONTHS ENDED
(in thousands, except share and per share data)September 30, 2021September 30, 2020September 30, 2021September 30, 2020Affected Line Item
Net interest income$81,602 $83,840 $246,187 $241,309 
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions799 1,029 2,704 3,556 Interest and fees on loans
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions8 42 40 194 Interest on deposits
less interest income on former Vision Bank relationships414 8 3,357 351 Interest and fees on loans
Net interest income - adjusted$80,381 $82,761 $240,086 $237,208 
Provision for (recovery of) credit losses$1,972 $13,836 $(6,923)$31,213 
less recoveries on former Vision Bank relationships(2,231)(37)(2,640)(1,486)Provision for (recovery of) credit losses
Provision for (recovery of) credit losses - adjusted$4,203 $13,873 $(4,283)$32,699 
Total other income$32,411 $36,558 $97,738 $90,008 
less net (loss) gain on the sale of debt securities in the ordinary course of business— (27)— 3,286 Net (loss) gain on sale of debt securities
less rebranding initiative related expenses— — — (274)Miscellaneous income
less net gain on sale of former Vision Bank OREO properties— 371 — 1,208 Gain (loss) on sale of OREO, net
less other service income related to former Vision Bank relationships143 36 204 88 Other service income
Total other income - adjusted$32,268 $36,178 $97,534 $85,700 
Total other expense$68,489 $69,859 $207,754 $200,934 
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions— 7 8 117 Salaries
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions— 152 — 491 Professional fees and services
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions4 4 12 12 Insurance
less COVID-19 related expenses— 744 1,535 2,884 Salaries
less severance and restructuring charges140 67 294 403 Salaries
less management and consulting expenses related to collection of payments on former Vision Bank loan relationships254 232 661 232 Professional fees and services
less rebranding initiative related expenses— — — 72 Employee benefits
less rebranding initiative related expenses79 47 231 47 Occupancy expense
less rebranding initiative related expenses263 — 786 75 Furniture and equipment expense
less rebranding initiative related expenses— — 591 — Data processing fees
less rebranding initiative related expenses95 372 126 531 Professional fees and services
less rebranding initiative related expenses— — — 25 Marketing
less rebranding initiative related expenses— — — 2 Communication
less rebranding initiative related expenses— 10 — 85 Miscellaneous
less core deposit intangible amortization related to NewDominion and Carolina Alliance acquisitions420 525 1,378 1,738 Amortization of intangible assets
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THREE MONTHS ENDEDNINE MONTHS ENDED
(in thousands, except share and per share data)September 30, 2020September 30, 2019September 30, 2020September 30, 2019Affected Line Item
Net interest income$83,840 $77,101 $241,309 $220,728 
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions1,029 1,785 3,556 3,383 Interest and fees on loans
less purchase accounting accretion related to NewDominion and Carolina Alliance acquisitions42 182 194 456 Interest on deposits
less interest income on former Vision Bank relationships8 — 351 7 Interest and fees on loans
Net interest income - adjusted$82,761 $75,134 $237,208 $216,882 
Provision for loan losses$13,836 $1,967 $31,213 $6,384 
less recoveries on former Vision Bank relationships(37)(575)(1,486)(740)Provision for loan losses
Provision for loan losses - adjusted$13,873 $2,542 $32,699 $7,124 
Other income$36,558 $28,136 $90,008 $72,969 
less net gain (loss) on sale of former Vision Bank OREO properties371 — 1,208 (139)Miscellaneous income
less rebranding initiative related expenses— — (274)— Miscellaneous income
less net (loss) gain on the sale of debt securities in the ordinary course of business(27)186 3,286 (421)Miscellaneous income
Other income - adjusted$36,214 $27,950 $85,788 $73,529 
Other expense$69,859 $65,738 $200,934 $192,757 
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions7 545 117 3,158 Salaries
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions— — — — Furniture and equipment expense
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions152 (38)491 3,487 Professional fees and services
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions4 4 12 12 Insurance
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions— 147 — 319 Miscellaneous
less merger-related expenses related to NewDominion and Carolina Alliance acquisitions— — — 16 Data processing fees
less COVID-19 related expenses744 — 2,884 — Salaries
less FDIC assessment credit— (1,057)— (1,057)Insurance
less management and consulting expenses related to collection of payments on former Vision Bank loan relationships232 — 232 — Professional fees and services
less rebranding initiative related expenses— — 72 — Employee benefits
less rebranding initiative related expenses47 — 47 — Occupancy
less rebranding initiative related expenses— — 75 — Furniture and equipment expense
less rebranding initiative related expenses372 139 531 341 Professional fees and services
less rebranding initiative related expenses— — 25 — Marketing
less rebranding initiative related expenses— — 2 — Communication
less rebranding initiative related expenses10 — 85 — Miscellaneous
less core deposit intangible amortization related to NewDominion and Carolina Alliance acquisitions525 741 1,738 1,732 Amortization of intangible assets
less FHLB prepayment penalty— 120 1,793 120 Miscellaneous
Other expense - adjusted$67,766 $65,137 $192,830 $184,629 
Tax effect of adjustments to net income identified above (1)
$133 $(447)$(358)$861 
Net income - reported$30,846 $31,146 $82,723 $78,764 
Net income - adjusted$31,346 $29,446 $81,378 $82,005 
THREE MONTHS ENDEDNINE MONTHS ENDED
(in thousands, except share and per share data)September 30, 2021September 30, 2020September 30, 2021September 30, 2020Affected Line Item
less Foundation contribution— 4,000 — Foundation contribution
less FHLB prepayment penalty— — — 1,793 Miscellaneous
Total other expense - adjusted$67,234 $67,699 $198,132 $192,427 
Tax effect of adjustments to net income identified above (7)
$(491)$139 $142 $(291)
Net income - reported$35,434 $30,846 $117,397 $82,723 
Net income - adjusted$33,585 $31,371 $117,932 $81,626 
Diluted EPS$2.16 $1.88 $7.14 $5.04 
Diluted EPS, adjusted (6)
$2.04 $1.91 $7.17 $4.98 
Annualized return on average assets (1)(2)
1.40 %1.28 %1.59 %1.20 %
Annualized return on average assets, adjusted (1)(2)(6)
1.32 %1.31 %1.60 %1.18 %
Annualized return on average tangible assets (1)(2)(4)
1.42 %1.31 %1.62 %1.22 %
Annualized return on average tangible assets, adjusted (1)(2)(4)(6)
1.35 %1.33 %1.63 %1.21 %
Annualized return on average shareholders' equity (1)(2)
13.04 %12.03 %14.79 %11.05 %
Annualized return on average shareholders' equity, adjusted (1)(2)(6)
12.36 %12.23 %14.86 %10.90 %
Annualized return on average tangible equity (1)(2)(3)
15.44 %14.43 %17.58 %13.31 %
Annualized return on average tangible equity, adjusted (1)(2)(3)(6)
14.63 %14.67 %17.66 %13.14 %
Efficiency ratio (5)
59.70 %57.69 %60.03 %60.26 %
Efficiency ratio, adjusted (5)(6)
59.31 %56.58 %58.31 %59.20 %
Annualized net interest margin (5)
3.53 %3.85 %3.67 %3.88 %
Annualized net interest margin, adjusted (5)(6)
3.48 %3.80 %3.58 %3.81 %
(1) The tax effect
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Table of adjustments to net income was calculated assuming a 21% federal corporate income tax rate.Contents
THREE MONTHS ENDEDNINE MONTHS ENDED
(in thousands, except share and per share data)September 30, 2021September 30, 2020September 30, 2021September 30, 2020Affected Line Item
Financial Reconciliations
(1) Reported measure uses net income
(2) Averages are for the three months and nine months ended September 30, 2021 and September 30, 2020
(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 ENDEDNINE MONTHS ENDED
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
AVERAGE SHAREHOLDERS' EQUITY$1,078,465 $1,020,239 $1,061,066 $1,000,241 
Less: Average goodwill and other intangible assets167,754 169,726 168,215 170,311 
AVERAGE TANGIBLE EQUITY$910,711 $850,513 $892,851 $829,930 
(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 ENDEDNINE MONTHS ENDED
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
AVERAGE ASSETS$10,070,716 $9,557,682 $9,583,457 $9,216,495 
Less: Average goodwill and other intangible assets167,754 169,726 168,215 170,311 
AVERAGE TANGIBLE ASSETS$9,902,962 $9,387,956 $9,415,242 $9,046,184 
(5) Efficiency ratio is calculated by dividing total other expense by the sum of fully taxable equivalent net interest income and other income. Fully taxable equivalent net interest income reconciliation is shown assuming a 21% federal corporate income tax rate. Additionally, net interest margin is calculated on a fully taxable equivalent basis by dividing fully taxable equivalent net interest income by average interest earning assets.
RECONCILIATION OF FULLY TAXABLE EQUIVALENT NET INTEREST INCOME TO NET INTEREST INCOME
THREE MONTHS ENDEDNINE MONTHS ENDED
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Interest income$85,420 $89,566 $258,587 $265,920 
Fully taxable equivalent adjustment717 706 2,149 2,154 
Fully taxable equivalent interest income$86,137 $90,272 $260,736 $268,074 
Interest expense3,818 5,726 12,400 24,611 
Fully taxable equivalent net interest income$82,319 $84,546 $248,336 $243,463 
(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.
(7) The tax effect of adjustments to net income was calculated assuming a 21% federal corporate income tax rate.



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Income Tax
 
Income tax expense was $8.1 million for the third quarter of 2021 and consisted of federal income tax expense of $7.9 million and state income tax expense of $264,000. This compares to income tax expense of $5.9 million for the third quarter of 2020 which consisted of federal income tax expense of $5.6 million and $6.4 million the third quarterstate income tax expense of 2019.$271,000. The effective income tax rate for the third quarter of 20202021 was 16.0%18.6%, compared to 17.0%16.0% for the same period in 2019. 2020.

Income tax expense was $25.7 million for the first nine months of 2021 and consisted of federal income tax expense of $24.9 million and state income tax expense of $793,000. This compares to income tax expense of $16.4 million for the first nine months of 2020 which consisted of federal income tax expense of $15.6 million and $15.8 million for the first nine monthsstate income tax expense of 2019.$814,000. The effective income tax rate for the first nine months of 20202021 was 16.6%18.0%, compared to 16.7%16.6% for the same period in 2019. 2020.

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 salary deferral plan.plan offset by the impact of state income taxes. Park expects permanent federal income tax differences for the 20202021 year will be approximately $6.5$6.3 million.

Comparison of Financial Condition
At September 30, 20202021 and December 31, 20192020
 
Changes in Financial Condition
 
Total assets increased by $681.6$755.0 million, or 8.0%8.1%, during the first nine months of 20202021 to $9,240$10,034 million at September 30, 2020,2021, compared to $8,558$9,279 million at December 31, 2019.2020. This increase was primarily due to the following:

•Cash and cash equivalents increased by $86.8$506.9 million, or 54.2%136.8%, to $246.7$877.4 million at September 30, 2020,2021, compared to $160.0$370.5 million at December 31, 2019.2020. Money market instruments were $135.9$749.7 million at September 30, 2020,2021, compared to $24.4$214.9 million at December 31, 20192020 and cash and due from banks were $110.8$127.7 million at September 30, 2020,2021, compared to $135.6$155.6 million at December 31, 2019.2020.
•LoansInvestment securities increased by $777.1$484.5 million, or 12.0%43.1%, to $7,279$1,609 million at September 30, 2020,2021, compared to $6,501$1,125 million at December 31, 2019. PPP loans were $542.82020.
•Other assets increased by $21.4 million, or 456.2%, to $26.1 million at September 30, 2021, compared to $4.7 million at December 31, 2020. This was primarily related to a re-classification of this increase.deferred items and tax payables between assets and liabilities.
•Prepaid assets increased by $12.6$12.7 million, or 12.3%, to $114.5$116.2 million at September 30, 2020,2021, compared to $102.0$103.5 million at December 31, 2019.2020.
•Premises and equipment, net increasedLoans decreased by $12.0$269.4 million, or 16.3%3.8%, to $85.3$6,908 million at September 30, 2020,2021, compared to $73.3$7,178 million at December 31, 2019.
•Affordable housing tax credit investments increased by $4.5 million, or 8.5%, to $57.62020. PPP loans were $131.5 million at September 30, 2010,2021 compared to $53.1$331.6 million at December 31, 2019.
•Operating lease ROU assets increased by $4.3 million, or 31.3%, to $18.0 million at September 30, 2020, compared to $13.7 million at December 31, 2019.
•Investment securities decreased $181.9 million, or 14.2%, to $1,098 million at September 30, 2020, compared to $1,280 million at December 31, 2019.2020.

Total liabilities increased by $633.6$727.3 million, or 8.3%8.8%, during the first nine months of 20202021 to $8,223$8,966 million at September 30, 2020, from $7,5892021, compared to $8,239 million at December 31, 2019.2020. This increase was primarily due to the following:

•Total deposits increased by $423.2$792.0 million, or 6.0%10.5%, to $7,476$8,364 million at September 30, 2020,2021, compared to $7,053$7,572 million at December 31, 2019.2020. During the three months ended September 30, 2020, Park made the decision to participate in a OWS program in order to manage the balance sheet. At September 30, 2021 and December 31, 2020, Park had $773.3$818.3 million and $710.1 million, respectively, in OWS insured cash sweep deposits which were off-balance sheet.
•Short-term borrowings increased by $89.8 million, or 38.9%, to $320.4Unsettled investment commitments were $52.5 million at September 30, 2020,2021. There were no unsettled investment commitments at December 31, 2020. This liability relates to a purchase commitment of debt securities AFS.
•Other liabilities increased $17.0 million, or 31.1%, to $71.6 million at September 30, 2021, compared to $230.7$54.6 million at December 31, 2019.2020. This was primarily related to a re-classification of deferred items and tax payables between assets and liabilities.
•Subordinated notesThe allowance for credit loss on off-balance sheet commitments increased by $172.7$4.5 million to $187.7$4.6 million at September 30, 2020,2021, compared to $15.0$116,000 at December 31, 2020. This increase was due to the adoption of ASU 2016-13 effective January 1, 2021.
•Short-term borrowings decreased by $106.3 million, or 31.0%, to $236.0 million at September 30, 2021, compared to $342.2 million at December 31, 2019 as a result of the issuance of $175.0 million aggregate principal amount of 4.50% Fixed-to-Floating Rate Subordinated Notes in August 2020.
•Unfunded commitments in affordable housing tax credit investments increased by $5.7 million, or 22.0%, to $31.6 million at September 30, 2020, compared to $25.9 million at December 31, 2019.
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•Operating lease liabilities increased by $4.6 million, or 32.1%, to $19.1 million at September 30, 2020, compared to $14.5 million at December 31, 2019.
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•Long-term borrowings decreased by $57.5$32.5 million, or 29.9%, to $135.0 million100%. There were no long-term borrowings at September 30, 2020,2021, compared to $192.5$32.5 million at December 31, 2019.2020.



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Total shareholders’ equity increased by $48.0$27.7 million, or 5.0%2.7%, to $1,017.0$1,067.9 million at September 30, 2020,2021, from $969.0$1,040.3 million at December 31, 2019.2020. This increase was primarily due to the following:

•Accumulated other comprehensive income (loss), net of taxes improved by $23.8 million during the period as a result of unrealized net holding gains on AFS debt securities, net of taxes, of $26.7 million, partially offset by a realized gain on sale of securities, net of taxes, of $2.6 million and an unrealized loss on cash flow hedging derivatives, net of taxes, of $357,000.
•Retained earnings increased by $29.6$54.9 million during the period primarily as a result of net income of $82.7$117.4 million, partially offset by common share dividends of $53.8$54.4 million and the impact of the adoption of ASU 2016-13 of $8.0 million.
•Treasury shares increaseddecreased by $4.5$13.1 million during the period as a result of the repurchase of 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).
•Accumulated other comprehensive (loss) income, net of taxes declined by $13.4 million, from a positive $5.6 million at December 31, 2020, to a negative $7.8 million at September 30, 2021, as a result of unrealized net holding losses on debt securities AFS, net of taxes, of $13.7 million, partially offset by an unrealized gain on cash flow hedging derivatives, net of taxes, of $355,000.
 
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 $52.4$112.6 million and $74.0$52.4 million for the nine months ended September 30, 20202021 and 2019,2020, respectively. Net income was the primary source of cash from operating activities for each of the nine-month periodperiods ended September 30, 2021 and 2020.

Cash used in investing activities was $531.8$186.2 million and cash provided by investing activities was $117.7$531.8 million for the nine months ended September 30, 20202021 and 2019,2020, respectively. Proceeds from the sale, repayment, or maturity of investment securities provide cash and purchases of investment securities use cash. Net investment securities transactions used cash of $447.9 million for the nine months ended September 30, 2021 and provided cash of $213.9 million for the nine months ended September 30, 2020 and provided cash of $248.4 million for the nine months ended September 30, 2019.2020. Another major use or source of cash in investing activities is the net increase or decrease in the loan portfolio. Cash provided by the net decrease in the loan portfolio was $269.4 million for the nine months ended September 30, 2021 and cash used by the net increase in the loan portfolio was $727.4 million for the nine months ended September 30, 2020 and was $112.8 million for the nine months ended September 30, 2019.2020.

Cash provided by financing activities was $566.1$580.5 million and $13.8$566.1 million for the nine months ended September 30, 20202021 and 2019,2020, respectively. A major source of cash for financing activities is the net change in deposits. Deposits increased and provided $423.4$792.1 million (net of OWS) and $275.2$423.4 million of cash for the nine months ended September 30, 20202021 and 2019,2020, respectively. Another major source/use of cash from financing activities is borrowings in the form of short-term borrowings, long-term debt and subordinated notes. For the nine months ended September 30, 2021, net short-term borrowings decreased and used $106.3 million in cash and net long-term borrowings decreased and used $32.5 million in cash. For the nine months ended September 30, 2020, net short-term borrowings increased and provided $89.8 million in cash and net long-term borrowings decreased and used $57.5 million in cash andcash. In addition, the proceeds from the issuance of subordinated notes increased and provided $172.6 million in cash. For the nine months ended September 30, 2019, net short-term borrowings decreased and used $64.9 million in cash and net long-term borrowings decreased and used $102.5 million in cash. Finally, cash declined by $53.7$54.4 million and $52.6$53.7 million for the nine months ended September 30, 20202021 and 2019,2020, 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, and a $15.0 million revolving line of credit with another financial institution, which had no outstanding balance as of September 30, 2020.sale. The Corporation’s loan to asset ratio was 68.85% at September 30, 2021, compared to 77.35% at December 31, 2020 and 78.77% at September 30, 2020, compared to 75.97% at December 31, 2019 and 73.41% at September 30, 2019.2020. Cash and cash equivalents were $877.4 million at September 30, 2021, compared to $370.5 million at December 31, 2020 and $246.7 million at September 30, 2020, compared to $160.0 million at December 31, 2019 and $372.7 million at September 30, 2019.2020. Management believes that the present funding sources provide more than adequate liquidity for the Corporation to meet its cash flow needs.
  

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Capital Resources
 
Shareholders’ equity at September 30, 20202021 was $1,017.0$1,067.9 million, or 11.0%10.6% of total assets, compared to $969.0$1,040.3 million, or 11.3%11.2% of total assets, at December 31, 20192020 and $956.1$1,017.0 million, or 11.0% of total assets, at September 30, 2019.2020.
 
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 AFS debt securities AFS in computing regulatory capital. During the first quarter of 2015, Park adopted the Basel III regulatory capital framework as approved by the federal banking agencies. The adoption of this framework modified the calculation of the various capital ratios, added an additional ratio, common equity tier 1, and revised the adequately and well-capitalized thresholds under the prompt corrective action regulations applicable to PNB. Additionally, under this 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 above the adequately capitalized risk-based capital ratios. The capital conservation buffer was fully phased in at 2.50% on January 1, 2019. The amounts shown below as the adequately capitalized ratio plus capital conservation buffer includes the 2.50% buffer. The Federal Reserve Board also adopted capital requirements Park must maintain to be deemed "well-capitalized""well capitalized" and remain a financial holding company.

Park and PNB met each of the well capitalized ratio guidelines applicable to them at September 30, 2020.2021. The following table indicates the capital ratios for PNB and Park at September 30, 20202021 and December 31, 2019.2020.

As of September 30, 2020At September 30, 2021
LeverageTier 1
Risk-Based		Common Equity Tier 1Total
Risk-Based		 LeverageTier 1
Risk-Based		Common Equity Tier 1Total
Risk-Based
The Park National BankThe Park National Bank8.01 %10.34 %10.34 %11.86 %The Park National Bank8.28 %11.04 %11.04 %12.63 %
Park National CorporationPark National Corporation9.05 %11.64 %11.43 %15.21 %Park National Corporation9.32 %12.40 %12.19 %15.97 %
Adequately capitalized ratioAdequately capitalized ratio4.00 %6.00 %4.50 %8.00 %Adequately capitalized ratio4.00 %6.00 %4.50 %8.00 %
Adequately capitalized ratio plus capital conservation bufferAdequately capitalized ratio plus capital conservation buffer4.00 %8.50 %7.00 %10.50 %Adequately capitalized ratio plus capital conservation buffer4.00 %8.50 %7.00 %10.50 %
Well capitalized ratio (PNB)Well capitalized ratio (PNB)5.00 %8.00 %6.50 %10.00 %Well capitalized ratio (PNB)5.00 %8.00 %6.50 %10.00 %
Well capitalized ratio (Park)Well capitalized ratio (Park)N/A6.00 %N/A10.00 %Well capitalized ratio (Park)N/A6.00 %N/A10.00 %

As of December 31, 2019At December 31, 2020
LeverageTier 1
Risk-Based		Common Equity Tier 1Total
Risk-Based		 LeverageTier 1
Risk-Based		Common Equity Tier 1Total
Risk-Based
The Park National BankThe Park National Bank8.62 %11.05 %11.05 %12.25 %The Park National Bank8.59 %10.66 %10.66 %12.16 %
Park National CorporationPark National Corporation9.64 %12.33 %12.11 %13.19 %Park National Corporation9.63 %11.92 %11.72 %15.43 %
Adequately capitalized ratioAdequately capitalized ratio4.00 %6.00 %4.50 %8.00 %Adequately capitalized ratio4.00 %6.00 %4.50 %8.00 %
Adequately capitalized ratio plus capital conservation bufferAdequately capitalized ratio plus capital conservation buffer4.00 %8.50 %7.00 %10.50 %Adequately capitalized ratio plus capital conservation buffer4.00 %8.50 %7.00 %10.50 %
Well capitalized ratio (PNB)Well capitalized ratio (PNB)5.00 %8.00 %6.50 %10.00 %Well capitalized ratio (PNB)5.00 %8.00 %6.50 %10.00 %
Well capitalized ratio (Park)Well capitalized ratio (Park)N/A6.00 %N/A10.00 %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 7183 of Park’s 20192020 Form 10-K (Table 35)42) for disclosure concerning contractual obligations and commitments at December 31, 2019. On August 20, 2020, Park completed the issuance and sale of $175.0 million aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030.2020. There were no other significant changes in contractual obligations and commitments during the first nine months of 2020.2021.
 
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,
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to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements.
 
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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)(In thousands)September 30,
2020		December 31, 2019(In thousands)September 30,
2021		December 31, 2020
Loan commitmentsLoan commitments$1,398,438 $1,309,896 Loan commitments$1,379,838 $1,372,182 
Standby letters of creditStandby letters of credit$16,801 $17,195 Standby letters of credit$19,641 $17,015 
 
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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Management reviews interest rate sensitivity on a monthly 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. Management continues to believe that further changes in interest rates will have a small impact on net income, consistent with the disclosure on page 7083 of Park’s 20192020 Form 10-K.
 
On page 7081 (Table 34)41) of Park’s 20192020 Form 10-K, management reported that Park’s twelve-month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $302.6$1,294.6 million or 3.89%15.29% of total interest earning assets at December 31, 2019.2020. At September 30, 2020,2021, Park’s twelve-month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $591.2$1,871.8 million or 7.0%20.3% 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 7183 of Park’s 20192020 Form 10-K, management reported that at December 31, 2019,2020, the earnings simulation model projected that net income would decrease by 1.9%2.9% using a rising interest rate scenario and increasedecrease by 0.5%8.8% using a declining interest rate scenario over the next year. At September 30, 2020,2021, the earnings simulation model projected that net income would decreaseincrease by 3.7%6.6% using a rising interest rate scenario and would decrease by 9.6%13.5% in a declining interest rate scenario. At September 30, 2020,2021, management continues to believe that gradual changes in interest rates (50 basis points per quarter for a total of 200 basis points per year) will have a small impact on net income.
 
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 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 the end of the quarterly period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control Over Financial Reporting
 
Effective January 1, 2021, Park adopted the CECL accounting guidance under ASU 2016-13 and ASC 326. The Company designed new controls and modified existing controls as part of this adoption to ensure compliance with the revised accounting and disclosure requirements. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data.

There were no changes in Park’sPark's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Park’sPark's quarter ended September 30, 2020,2021, that have materially affected, or are reasonably likely to materially affect, Park’sPark's internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.       Legal Proceedings

    There are no pending legal proceedings to which Park or any of its subsidiaries is a party or to which any of their property is subject, except for routine legal proceedings which Park's subsidiaries are parties to incidental to their respective businesses. Park considers none of those proceedings to be material.

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 20192020 Form 10-K, we included a detailed discussion of our risk factors. 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 20192020 Form 10-K 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. In the first quarter of 2020, we identified the following additional risk factor which continues to apply to the third quarter of 2020:

Our business, financial condition, liquidity and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity and results of operations. The extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the continued effectiveness of our business continuity plan (including work-from-home arrangements and staffing in operational facilities), the direct and indirect impact of the pandemic on our employees, customers, clients, counterparties and service providers, as well as other market participants, and actions taken by governmental authorities and other third parties in response to the pandemic.

The COVID-19 pandemic has contributed to:
•Increased unemployment and decreased consumer confidence and business generally, leading to an increased risk of delinquencies, defaults and foreclosures.
•Ratings downgrades, credit deterioration and defaults in many industries, including, in particular, hotels and accommodations, restaurants and food service, and strip shopping center industries, as to which Park has already entered into modification as described under "Loan Modifications" within the "COVID-19 Considerations" discussion in Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations within this Quarterly Report on Form 10-Q.
•A sudden and significant reduction in the valuation of the equity, fixed-income and commodity marketsand the significant increase in the volatility of those markets.
•A decrease in the rates and yields on U.S. Treasury securities and the Federal Reserve target for the federal funds rate which may lead to decreased net interest income.
•Draws on credit lines as customers and clients seek to increase liquidity.
•Increased demands on capital and liquidity and potentially the ability to fund liquidity through historical means.
•A reduction in the value of the assets that the Company manages or otherwise administers or services for others, affecting related fee income and demand for the Company’s services.
•Heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements.

Governmental authorities have taken unprecedented measures to provide economic assistance to individual households and businesses, stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to fully mitigate the negative impact of the COVID-19 pandemic. Additionally, some measures, such as a suspension of mortgage and other loan payments and foreclosures, may have a negative impact on our business, financial condition, liquidity and results of operations. We also face an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of COVID-19 on market and economic conditions, actions governmental authorities take in response to those conditions, and our participation in government programs, such as the PPP.

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The length of the pandemic and the efficacy of the extraordinary measures being put in place to address it are unknown. Until the pandemic subsides, we expect continued draws on lines of credit, reduced revenues and increased customer and client defaults, including defaults on unsecured loans. Even after the pandemic subsides, the global and U.S. economy may continue to experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession. To the extent the pandemic adversely affects our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled “Risk Factors” in our 2019 Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q.

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 September 30, 2020,2021, 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)
July 1 through July 31, 2020— $— — 1,332,747 
August 1 through August 31, 2020— — — 1,332,747 
September 1 though September 30, 2020— — — 1,332,747 
Total— $— — 1,332,747 
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)
July 1 through July 31, 2021— $— — 1,332,747 
August 1 through August 31, 202175,000 118.21 75,000 1,257,747 
September 1 through September 30, 202162,659 114.60 62,659 1,195,088 
Total137,659 $116.57 137,659 1,195,088 
(1)The number shown represents, as of the end of each period, the maximum number of common sharesCommon Shares that may yet be purchased as part of Park’s publicly announced stock repurchase authorizations to fund the 2017 Employees LTIP and to fund 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 sharesCommon Shares which was announced on January 23, 2017; and Park's stock repurchase authorization covering 500,000 common sharesCommon 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 sharesCommon Shares to be issued and delivered under the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP may consist of either common sharesCommon Shares currently held or common sharesCommon Shares subsequently acquired by Park as treasury shares. No newly-issued common sharesCommon 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 common sharesPark Common Shares and 150,000 common shares,Park Common Shares, respectively, to be held
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as treasury shares for subsequent issuance and delivery under the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP.

    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 sharesCommon Shares in addition to the 500,000 Park common sharesCommon 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,American, in the over-the-counter market or in privately negotiated transactions, in each case in compliance with the Ohio General Corporation Law, applicable lawsfederal and regulations andstate securities laws, the rules applicable to issuers having securities listed on NYSE AMERICAN.American, regulations promulgated by the Federal Reserve Board and all 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
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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), (b) Not applicable.

Item 6.      Exhibits
2.1
2.2
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)
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3.1(d)
3.1(e)
3.1(f)
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3.1(g)
3.1(h)
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)
4.1
4.2
4.3
31.1
31.2
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32.1
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32.2
101The following information from Park’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 20202021 formatted in Inline XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Condensed Balance Sheets as of September 30, 20202021 and December 31, 20192020 (unaudited); (ii) the Consolidated Condensed Statements of Income for the three months and nine months ended September 30, 20202021 and 20192020 (unaudited); (iii) the Consolidated Condensed Statements of Comprehensive Income for the three months and nine months ended September 30, 20202021 and 20192020 (unaudited); (iv) the Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three months and nine months ended September 30, 20202021 and 20192020 (unaudited); (v) the Consolidated Condensed Statements of Cash Flows for the nine months ended September 30 2020, 2021 and 20192020 (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)


*Annexes, schedules and exhibits have been omitted pursuant to Item 601(b)(2) of SEC Regulation S-K, as in effect at the time of filing of the Agreement and Plan of Merger and Reorganization.Reorganization, and Item 601(a)(5) of SEC Regulation S-K, as currently in effect. A copy of any omitted attachment will be furnished supplementally to the SEC upon its request.

** 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
   
DATE: November 4, 20203, 2021 /s/ David L. Trautman
  David L. Trautman
  Chairman of the Board and Chief Executive Officer
  (Principal Executive Officer and Duly Authorized Officer)
   
DATE: November 4, 20203, 2021 /s/ Brady T. Burt
  Brady T. Burt
  Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Duly Authorized Officer)


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