Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
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Commission File Number | 1-13006 |
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Park National Corporation |
(Exact name of registrant as specified in its charter) |
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Ohio | | 31-1179518 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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50 North Third Street, Newark, Ohio 43055 |
(Address of principal executive offices) (Zip Code) |
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(740) 349-8451 |
(Registrant’s telephone number, including area code) |
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N/A |
(Former name, former address and former fiscal year, if changed since last report) |
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 ý 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 ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ý | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
| Emerging growth company | ¨
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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 ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 15,698,181 Common shares, no par value per share, outstanding at November 01, 2018.
PARK NATIONAL CORPORATION
CONTENTS
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PART I. FINANCIAL INFORMATION | |
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Item 1. Financial Statements | |
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PARK NATIONAL CORPORATION AND SUBSIDARIES
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands, except share and per share data) |
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| September 30, 2018 | | December 31, 2017 |
Assets: | |
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Cash and due from banks | $ | 106,578 |
| | $ | 131,946 |
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Money market instruments | 38,026 |
| | 37,166 |
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Cash and cash equivalents | 144,604 |
| | 169,112 |
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Investment securities: | |
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Debt securities available-for-sale, at fair value (amortized cost of $1,074,605 and $1,097,645 at September 30, 2018 and December 31, 2017, respectively) | 1,032,265 |
| | 1,091,881 |
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Debt securities held-to-maturity, at amortized cost (fair value of $344,341 and $363,779 at September 30, 2018 and December 31, 2017, respectively) | 350,642 |
| | 357,197 |
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Other investment securities | 56,104 |
| | 63,746 |
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Total investment securities | 1,439,011 |
| | 1,512,824 |
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Loans | 5,625,323 |
| | 5,372,483 |
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Allowance for loan losses | (50,246 | ) | | (49,988 | ) |
Net loans | 5,575,077 |
| | 5,322,495 |
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Bank owned life insurance | 190,290 |
| | 189,322 |
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Prepaid assets | 99,772 |
| | 97,712 |
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Goodwill and other intangibles | 119,999 |
| | 72,334 |
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Premises and equipment, net | 57,515 |
| | 55,901 |
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Affordable housing tax credit investments | 52,116 |
| | 49,669 |
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Other real estate owned | 5,276 |
| | 14,190 |
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Accrued interest receivable | 23,907 |
| | 22,164 |
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Mortgage loan servicing rights | 10,096 |
| | 9,688 |
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Other | 38,828 |
| | 22,209 |
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Total assets | $ | 7,756,491 |
| | $ | 7,537,620 |
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Liabilities and Shareholders' Equity: | |
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Deposits: | |
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Noninterest bearing | $ | 1,727,210 |
| | $ | 1,633,941 |
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Interest bearing | 4,552,116 |
| | 4,183,385 |
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Total deposits | 6,279,326 |
| | 5,817,326 |
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Short-term borrowings | 179,818 |
| | 391,289 |
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Long-term debt | 400,000 |
| | 500,000 |
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Subordinated notes | 15,000 |
| | 15,000 |
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Unfunded commitments in affordable housing tax credit investments | 22,282 |
| | 14,282 |
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Accrued interest payable | 3,264 |
| | 2,278 |
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Other | 47,710 |
| | 41,344 |
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Total liabilities | $ | 6,947,400 |
| | $ | 6,781,519 |
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Shareholders' equity: | |
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Preferred shares (200,000 shares authorized; 0 shares issued) | $ | — |
| | $ | — |
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Common shares (No par value; 20,000,000 shares authorized; 16,586,169 shares issued at September 30, 2018 and 16,150,752 shares issued at December 31, 2017) | 357,709 |
| | 307,726 |
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Retained earnings | 603,091 |
| | 561,908 |
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Treasury shares (899,637 shares at September 30, 2018 and 862,558 shares at December 31, 2017) | (91,559 | ) | | (87,079 | ) |
Accumulated other comprehensive loss, net of taxes | (60,150 | ) | | (26,454 | ) |
Total shareholders' equity | 809,091 |
| | 756,101 |
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Total liabilities and shareholders’ equity | $ | 7,756,491 |
| | $ | 7,537,620 |
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SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited)
(in thousands, except share and per share data)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Interest and dividend income: | |
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Interest and fees on loans | $ | 69,905 |
| | $ | 63,110 |
| | $ | 198,803 |
| | $ | 184,240 |
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Interest and dividends on: | |
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Obligations of U.S. Government, its agencies and other securities - taxable | 7,691 |
| | 6,757 |
| | 22,204 |
| | 20,787 |
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Obligations of states and political subdivisions - tax-exempt | 2,205 |
| | 1,974 |
| | 6,557 |
| | 5,098 |
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Other interest income | 428 |
| | 1,383 |
| | 1,070 |
| | 2,330 |
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Total interest and dividend income | 80,229 |
| | 73,224 |
| | 228,634 |
| | 212,455 |
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Interest expense: | |
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Interest on deposits: | |
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Demand and savings deposits | 6,412 |
| | 2,882 |
| | 13,809 |
| | 6,787 |
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Time deposits | 3,328 |
| | 2,521 |
| | 8,765 |
| | 7,139 |
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Interest on borrowings: | |
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Short-term borrowings | 288 |
| | 197 |
| | 1,283 |
| | 616 |
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Long-term debt | 2,525 |
| | 6,073 |
| | 7,509 |
| | 17,632 |
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Total interest expense | 12,553 |
| | 11,673 |
| | 31,366 |
| | 32,174 |
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Net interest income | 67,676 |
| | 61,551 |
| | 197,268 |
| | 180,281 |
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Provision for loan losses | 2,940 |
| | 3,283 |
| | 4,586 |
| | 8,740 |
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Net interest income after provision for loan losses | 64,736 |
| | 58,268 |
| | 192,682 |
| | 171,541 |
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Other income: | |
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Income from fiduciary activities | 6,418 |
| | 5,932 |
| | 19,479 |
| | 17,471 |
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Service charges on deposit accounts | 2,861 |
| | 3,216 |
| | 8,609 |
| | 9,511 |
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Other service income | 3,246 |
| | 3,357 |
| | 10,890 |
| | 9,608 |
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Checkcard fee income | 4,352 |
| | 3,974 |
| | 12,736 |
| | 11,775 |
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Bank owned life insurance income | 2,585 |
| | 1,573 |
| | 4,625 |
| | 3,790 |
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ATM fees | 500 |
| | 605 |
| | 1,534 |
| | 1,708 |
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OREO valuation adjustments | (77 | ) | | (22 | ) | | (398 | ) | | (367 | ) |
(Loss) gain on sale of OREO, net | (81 | ) | | 51 |
| | 4,093 |
| | 204 |
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Net loss on sale of investment securities | — |
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| | (2,271 | ) | | — |
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(Loss) gain on equity securities, net | (326 | ) | | — |
| | 3,467 |
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Other components of net periodic pension benefit income | 1,705 |
| | 1,448 |
| | 5,115 |
| | 4,344 |
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Miscellaneous | 2,881 |
| | 3,403 |
| | 6,330 |
| | 5,147 |
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Total other income | 24,064 |
| | 23,537 |
| | 74,209 |
| | 63,191 |
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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited) (Continued)
(in thousands, except share and per share data)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Other expense: | |
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Salaries | $ | 27,229 |
| | $ | 23,302 |
| | $ | 76,652 |
| | $ | 69,020 |
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Employee benefits | 7,653 |
| | 5,943 |
| | 22,312 |
| | 18,617 |
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Occupancy expense | 2,976 |
| | 2,559 |
| | 8,482 |
| | 7,759 |
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Furniture and equipment expense | 3,807 |
| | 3,868 |
| | 11,969 |
| | 11,126 |
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Data processing fees | 2,580 |
| | 1,919 |
| | 6,255 |
| | 5,560 |
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Professional fees and services | 8,065 |
| | 6,100 |
| | 20,378 |
| | 16,947 |
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Marketing | 1,364 |
| | 1,122 |
| | 3,767 |
| | 3,262 |
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Insurance | 1,388 |
| | 1,499 |
| | 4,012 |
| | 4,586 |
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Communication | 1,207 |
| | 1,110 |
| | 3,646 |
| | 3,598 |
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State tax expense | 1,000 |
| | 912 |
| | 3,063 |
| | 2,918 |
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Amortization of intangibles | 289 |
| | — |
| | 289 |
| | — |
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Miscellaneous | 1,758 |
| | 2,925 |
| | 5,333 |
| | 6,330 |
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Total other expense | 59,316 |
| | 51,259 |
| | 166,158 |
| | 149,723 |
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Income before income taxes | 29,484 |
| | 30,546 |
| | 100,733 |
| | 85,009 |
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Income taxes | 4,722 |
| | 8,434 |
| | 16,607 |
| | 23,598 |
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Net income | $ | 24,762 |
| | $ | 22,112 |
| | $ | 84,126 |
| | $ | 61,411 |
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Earnings per Common Share: | | | | | | | |
Basic | $ | 1.58 |
| | $ | 1.45 |
| | $ | 5.46 |
| | $ | 4.01 |
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Diluted | $ | 1.56 |
| | $ | 1.44 |
| | $ | 5.41 |
| | $ | 3.99 |
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Weighted average common shares outstanding | |
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Basic | 15,686,542 |
| | 15,287,974 |
| | 15,420,135 |
| | 15,299,039 |
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Diluted | 15,832,734 |
| | 15,351,590 |
| | 15,560,666 |
| | 15,394,199 |
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Cash dividends declared | $ | 0.96 |
| | $ | 0.94 |
| | $ | 3.11 |
| | $ | 2.82 |
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SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(in thousands)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net income | $ | 24,762 |
| | $ | 22,112 |
| | $ | 84,126 |
| | $ | 61,411 |
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Other comprehensive (loss) income, net of tax: | | | | | | | |
Net loss realized on sale of securities, net of income tax benefit of $538 for the nine months ended September 30, 2018 | — |
| | — |
| | 2,024 |
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Unrealized net holding (loss) gain on debt securities available-for-sale, net of federal income tax effect of $(1,364) and $380 for the three months ended September 30, 2018 and 2017, and $(8,217) and $2,551 for the nine months ended September 30, 2018 and 2017, respectively | (5,141 | ) | | 707 |
| | (30,919 | ) | | 4,740 |
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Other comprehensive (loss) income | $ | (5,141 | ) | | $ | 707 |
| | $ | (28,895 | ) | | $ | 4,740 |
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Comprehensive income | $ | 19,621 |
| | $ | 22,819 |
| | $ | 55,231 |
| | $ | 66,151 |
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SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited)
(in thousands, except share and per share data)
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| | Preferred Shares | | Common Shares | | Retained Earnings | | Treasury Shares | | Accumulated Other Comprehensive (Loss) Income |
Balance at January 1, 2017 | | $ | — |
| | $ | 305,826 |
| | $ | 535,631 |
| | $ | (81,472 | ) | | $ | (17,745 | ) |
Net income | | |
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| | 61,411 |
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Other comprehensive income, net of tax | | |
| | | | | | | | 4,740 |
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Dividends on common shares at $2.82 per share | | |
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| | (43,411 | ) | | |
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Cash payment for fractional common shares in dividend reinvestment plan | | |
| | (4 | ) | | |
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Issuance of 9,674 common shares under share-based compensation awards, net of 3,293 common shares withheld to pay employee income taxes | | | | (795 | ) | | (197 | ) | | $ | 645 |
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Repurchase of 70,000 common shares to be held as treasury shares | | | | | | | | $ | (7,378 | ) | | |
Share-based compensation expense | | | | 2,116 |
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Balance at September 30, 2017 | | $ | — |
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| $ | 307,143 |
| | $ | 553,434 |
| | $ | (88,205 | ) | | $ | (13,005 | ) |
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Balance at January 1, 2018, as previously presented | | $ | — |
| | $ | 307,726 |
| | $ | 561,908 |
| | $ | (87,079 | ) | | $ | (26,454 | ) |
Cumulative effect of change in accounting principle for marketable equity securities, net of tax | | | | | | 1,917 |
| | | | (995 | ) |
Balance at January 1, 2018, as adjusted | | — |
| | 307,726 |
| | 563,825 |
| | (87,079 | ) | | (27,449 | ) |
Reclassification of disproportionate income tax effects | | | | | | 3,806 |
| | | | (3,806 | ) |
Net income | | |
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| | 84,126 |
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Other comprehensive loss, net of tax | | |
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| | (28,895 | ) |
Dividends on common shares at $3.11 per share | | |
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| | (48,349 | ) | |
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Cash payment for fractional common shares in dividend reinvestment plan | | |
| | (3 | ) | |
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Issuance of 435,457 common shares for the acquisition of NewDominion Bank | | | | 48,519 |
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Issuance of 18,800 common shares under share-based compensation awards, net of 5,879 common shares withheld to pay employee income taxes | | | | (1,597 | ) | | (317 | ) | | 1,304 |
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Repurchase of 50,000 common shares to be held as treasury shares | | | | | | | | (5,784 | ) | | |
Share-based compensation expense | | | | 3,064 |
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Balance at September 30, 2018 | | $ | — |
| | $ | 357,709 |
| | $ | 603,091 |
| | $ | (91,559 | ) | | $ | (60,150 | ) |
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
(in thousands)
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| Nine Months Ended September 30, |
| 2018 | | 2017 |
Operating activities: | |
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Net income | $ | 84,126 |
| | $ | 61,411 |
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Adjustments to reconcile net income to net cash provided by operating activities: | |
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Provision for loan losses | 4,586 |
| | 8,740 |
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Amortization of loan fees and costs, net | (4,631 | ) | | (4,352 | ) |
Increase in prepaid dealer premiums | (1,399 | ) | | (4,313 | ) |
Provision for depreciation | 6,446 |
| | 6,463 |
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Amortization of investment securities, net | 932 |
| | 1,013 |
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Realized net investment securities losses | 2,271 |
| | — |
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Gain on equity securities, net | (3,467 | ) | | — |
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Amortization of prepayment penalty on long-term debt | — |
| | 4,711 |
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Loan originations to be sold in secondary market | (153,093 | ) | | (168,255 | ) |
Proceeds from sale of loans in secondary market | 154,544 |
| | 170,703 |
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Gain on sale of loans in secondary market | (3,604 | ) | | (3,431 | ) |
Share-based compensation expense | 3,064 |
| | 2,116 |
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OREO valuation adjustments | 398 |
| | 367 |
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Gain on sale of OREO, net | (4,093 | ) | | (204 | ) |
Bank owned life insurance income | (4,625 | ) | | (3,790 | ) |
Investment in qualified affordable housing tax credits amortization | 5,553 |
| | 5,592 |
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Changes in assets and liabilities: | |
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Decrease (increase) in other assets | 6,575 |
| | (5,603 | ) |
Increase (decrease) in other liabilities | 4,536 |
| | (4,502 | ) |
Net cash provided by operating activities | $ | 98,119 |
| | $ | 66,666 |
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Investing activities: | |
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Proceeds from the redemption/repurchase of Federal Home Loan Bank stock | $ | 7,004 |
| | $ | — |
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Proceeds from sales of securities | 244,399 |
| | — |
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Proceeds from calls and maturities of: | |
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Available-for-sale debt securities | 151,860 |
| | 128,736 |
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Held-to-maturity debt securities | 10,102 |
| | 12,264 |
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Purchases of: | |
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Available-for-sale debt securities | (373,372 | ) | | (29,684 | ) |
Held-to-maturity debt securities | (4,946 | ) | | (96,293 | ) |
Equity securities | (2,590 | ) | | — |
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Net loan paydowns (originations), portfolio loans | 12,027 |
| | (95,808 | ) |
Proceeds from the sale of OREO | 11,919 |
| | 2,363 |
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Life insurance death benefits | 4,028 |
| | 1,037 |
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Purchases of premises and equipment | (7,145 | ) | | (4,995 | ) |
Cash received from acquisitions, net | 12,270 |
| | — |
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Net cash provided by (used in) investing activities | $ | 65,556 |
| | $ | (82,380 | ) |
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PARK NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued) (in thousands) |
| Nine Months Ended September 30, |
| 2018 | | 2017 |
Financing activities: | |
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Net increase in deposits | $ | 177,626 |
| | $ | 452,366 |
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Net decrease in short-term borrowings | (211,471 | ) | | (201,899 | ) |
Proceeds from issuance of long-term debt | 25,000 |
| | 150,000 |
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Repayment of subordinated notes | — |
| | (30,000 | ) |
Repayment of long-term debt | (125,000 | ) | | — |
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Value of common shares withheld to pay employee income taxes | (610 | ) | | (347 | ) |
Repurchase of common shares to be held as treasury shares | (5,784 | ) | | (7,378 | ) |
Cash dividends paid | (47,944 | ) | | (43,122 | ) |
Net cash (used in) provided by financing activities | $ | (188,183 | ) | | $ | 319,620 |
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(Decrease) increase in cash and cash equivalents | (24,508 | ) | | 303,906 |
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Cash and cash equivalents at beginning of year | 169,112 |
| | 146,446 |
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Cash and cash equivalents at end of period | $ | 144,604 |
| | $ | 450,352 |
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Supplemental disclosures of cash flow information: | |
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Cash paid for: | |
| | |
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Interest | $ | 30,424 |
| | $ | 31,743 |
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Income taxes | $ | 5,525 |
| | $ | 18,690 |
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Non-cash items: | | | |
Loans transferred to OREO | $ | 1,037 |
| | $ | 2,991 |
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| | | |
Loans transferred to repossessed assets | $ | 11,379 |
| | $ | — |
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| | | |
New commitments in affordable housing tax credit investments | $ | 8,000 |
| | $ | 7,000 |
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SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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, 2018 are not necessarily indicative of the operating results to be anticipated for the fiscal year ending December 31, 2018.
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 condensed balance sheets, condensed statements of income, condensed statements of comprehensive income, condensed statements of changes in shareholders’ equity and condensed statements of cash flows in conformity with United States ("U.S.") generally accepted accounting principles (“U.S. GAAP”). These financial statements should be read in conjunction with the consolidated financial statements incorporated by reference in the Annual Report on Form 10-K of Park for the fiscal year ended December 31, 2017 from Park’s 2017 Annual Report to Shareholders (“Park's 2017 Annual Report”). Prior period financial statements reflect the retrospective application of Accounting Standards Update ("ASU") 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This change in classification had no effect on reported net income.
Park’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2017 Annual Report. For interim reporting purposes, Park follows the same basic accounting policies, as updated by the information contained in this report, and considers each interim period an integral part of an annual period.
Note 2 - Adoption of New Accounting Pronouncements and Issued But Not Yet Effective Accounting Standards
The following is a summary of new accounting pronouncements impacting Park's consolidated financial statements, and issued but not yet effective accounting standards:
Adoption of New Accounting Pronouncements
ASU 2014-09 - Revenue from Contracts with Customers (Topic 606): In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU creates a new topic, Topic 606, to provide guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. The majority of the Company's revenues come from interest income and other sources, including loans, leases, securities and derivatives, that are outside the scope of ASC 606. Certain services that fall within the scope of ASC 606 are presented within Other Income and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of ASC 606 include income from fiduciary activities, service charges on deposit accounts, other service income, checkcard fee income, ATM fees, and gain (loss) on sale of OREO, net. The adoption of this guidance on January 1, 2018 did not have a material impact on Park's consolidated financial statements. However, the adoption of this standard resulted in additional disclosures beginning with the first quarter 2018 Form 10-Q. Reference Note 20 - Revenue from Contracts with Customers, for further discussion on the Company's accounting policies for revenue sources within the scope of ASC 606.
ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. In January 2016, the FASB issued ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Changes reflected in the current U.S. GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, this ASU clarifies guidance related to the
valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale ("AFS") securities. The new guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2017. The adoption of this guidance on January 1, 2018 resulted in an $1.9 million increase to beginning retained earnings and a $995,000 increase to beginning accumulated other comprehensive loss. Additional income of $3.2 million, $1.3 million and $89,000 was recorded in the first, second and third quarters of 2018, respectively, as a result of changes to the accounting for equity investments. Further, beginning with the first quarter of 2018, Park's fair value disclosures in Note 16 - Fair Value, have incorporated the revised disclosure requirements for financial investments.
ASU 2016-15 - Statement of Cash Flows (Topic 203): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force): In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 203): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). This ASU provides guidance on eight specific cash flow issues where then current GAAP was either unclear or did not include specific guidance. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. The adoption of this guidance on January 1, 2018 did not have an impact on Park's consolidated financial statements. As such transactions arise, management will utilize the updated guidance in providing disclosures within Park’s consolidated condensed statements of cash flows.
ASU 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost: In March 2017, the FASB issued ASU 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. As a result of the adoption of this guidance on January 1, 2018, all prior periods have been recast to separately record the service cost component and other components of net benefit cost. For all periods presented, this resulted in an increase in other income and an offsetting increase in other expense with no change to net income. See Note 14 - Benefit Plans, for further details.
ASU 2017-09 - Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting: In May 2017, the FASB issued ASU 2017-09 - Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU amends the guidance concerning which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under Topic 718. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. The adoption of this guidance on January 1, 2018 did not impact Park's consolidated financial statements.
ASU 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities: In August 2017, the FASB issued ASU 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU amends the current guidance with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. In addition, this ASU amends the current guidance to simplify the application of the hedge accounting guidance. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted for interim or annual periods. The early adoption of this guidance on July 1, 2018 did not have an impact on Park's consolidated financial statements. Park will apply this guidance to future transactions.
ASU 2018-02 - Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income: In February 2018, the FASB issued ASU 2018-02 - Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects, resulting from the federal corporate income tax rate enacted under the Tax Cuts and Jobs Act. The amount of the reclassification is the difference between the historical federal corporate income tax rate and the newly-enacted 21% federal corporate income tax rate. The guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted for interim or annual periods. The early adoption of this guidance effective January 1, 2018 resulted in a $3.8 million increase to Park's accumulated other comprehensive loss and a $3.8 million increase to retained earnings.
ASU 2018-03 - Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. In February 2018, the FASB issued ASU 2018-03 - Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU includes amendments that clarify certain aspects of the guidance issued in ASU 2016-01. Park considered this clarification in determining the appropriate adoption of ASU 2016-01 effective as of January 1, 2018.
Issued But Not Yet Effective Accounting Standards
ASU 2016-02 - Leases (Topic 842): In February 2016, the FASB issued ASU 2016-02 - Leases (Topic 842). This ASU will require all organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additional qualitative and quantitative disclosures will be required so that users can understand more about the nature of an entity’s leasing activities. The new guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. Management is currently analyzing data on leased assets and is in the process of implementing a software solution to assist in the adoption of this ASU. The adoption of this guidance is expected to increase both assets and liabilities, but is not expected to have a material impact on Park's consolidated statement of income.
ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments: In June 2016, FASB issued ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held-to-maturity ("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 exposure. The new guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2018.
Management is currently evaluating the impact of the adoption of this guidance on Park's consolidated financial statements. We anticipate that the adoption of the CECL model will result in a material increase to Park's allowance for loan losses. Management has established a committee to oversee the implementation of the CECL model and is currently in the process of implementing a software solution to assist in the adoption of this ASU. Management plans to run our current allowance model and a CECL model concurrently for 12 months prior to the adoption of this guidance on January 1, 2020.
ASU 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities: In March 2017, the FASB issued ASU 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This ASU amends the amortization period for certain purchased callable debt securities held at a premium. It shortens the amortization period for the premium to the earliest call date. Under current U.S. GAAP, premiums on callable debt securities generally are amortized to the maturity date. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted for interim or annual periods. The adoption of this guidance is not expected to have a material impact on Park's consolidated financial statements.
ASU 2018-10 - Codification Improvements to Topic 842, Leases: In July 2018, the FASB issued ASU 2018-10 - Codification Improvements to Topic 842, Leases. This ASU includes amendments that clarify certain aspects of the guidance issued in ASU 2016-02. Park will consider this clarification in determining the appropriate adoption of ASU 2016-02, effective for annual and interim reporting periods within those annual periods, beginning after December 15, 2018.
ASU 2018-11 - Leases (Topic 842): Targeted Improvements: In July 2018, the FASB issued ASU 2018-11 - Leases (Topic 842): Targeted Improvements. This ASU amends the guidance in ASU 2016-02 which is not yet effective. The amendments in the ASU provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings for the period of adoption. Additionally, this amendment provides lessors with a practical expedient, by class of asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if certain criteria are met. Park will consider this clarification in determining the appropriate adoption of ASU 2016-02, effective for annual and interim reporting periods within those annual periods, beginning after December 15, 2018.
ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement: In 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 on 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. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt and remove or modify disclosures upon issuance of the ASU and delay adoption of the additional disclosures until their effective date. The adoption of this guidance will not have an impact on Park’s consolidated financial statements, but will impact disclosures.
ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans: In August 2018, the FASB issued ASU 2018-14 - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing disclosures that are no longer considered cost beneficial, clarifying the specific requirements 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 impact on Park’s consolidated financial statements, but will impact disclosures.
Note 3 - Business Combinations
On July 1, 2018, NewDominion Bank, a North Carolina state-chartered bank (“NewDominion”), merged with and into The Park National Bank, the national bank subsidiary of Park ("PNB"), with PNB continuing as the surviving entity pursuant to the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of January 22, 2018, by and among Park, PNB, and NewDominion. In accordance with the Merger Agreement, NewDominion shareholders were permitted to make an election to receive for their shares of NewDominion common stock either $1.08 in cash without interest (the cash consideration) or 0.01023 of a Park common share, plus cash in lieu of any fractional Park common share (the stock consideration). Based on the terms of the Merger Agreement, the aggregate consideration to be paid in the merger was subject to proration and allocation procedures to ensure that 60 percent of the shares of NewDominion common stock outstanding immediately prior to the completion of the merger were exchanged for the stock consideration and that the remaining 40 percent of the shares of NewDominion common stock outstanding immediately prior to the completion of the merger were to be exchanged for the cash consideration, including, in each case, shares of NewDominion common stock subject to NewDominion options and restricted stock awards.
Purchase consideration consisted of 435,457 Park common shares, valued at $48.5 million, and $30.7 million in cash to acquire 91.45% of NewDominion outstanding common shares. The remaining 8.55% of NewDominion's outstanding common shares were previously held by Park. Park recognized a gain of $3.5 million as a result of remeasuring to fair value its 8.55% equity interest in NewDominion held before the business combination. The gain is included in "(Loss) gain on equity securities, net" in the consolidated condensed statements of income. The acquisition is expected to provide additional revenue growth and geographic diversification.
NewDominion's results of operations were included in Park’s results beginning July 1, 2018. For the nine months ended September 30, 2018, Park recorded merger-related expenses of $3.6 million associated with the NewDominion acquisition. Of this $3.6 million in expense, $1.8 million is included within "Professional fees and services", $1.6 million is included within "Salaries", $78,000 is included within "Employee benefits", and $197,000 is included within "Miscellaneous", in each case within "Other expense" on the consolidated condensed statements of income.
Goodwill of $40.4 million arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the PNB and NewDominion. The goodwill is not deductible for income tax purposes as the transaction was accounted for as a tax-free exchange.
The following table summarizes the consideration paid for NewDominion and the amounts of the assets acquired and liabilities assumed at their fair value:
|
| | | |
(in thousands) | |
Consideration | |
Cash | $ | 30,684 |
|
Equity instruments | 48,519 |
|
Previous 8.55% investment in NewDominion | 7,000 |
|
Fair value of total consideration transferred | $ | 86,203 |
|
| |
Recognized amounts of identifiable assets acquired and liabilities assumed | |
Cash and cash equivalents | $ | 42,954 |
|
Securities | 1,954 |
|
Loans | 272,753 |
|
Premises and equipment | 940 |
|
Core deposit intangibles | 6,249 |
|
Trade name intangible | 1,300 |
|
Other assets | 6,133 |
|
Total assets acquired | $ | 332,283 |
|
| |
Deposits | 284,231 |
|
Other liabilities | 2,254 |
|
Total liabilities assumed | 286,485 |
|
| |
Net identifiable assets | 45,798 |
|
| |
Goodwill | $ | 40,405 |
|
Park accounted for the NewDominion 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 measurements of assets acquired and liabilities assumed are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Park continues to finalize the fair values of loans, intangible assets, and deferred taxes. As a result, the fair value adjustments are preliminary and may change as information becomes available. Fair value adjustments will be finalized no later than July 2019.
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 believes that all contractual cash flows related to these loans will 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 $267.9 million and $272.9 million, respectively, on the date of acquisition.
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 Balance | | Fair Value |
Commercial, financial and agricultural | $ | 19,246 |
| | $ | 19,138 |
|
Commercial real estate | 119,434 |
| | 117,638 |
|
Construction real estate: | | | |
Commercial | 22,494 |
| | 22,235 |
|
Mortgage | 8,391 |
| | 8,111 |
|
Residential real estate: | | | |
Commercial | 14,798 |
| | 14,797 |
|
Mortgage | 50,295 |
| | 48,714 |
|
HELOC | 37,651 |
| | 36,688 |
|
Consumer | 541 |
| | 539 |
|
Purchased credit impaired | 5,069 |
| | 4,893 |
|
Total loans | $ | 277,919 |
| | $ | 272,753 |
|
The following table presents supplemental pro forma information as if the acquisition had occurred at the beginning of 2017. 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 transactions been effected on the assumed dates.
|
| | | | | |
| Nine months ended September 30, |
(dollars in thousands, except per share data) | 2018 | | 2017 |
Net interest income | 204,074 |
| | 190,461 |
|
Net income | 88,102 |
| | 62,775 |
|
Basic earnings per share | 5.61 |
| | 3.99 |
|
Diluted earnings per share | 5.51 |
| | 3.97 |
|
Note 4 – Loans
The composition of the loan portfolio, by class of loan, as of September 30, 2018 and December 31, 2017 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2018 | | | December 31, 2017 |
(In thousands) | Loan Balance | | Accrued Interest Receivable | | Recorded Investment | | | Loan Balance | | Accrued Interest Receivable | | Recorded Investment |
Commercial, financial and agricultural * | $ | 1,031,500 |
| | $ | 5,606 |
| | $ | 1,037,106 |
| | | $ | 1,053,453 |
| | $ | 4,413 |
| | $ | 1,057,866 |
|
Commercial real estate * | 1,302,630 |
| | 5,169 |
| | 1,307,799 |
| | | 1,167,607 |
| | 4,283 |
| | 1,171,890 |
|
Construction real estate: | |
| | |
| | |
| | | |
| | |
| | |
|
Commercial | 151,757 |
| | 474 |
| | 152,231 |
| | | 125,389 |
| | 401 |
| | 125,790 |
|
Mortgage | 65,842 |
| | 158 |
| | 66,000 |
| | | 52,203 |
| | 133 |
| | 52,336 |
|
Installment | 2,597 |
| | 8 |
| | 2,605 |
| | | 3,878 |
| | 13 |
| | 3,891 |
|
Residential real estate: | |
| | |
| | |
| | | |
| | |
| | |
|
Commercial | 403,147 |
| | 1,156 |
| | 404,303 |
| | | 393,094 |
| | 1,029 |
| | 394,123 |
|
Mortgage | 1,140,648 |
| | 1,719 |
| | 1,142,367 |
| | | 1,110,426 |
| | 1,516 |
| | 1,111,942 |
|
HELOC | 221,632 |
| | 964 |
| | 222,596 |
| | | 203,178 |
| | 974 |
| | 204,152 |
|
Installment | 15,556 |
| | 43 |
| | 15,599 |
| | | 18,526 |
| | 53 |
| | 18,579 |
|
Consumer | 1,287,382 |
| | 3,773 |
| | 1,291,155 |
| | | 1,241,736 |
| | 3,808 |
| | 1,245,544 |
|
Leases | 2,632 |
| | 40 |
| | 2,672 |
| | | 2,993 |
| | 36 |
| | 3,029 |
|
Total loans | $ | 5,625,323 |
| | $ | 19,110 |
| | $ | 5,644,433 |
| | | $ | 5,372,483 |
| | $ | 16,659 |
| | $ | 5,389,142 |
|
* 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.
Loans are shown net of deferred origination fees, costs and unearned income of $12.4 million at September 30, 2018 and $12.2 million at December 31, 2017, which represented a net deferred income position in both periods. At September 30, 2018, loans included a purchase accounting adjustment of $5.1 million, which represented a net deferred income position. This fair market value adjustment is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.
Overdrawn deposit accounts of $1.1 million and $1.9 million had been reclassified to loans at September 30, 2018 and December 31, 2017, respectively, and are included in the commercial, financial and agricultural loan class above.
Credit Quality
The following tables present the recorded investment in nonaccrual loans, accruing troubled debt restructurings ("TDRs"), and loans past due 90 days or more and still accruing by class of loan as of September 30, 2018 and December 31, 2017:
|
| | | | | | | | | | | | | | | | |
| | September 30, 2018 |
(In thousands) | | Nonaccrual Loans | | Accruing TDRs | | Loans Past Due 90 Days or More and Accruing | | Total Nonperforming Loans |
Commercial, financial and agricultural | | $ | 15,837 |
| | $ | 264 |
| | $ | 16 |
| | $ | 16,117 |
|
Commercial real estate | | 22,806 |
| | 2,999 |
| | — |
| | 25,805 |
|
Construction real estate: | | |
| | |
| | |
| | |
|
Commercial | | 2,016 |
| | — |
| | — |
| | 2,016 |
|
Mortgage | | 16 |
| | 16 |
| | — |
| | 32 |
|
Installment | | 21 |
| | 12 |
| | — |
| | 33 |
|
Residential real estate: | | |
| | |
| | |
| | |
|
Commercial | | 2,786 |
| | 127 |
| | — |
| | 2,913 |
|
Mortgage | | 17,411 |
| | 8,175 |
| | 720 |
| | 26,306 |
|
HELOC | | 1,901 |
| | 1,251 |
| | 144 |
| | 3,296 |
|
Installment | | 410 |
| | 1,074 |
| | — |
| | 1,484 |
|
Consumer | | 3,450 |
| | 789 |
| | 1,203 |
| | 5,442 |
|
Total loans | | $ | 66,654 |
| | $ | 14,707 |
| | $ | 2,083 |
| | $ | 83,444 |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2017 |
(In thousands) | | Nonaccrual Loans | | Accruing TDRs | | Loans Past Due 90 Days or More and Accruing | | Total Nonperforming Loans |
Commercial, financial and agricultural | | $ | 16,773 |
| | $ | 1,291 |
| | $ | — |
| | $ | 18,064 |
|
Commercial real estate | | 12,979 |
| | 5,163 |
| | — |
| | 18,142 |
|
Construction real estate: | | |
| | |
| | |
| | |
Commercial | | 986 |
| | 338 |
| | — |
| | 1,324 |
|
Mortgage | | 8 |
| | 92 |
| | — |
| | 100 |
|
Installment | | 52 |
| | — |
| | — |
| | 52 |
|
Residential real estate: | | |
| | |
| | |
| | |
|
Commercial | | 18,835 |
| | 224 |
| | — |
| | 19,059 |
|
Mortgage | | 16,841 |
| | 10,766 |
| | 568 |
| | 28,175 |
|
HELOC | | 1,593 |
| | 1,025 |
| | 14 |
| | 2,632 |
|
Installment | | 586 |
| | 616 |
| | 7 |
| | 1,209 |
|
Consumer | | 3,403 |
| | 662 |
| | 1,256 |
| | 5,321 |
|
Total loans | | $ | 72,056 |
| | $ | 20,177 |
| | $ | 1,845 |
| | $ | 94,078 |
|
The following table provides additional information regarding those nonaccrual loans and accruing TDR loans that were individually evaluated for impairment and those collectively evaluated for impairment, as of September 30, 2018 and December 31, 2017.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2018 | | | December 31, 2017 |
(In thousands) | | Nonaccrual and Accruing TDRs | | Loans Individually Evaluated for Impairment | | Loans Collectively Evaluated for Impairment | | | Nonaccrual and Accruing TDRs | | Loans Individually Evaluated for Impairment | | Loans Collectively Evaluated for Impairment |
Commercial, financial and agricultural | | $ | 16,101 |
| | $ | 16,026 |
| | $ | 75 |
| | | $ | 18,064 |
| | $ | 18,039 |
| | $ | 25 |
|
Commercial real estate | | 25,805 |
| | 25,805 |
| | — |
| | | 18,142 |
| | 18,142 |
| | — |
|
Construction real estate: | | |
| | |
| | |
| | | |
| | |
| | |
|
Commercial | | 2,016 |
| | 2,016 |
| | — |
| | | 1,324 |
| | 1,324 |
| | — |
|
Mortgage | | 32 |
| | — |
| | 32 |
| | | 100 |
| | — |
| | 100 |
|
Installment | | 33 |
| | — |
| | 33 |
| | | 52 |
| | — |
| | 52 |
|
Residential real estate: | | |
| | |
| | |
| | | |
| | |
| | |
|
Commercial | | 2,913 |
| | 2,913 |
| | — |
| | | 19,059 |
| | 19,059 |
| | — |
|
Mortgage | | 25,586 |
| | — |
| | 25,586 |
| | | 27,607 |
| | — |
| | 27,607 |
|
HELOC | | 3,152 |
| | — |
| | 3,152 |
| | | 2,618 |
| | — |
| | 2,618 |
|
Installment | | 1,484 |
| | — |
| | 1,484 |
| | | 1,202 |
| | — |
| | 1,202 |
|
Consumer | | 4,239 |
| | — |
| | 4,239 |
| | | 4,065 |
| | — |
| | 4,065 |
|
Total loans | | $ | 81,361 |
| | $ | 46,760 |
| | $ | 34,601 |
| | | $ | 92,233 |
| | $ | 56,564 |
| | $ | 35,669 |
|
All of the loans individually evaluated for impairment were evaluated using the fair value of the underlying collateral or the present value of expected future cash flows as the measurement method.
The following table presents loans individually evaluated for impairment by class of loan, together with the related allowance recorded, as of September 30, 2018 and December 31, 2017.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2018 | | | December 31, 2017 |
(In thousands) | | Unpaid Principal Balance | | Recorded Investment | | Allowance for Loan Losses Allocated | | | Unpaid Principal Balance | | Recorded Investment | | Allowance for Loan Losses Allocated |
With no related allowance recorded: | | |
| | |
| | |
| | | |
| | |
| | |
|
Commercial, financial and agricultural | | $ | 18,067 |
| | $ | 12,801 |
| | $ | — |
| | | $ | 19,899 |
| | $ | 14,704 |
| | $ | — |
|
Commercial real estate | | 24,518 |
| | 24,004 |
| | — |
| | | 18,974 |
| | 18,060 |
| | — |
|
Construction real estate: | | |
| | |
| | |
| | | |
| | |
| | |
|
Commercial | | 4,829 |
| | 2,016 |
| | — |
| | | 2,788 |
| | 1,324 |
| | — |
|
Residential real estate: | | |
| | |
| | |
| | | |
| | |
| | |
|
Commercial | | 3,004 |
| | 2,716 |
| | — |
| | | 19,346 |
| | 19,012 |
| | — |
|
| | | | | | | | | | | | | |
With an allowance recorded: | | |
| | |
| | |
| | | |
| | |
| | |
|
Commercial, financial and agricultural | | 5,317 |
| | 3,225 |
| | 1,716 |
| | | 5,394 |
| | 3,335 |
| | 681 |
|
Commercial real estate | | 1,832 |
| | 1,801 |
| | 71 |
| | | 137 |
| | 82 |
| | 2 |
|
Construction real estate: | | |
| | |
| | |
| | | |
| | |
| | |
|
Commercial | | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
|
Residential real estate: | | |
| | |
| | |
| | | |
| | |
| | |
|
Commercial | | 200 |
| | 197 |
| | 59 |
| | | 47 |
| | 47 |
| | 1 |
|
Consumer | | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
|
Total | | $ | 57,767 |
| | $ | 46,760 |
| | $ | 1,846 |
| | | $ | 66,585 |
| | $ | 56,564 |
| | $ | 684 |
|
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, 2018 and December 31, 2017, there were $8.9 million and $7.9 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded. At both September 30, 2018 and December 31, 2017, there were $2.1 million 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, 2018 and December 31, 2017 of $1.8 million and $0.7 million, respectively. These loans with specific reserves had a recorded investment of $5.2 million and $3.5 million as of September 30, 2018 and December 31, 2017, respectively.
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 of the loan. Interest income on accruing TDRs individually evaluated for impairment continues to be recorded on an accrual basis. 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 and nine months ended September 30, 2018 and September 30, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 | | | Three Months Ended September 30, 2017 |
(In thousands) | Recorded Investment as of September 30, 2018 | | Average Recorded Investment | | Interest Income Recognized | | | Recorded Investment as of September 30, 2017 | | Average Recorded Investment | | Interest Income Recognized |
Commercial, financial and agricultural | $ | 16,026 |
| | $ | 23,247 |
| | $ | 187 |
| | | $ | 29,848 |
| | $ | 28,412 |
| | $ | 398 |
|
Commercial real estate | 25,805 |
| | 26,428 |
| | 268 |
| | | 22,995 |
| | 22,241 |
| | 192 |
|
Construction real estate: | | | | | | | | | | | | |
Commercial | 2,016 |
| | 2,246 |
| | 4 |
| | | 1,460 |
| | 1,554 |
| | 18 |
|
Residential real estate: | | | | | | | | | | | | |
Commercial | 2,913 |
| | 2,758 |
| | 26 |
| | | 19,298 |
| | 20,365 |
| | 46 |
|
Consumer | — |
| | — |
| | — |
| | | 8 |
| | 8 |
| | — |
|
Total | $ | 46,760 |
| | $ | 54,679 |
| | $ | 485 |
| | | $ | 73,609 |
| | $ | 72,580 |
| | $ | 654 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 | | | Nine Months Ended September 30, 2017 |
(In thousands) | Recorded Investment as of September 30, 2018 | | Average Recorded Investment | | Interest Income Recognized | | | Recorded Investment as of September 30, 2017 | | Average Recorded Investment | | Interest Income Recognized |
Commercial, financial and agricultural | $ | 16,026 |
| | $ | 22,686 |
| | $ | 506 |
| | | $ | 29,848 |
| | $ | 23,770 |
| | $ | 738 |
|
Commercial real estate | 25,805 |
| | 21,582 |
| | 671 |
| | | 22,995 |
| | 22,470 |
| | 663 |
|
Construction real estate: | | | | | | | | | | | | |
Commercial | 2,016 |
| | 1,661 |
| | 31 |
| | | 1,460 |
| | 1,830 |
| | 49 |
|
Residential real estate: | | | | | | | | | | | | |
Commercial | 2,913 |
| | 6,086 |
| | 84 |
| | | 19,298 |
| | 20,876 |
| | 452 |
|
Consumer | — |
| | — |
| | — |
| | | 8 |
| | 7 |
| | — |
|
Total | $ | 46,760 |
| | $ | 52,015 |
| | $ | 1,292 |
| | | $ | 73,609 |
| | $ | 68,953 |
| | $ | 1,902 |
|
The following tables present the aging of the recorded investment in past due loans as of September 30, 2018 and December 31, 2017 by class of loan.
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2018 |
(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 | $ | 2,769 |
| | $ | 1,817 |
| | $ | 4,586 |
| | $ | 1,032,520 |
| | $ | 1,037,106 |
|
Commercial real estate | 96 |
| | 1,425 |
| | 1,521 |
| | 1,306,278 |
| | 1,307,799 |
|
Construction real estate: | |
| | |
| | |
| | |
| | |
|
Commercial | — |
| | 1,837 |
| | 1,837 |
| | 150,394 |
| | 152,231 |
|
Mortgage | 241 |
| | — |
| | 241 |
| | 65,759 |
| | 66,000 |
|
Installment | 179 |
| | 21 | |