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EX-32.1 - EXHIBIT 32.1 - PARK NATIONAL CORP /OH/prk-ex321x20150630x10q.htm
EX-31.1 - EXHIBIT 31.1 - PARK NATIONAL CORP /OH/prk-ex311x20150630x10q.htm
EX-31.2 - EXHIBIT 31.2 - PARK NATIONAL CORP /OH/prk-ex312x20150630x10q.htm
EX-32.2 - EXHIBIT 32.2 - PARK NATIONAL CORP /OH/prk-ex322x20150630x10q.htm

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 June 30, 2015
  
Commission File Number
1-13006
 

Park National Corporation
(Exact name of registrant as specified in its charter)
 
Ohio
 
31-1179518
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
50 North Third Street, Newark, Ohio 43055
(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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes   ý   No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company    
¨
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes   ¨   No   ý

15,370,873 Common shares, no par value per share, outstanding at July 27, 2015.




PARK NATIONAL CORPORATION
 
CONTENTS
 
Page
PART I.   FINANCIAL INFORMATION
 
 
 
Item 1.  Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
70 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PARK NATIONAL CORPORATION AND SUBSIDARIES
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands, except share and per share data)                    
 
June 30,
2015
 
December 31, 2014
Assets:
 

 
 

Cash and due from banks
$
127,501

 
$
133,511

Money market instruments
276,785

 
104,188

Cash and cash equivalents
404,286

 
237,699

Investment securities:
 

 
 

Securities available-for-sale, at fair value (amortized cost of $1,368,902 and $1,299,980 at June 30, 2015 and December 31, 2014, respectively)
1,370,265

 
1,301,915

Securities held-to-maturity, at amortized cost (fair value of $123,546 and $143,490 at June 30, 2015 and December 31, 2014, respectively)
121,527

 
140,562

Other investment securities
58,311

 
58,311

Total investment securities
1,550,103

 
1,500,788

 
 
 
 
Loans
4,900,974

 
4,829,682

Allowance for loan losses
(57,427
)
 
(54,352
)
Net loans
4,843,547

 
4,775,330

Bank owned life insurance
179,979

 
171,928

Prepaid assets
81,950

 
75,190

Goodwill
72,334

 
72,334

Premises and equipment, net
58,725

 
55,479

Affordable housing tax credit investments
54,457

 
48,911

Other real estate owned
21,876

 
22,605

Accrued interest receivable
17,825

 
17,677

Mortgage loan servicing rights
8,561

 
8,613

Other
15,926

 
14,645

Total assets
$
7,309,569

 
$
7,001,199

 
 
 
 
Liabilities and Shareholders' Equity:
 

 
 

Deposits:
 

 
 

Noninterest bearing
$
1,299,264

 
$
1,269,296

Interest bearing
4,213,102

 
3,858,704

Total deposits
5,512,366

 
5,128,000

Short-term borrowings
238,618

 
276,980

Long-term debt
735,062

 
786,602

Subordinated notes
45,000

 
45,000

Unfunded commitments in affordable housing tax credit investments
21,339

 
16,629

Accrued interest payable
2,432

 
2,551

Other
48,789

 
48,896

Total liabilities
$
6,603,606

 
$
6,304,658

 
 
 
 
 


 


Shareholders' equity:
 

 
 

Preferred shares (200,000 shares authorized; 0 shares issued)
$

 
$

Common shares (No par value; 20,000,000 shares authorized; 16,150,866 shares issued at June 30, 2015 and 16,150,888 shares issued at December 31, 2014)
303,573

 
303,104

Retained earnings
495,592

 
484,484

Treasury shares (779,989 shares at June 30, 2015 and 758,489 at December 31, 2014)
(79,222
)
 
(77,439
)
Accumulated other comprehensive loss, net of taxes
(13,980
)
 
(13,608
)
Total shareholders' equity
705,963

 
696,541

Total liabilities and shareholders’ equity
$
7,309,569

 
$
7,001,199


SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

3


PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited)
(in thousands, except share and per share data)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Interest and dividend income:
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Interest and fees on loans
$
56,463

 
$
57,004

 
$
111,875

 
$
111,757

 
 
 
 
 
 
 
 
Interest and dividends on:
 

 
 

 
 
 
 
Obligations of U.S. Government, its agencies and other securities
9,113

 
9,271

 
18,502

 
18,747

Other interest income
228

 
88

 
445

 
201

Total interest and dividend income
65,804

 
66,363

 
130,822

 
130,705

 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Interest on deposits:
 

 
 

 
 
 
 
Demand and savings deposits
556

 
399

 
1,042

 
792

Time deposits
2,542

 
2,133

 
5,164

 
4,411

 
 
 
 
 
 
 
 
Interest on borrowings:
 

 
 

 
 
 
 
Short-term borrowings
106

 
127

 
239

 
252

Long-term debt
6,085

 
7,143

 
12,327

 
14,209

 
 
 
 
 
 
 
 
Total interest expense
9,289

 
9,802

 
18,772

 
19,664

 
 
 
 
 
 
 
 
Net interest income
56,515

 
56,561

 
112,050

 
111,041

 
 
 
 
 
 
 
 
Provision for (recovery of) loan losses
1,612

 
(1,260
)
 
3,244

 
(3,485
)
Net interest income after provision for (recovery of) loan losses
54,903

 
57,821

 
108,806

 
114,526

 
 
 
 
 
 
 
 
Other income:
 

 
 

 
 
 
 
Income from fiduciary activities
5,210

 
4,825

 
10,122

 
9,366

Service charges on deposit accounts
3,684

 
3,942

 
7,065

 
7,601

Other service income
3,025

 
2,527

 
5,326

 
4,445

Checkcard fee income
3,665

 
3,493

 
7,016

 
6,706

Bank owned life insurance income
1,086

 
1,026

 
2,964

 
2,288

ATM fees
614

 
636

 
1,192

 
1,230

OREO valuation adjustments
(251
)
 
(675
)
 
(555
)
 
(1,091
)
Gain on sale of OREO, net
513

 
2,603

 
1,186

 
3,309

Gain on commercial loans held for sale

 

 
756

 

Miscellaneous
1,645

 
1,294

 
2,992

 
2,465

Total other income
19,191

 
19,671

 
38,064

 
36,319

 
 
 
 
 
 
 
 
 



4


PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited) (Continued)
(in thousands, except share and per share data)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Other expense:
 

 
 

 
 
 
 
Salaries and employee benefits
$
25,724

 
$
26,140

 
$
52,391

 
$
51,200

Occupancy expense
2,381

 
2,457

 
4,960

 
5,289

Furniture and equipment expense
2,831

 
2,994

 
5,693

 
5,992

Data processing fees
1,197

 
1,121

 
2,464

 
2,235

Professional fees and services
5,583

 
8,168

 
10,277

 
14,451

Marketing
937

 
1,006

 
1,950

 
2,124

Insurance
1,362

 
1,467

 
2,823

 
2,914

Communication
1,233

 
1,293

 
2,564

 
2,636

State tax expense
883

 
925

 
1,930

 
1,900

OREO expense
324

 
308

 
791

 
1,585

Miscellaneous
2,212

 
362

 
4,544

 
1,694

Total other expense
44,667

 
46,241

 
90,387

 
92,020

 
 
 
 
 
 
 
 
Income before income taxes
29,427

 
31,251

 
56,483

 
58,825

 
 
 
 
 
 
 
 
Federal income taxes
8,388

 
9,441

 
16,400

 
17,438

 
 
 
 
 
 
 
 
Net income
$
21,039

 
$
21,810

 
$
40,083

 
$
41,387

 
 
 
 
 
 
 
 
Earnings per Common Share:
 
 
 
 
 
 
 
Basic
$
1.37

 
$
1.42

 
$
2.61

 
$
2.69

Diluted
$
1.37

 
$
1.42

 
$
2.60

 
$
2.69

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 

 
 

 
 
 
 
Basic
15,370,882

 
15,392,435

 
15,375,026

 
15,396,770

Diluted
15,407,881

 
15,412,167

 
15,411,920

 
15,413,568

 
 
 
 
 
 
 
 
Cash dividends declared
$
0.94

 
$
0.94

 
$
1.88

 
$
1.88

 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 



5



PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(in thousands, except share and per share data)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
21,039

 
$
21,810

 
$
40,083

 
$
41,387

 
 
 
 
 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Unrealized net holding (loss) gain on securities available-for-sale, net of income tax (benefit) of $(4,432) and $7,042 for the three months ended June 30, 2015 and 2014, and $(200) and $12,933 for the six months ended June 30, 2015 and 2014, respectively
(8,231
)
 
13,079

 
(372
)
 
24,020

Other comprehensive (loss) income
$
(8,231
)
 
$
13,079

 
$
(372
)
 
$
24,020

 
 
 
 
 
 
 
 
Comprehensive income
$
12,808

 
$
34,889

 
$
39,711

 
$
65,407

 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


6



PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited)
(in thousands, except per share data)
  
 
 
Preferred
Shares
 
Common
Shares
 
Retained
Earnings
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
(Loss) Income
Balance at January 1, 2014, as previously presented
 
$

 
$
302,651

 
$
460,643

 
$
(76,128
)
 
$
(35,419
)
Cumulative effect of change in accounting principle for low income housing tax credits, net of tax
 
 
 
 
 
(1,924
)
 
 
 
 
Balance, at January 1, 2014 - as adjusted
 
$

 
$
302,651

 
$
458,719

 
$
(76,128
)
 
$
(35,419
)
Net Income
 
 

 
 

 
41,387

 
 

 
 

Other comprehensive income, net of tax:
 
 

 
 

 
 

 
 

 
 

Unrealized net holding gain on securities available-for-sale, net of income tax expense of $12,933
 
 

 
 

 
 

 
 

 
24,020

Cash dividends on common stock at $1.88 per share
 
 

 
 

 
(28,975
)
 
 

 
 

Cash payment for fractional shares in dividend reinvestment plan
 
 

 
(2
)
 
 

 
 

 
 

Share-based compensation expense
 
 
 
220

 
 
 
 
 
 
Repurchase of treasury shares
 
 
 
 
 
 
 
(1,485
)
 
 
Balance at June 30, 2014
 
$

 
$
302,869

 
$
471,131

 
$
(77,613
)
 
$
(11,399
)
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015, as previously presented
 
$

 
$
303,104

 
$
486,541

 
$
(77,439
)
 
$
(13,608
)
Cumulative effect of change in accounting principle for low income housing tax credits, net of tax
 
 
 
 
 
(2,057
)
 
 
 
 
Balance, at January 1, 2015- as adjusted
 
$

 
$
303,104

 
$
484,484

 
$
(77,439
)
 
$
(13,608
)
Net Income
 
 

 


 
40,083

 


 


Other comprehensive loss, net of tax:
 
 

 


 


 


 


Unrealized net holding loss on securities available-for-sale, net of income tax benefit of $(200)
 
 

 


 


 


 
(372
)
Cash dividends on common shares at $1.88 per share
 
 

 


 
(28,975
)
 


 


Cash payment for fractional shares in dividend reinvestment plan
 
 

 
(1
)
 


 


 


Share-based compensation expense
 
 
 
470

 
 
 
 
 
 
Repurchase of treasury shares
 
 
 
 
 
 
 
(1,783
)
 
 
Balance at June 30, 2015
 
$

 
$
303,573

 
$
495,592

 
$
(79,222
)
 
$
(13,980
)
 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


7



PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
(in thousands)
 
 
Six Months Ended
June 30,
 
2015
 
2014
Operating activities:
 

 
 

Net income
$
40,083

 
$
41,387

 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Provision for (recovery of) loan losses
3,244

 
(3,485
)
Amortization of loan fees and costs, net
3,243

 
1,869

Depreciation
3,457

 
3,713

Accretion of investment securities, net
(130
)
 
(98
)
Amortization of long-term debt prepayment penalty
3,004

 
2,449

Realized net investment security gains

 
(20
)
Loan originations to be sold in secondary market
(82,756
)
 
(58,978
)
Proceeds from sale of loans in secondary market
80,593

 
55,205

Gain on sale of loans in secondary market
(1,791
)
 
(1,138
)
Share-based compensation expense
470

 
220

OREO valuation adjustments
555

 
1,091

Gain on sale of OREO, net
(1,186
)
 
(3,309
)
Gain on sale of commercial loans held for sale
(756
)
 

Bank owned life insurance income
(2,964
)
 
(2,288
)
 
 
 
 
Changes in assets and liabilities:
 

 
 

Increase in other assets
(19,117
)
 
(16,809
)
Increase in other liabilities
8,725

 
962

 
 
 
 
Net cash provided by operating activities
$
34,674

 
$
20,771

 
 
 
 
Investing activities:
 

 
 

Proceeds from redemption of Federal Home Loan Bank stock
$

 
$
8,946

Proceeds from the sale of:
 
 
 
Available-for-sale securities

 
488

Proceeds from calls and maturities of:
 

 
 

Available-for-sale securities
111,481

 
45,112

Held-to-maturity securities
19,035

 
19,757

Purchases of:
 

 
 

Available-for-sale securities
(180,273
)
 
(29,558
)
Net increase in other investments

 
(1,350
)
Net loan originations, portfolio loans
(76,362
)
 
(112,572
)
Proceeds from commercial loans held for sale
900

 

Investments in qualified affordable housing projects
(4,289
)
 
(8,184
)
  Proceeds from the sale of OREO
12,169

 
19,172

Purchases of bank owned life insurance
(10,045
)
 

  Life insurance death benefits
5,221

 
744

  Purchases of premises and equipment, net
(6,703
)
 
(3,319
)
Net cash used in investing activities
$
(128,866
)
 
$
(60,764
)
 
 
 
 

8


PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued)
(in thousands)
 
Six Months Ended
June 30,
 
2015
 
2014
Financing activities:
 

 
 

Net increase in deposits
$
384,366

 
$
137,217

Net (decrease) increase in short-term borrowings
(38,362
)
 
8,660

Repayment of long-term debt
(79,544
)
 
(50,525
)
Proceeds from issuance of long-term debt
25,000

 
25,000

Repurchase of treasury shares
(1,783
)
 
(1,485
)
Cash dividends paid on common shares
(28,898
)
 
(28,938
)
 
 
 
 
Net cash provided by financing activities
$
260,779

 
$
89,929

 
 
 
 
Increase in cash and cash equivalents
166,587

 
49,936

 
 
 
 
Cash and cash equivalents at beginning of year
237,699

 
147,030

 
 
 
 
Cash and cash equivalents at end of period
$
404,286

 
$
196,966

 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

 
 
 
 
Cash paid for:
 

 
 

Interest
$
18,891

 
$
19,816

 
 
 
 
Income taxes
$
8,700

 
$
11,200

 
 
 
 
Non cash items:
 
 
 
Loans transferred to OREO
$
11,101

 
$
6,292

 
 
 
 
Transfers from loans to commercial loans held for sale
$
144

 
$

 
 
 
 

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


9



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 and six month periods ended June 30, 2015 are not necessarily indicative of the operating results to be anticipated for the fiscal year ending December 31, 2015.
 
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 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, 2014 from Park’s 2014 Annual Report to Shareholders (“2014 Annual Report”). Prior period financial statements reflect the retrospective application of Accounting Standards Update (ASU) 2014-01, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects.
 
Park’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2014 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 – Recent Accounting Pronouncements

ASU 2014-01- Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force): In January 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update 2014-01, Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force). The ASU permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense. Additionally, a reporting entity should disclose information that enables users of its financial statement to understand the nature of its investments in qualified affordable housing projects, and the effect of the measurement of its investments in qualified affordable housing projects and the related tax credits on its financial position and results of operations. The new guidance became effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. Park adopted this guidance in the first quarter of 2015. The guidance was applied retrospectively to all prior periods presented. The adoption resulted in adjustments to reduce beginning retained earnings, other assets and the prior period consolidated condensed statements of income. See Note 16 - Investment in Qualified Affordable Housing for further details.

ASU 2014-04 - Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force): In January 2014, FASB issued Accounting Standards Update 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force). The ASU clarifies when an in substance repossession or foreclosure occurs and a creditor is considered to have received physical possession of real estate property collateralizing a consumer mortgage loan. Specifically, the new ASU requires a creditor to reclassify a collateralized consumer mortgage loan to real estate property upon obtaining legal title to the real estate collateral, or the borrower voluntarily conveying all interest in the real estate property to the lender to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. Additional disclosures are required detailing the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgages collateralized by real estate property that are in the process of foreclosure. The new guidance is effective for annual periods, and interim reporting periods within those

10


annual periods, beginning after December 15, 2014. The adoption of this guidance as of January 1, 2015 did not have a material impact on Park's consolidated financial statements, but resulted in additional disclosures. See Note 5 - Other Real Estate Owned.

ASU 2014-09 - Revenue from Contracts with Customers (Topic 606): In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606). The 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. Management is currently evaluating the impact of the adoption of this guidance on Park's consolidated financial statements.

ASU 2014-11 - Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures: In June 2014, the FASB issued Accounting Standards Update 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this ASU change the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. The amendments also require two new disclosures. The first disclosure requires an entity to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements. The second disclosure provides increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The accounting changes are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, with all other disclosure requirements required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of this guidance as of January 1, 2015 did not have an impact on Park's consolidated financial statements, but resulted in additional disclosures. See Note 17 - Repurchase Agreement Borrowings.

ASU 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis: In February 2015, the FASB issued Accounting Standards Update 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The ASU amends the current consolidation guidance and affects both the variable interest entity and voting interest entity consolidation models. The new guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. Management is currently evaluating the impact of the adoption of this guidance on Park’s consolidated financial statements.

11


Note 3 – Loans
 
The composition of the loan portfolio, by class of loan, as of June 30, 2015 and December 31, 2014 was as follows:
 
 
June 30, 2015
 
 
December 31, 2014
(In thousands)
Loan
balance
 
Accrued
interest
receivable
 
Recorded
investment
 
 
Loan
balance
 
Accrued
interest
receivable
 
Recorded
investment
Commercial, financial and agricultural *
$
848,808

 
$
3,042

 
$
851,850

 
 
$
856,535

 
$
3,218

 
$
859,753

Commercial real estate *
1,087,107

 
3,633

 
1,090,740

 
 
1,069,637

 
3,546

 
1,073,183

Construction real estate:
 

 
 

 
 

 
 
 

 
 

 
 

SEPH commercial land and development *
2,141

 

 
2,141

 
 
2,195

 

 
2,195

Remaining commercial
105,229

 
222

 
105,451

 
 
115,139

 
300

 
115,439

Mortgage
31,493

 
86

 
31,579

 
 
31,148

 
72

 
31,220

Installment
7,108

 
21

 
7,129

 
 
7,322

 
23

 
7,345

Residential real estate:
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
417,077

 
1,024

 
418,101

 
 
417,612

 
1,038

 
418,650

Mortgage
1,209,638

 
1,789

 
1,211,427

 
 
1,189,709

 
1,548

 
1,191,257

HELOC
213,301

 
799

 
214,100

 
 
216,915

 
803

 
217,718

Installment
24,705

 
88

 
24,793

 
 
27,139

 
97

 
27,236

Consumer
951,263

 
2,976

 
954,239

 
 
893,160

 
2,967

 
896,127

Leases
3,104

 
29

 
3,133

 
 
3,171

 
17

 
3,188

Total loans
$
4,900,974

 
$
13,709

 
$
4,914,683

 
 
$
4,829,682

 
$
13,629

 
$
4,843,311

* Included within commercial, financial and agricultural loans, commercial real estate loans, and SEPH commercial land and development 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 $10.0 million at June 30, 2015 and $9.4 million at December 31, 2014, which represented a net deferred income position in both periods.

Overdrawn deposit accounts of $2.1 million and $2.3 million have been reclassified to loans at June 30, 2015 and December 31, 2014, respectively.






















12


Credit Quality
 
The following tables present the recorded investment in nonaccrual loans, accruing troubled debt restructurings, and loans past due 90 days or more and still accruing by class of loan as of June 30, 2015 and December 31, 2014:
 
 
 
June 30, 2015
(In thousands)
 
Nonaccrual
loans
 
Accruing troubled debt restructurings
 
Loans past due
90 days or more
and accruing
 
Total
nonperforming
loans
Commercial, financial and agricultural
 
$
19,288

 
$
1,143

 
$
71

 
$
20,502

Commercial real estate
 
14,999

 
2,648

 

 
17,647

Construction real estate:
 
 

 
 

 
 

 
 

SEPH commercial land and development
 
2,047

 

 

 
2,047

Remaining commercial
 
5,979

 
53

 

 
6,032

Mortgage
 
29

 
91

 
30

 
150

Installment
 
130

 
116

 

 
246

Residential real estate:
 
 

 
 

 
 

 
 

Commercial
 
24,048

 
393

 

 
24,441

Mortgage
 
21,744

 
10,017

 
719

 
32,480

HELOC
 
1,556

 
820

 
34

 
2,410

Installment
 
1,692

 
718

 

 
2,410

Consumer
 
4,227

 
597

 
721

 
5,545

Total loans
 
$
95,739

 
$
16,596

 
$
1,575

 
$
113,910

 
 
 
December 31, 2014
(In thousands)
 
Nonaccrual
loans
 
Accruing troubled debt restructurings
 
Loans past due
90 days or more
and accruing
 
Total
nonperforming
loans
Commercial, financial and agricultural
 
$
18,826

 
$
297

 
$
229

 
$
19,352

Commercial real estate
 
19,299

 
2,690

 

 
21,989

Construction real estate:
 
 

 
 

 
 

 
 
SEPH commercial land and development
 
2,078

 

 

 
2,078

Remaining commercial
 
5,558

 
51

 

 
5,609

Mortgage
 
59

 
94

 
9

 
162

Installment
 
115

 
125

 

 
240

Residential real estate:
 
 

 
 

 
 

 
 

Commercial
 
24,336

 
594

 

 
24,930

Mortgage
 
21,869

 
10,349

 
1,329

 
33,547

HELOC
 
1,879

 
630

 
9

 
2,518

Installment
 
1,743

 
779

 

 
2,522

Consumer
 
4,631

 
723

 
1,133

 
6,487

Total loans
 
$
100,393

 
$
16,332

 
$
2,709

 
$
119,434


13


The following table provides additional information regarding those nonaccrual and accruing troubled debt restructured loans that were individually evaluated for impairment and those collectively evaluated for impairment as of June 30, 2015 and December 31, 2014.

 
 
June 30, 2015
 
 
December 31, 2014
(In thousands)
 
Nonaccrual
and accruing troubled debt
restructurings
 
Loans
individually
evaluated for
impairment
 
Loans
collectively
evaluated for
impairment
 
 
Nonaccrual
and accruing troubled debt
restructurings
 
Loans
individually
evaluated for
impairment
 
Loans
collectively
evaluated for
impairment
Commercial, financial and agricultural
 
$
20,431

 
$
20,429

 
$
2

 
 
$
19,123

 
$
19,106

 
$
17

Commercial real estate
 
17,647

 
17,647

 

 
 
21,989

 
21,989

 

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

SEPH commercial land and development
 
2,047

 
2,047

 

 
 
2,078

 
2,078

 

Remaining commercial
 
6,032

 
6,032

 

 
 
5,609

 
5,609

 

Mortgage
 
120

 

 
120

 
 
153

 

 
153

Installment
 
246

 

 
246

 
 
240

 

 
240

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
24,441

 
24,441

 

 
 
24,930

 
24,930

 

Mortgage
 
31,761

 

 
31,761

 
 
32,218

 

 
32,218

HELOC
 
2,376

 

 
2,376

 
 
2,509

 

 
2,509

Installment
 
2,410

 

 
2,410

 
 
2,522

 

 
2,522

Consumer
 
4,824

 

 
4,824

 
 
5,354

 

 
5,354

Total loans
 
$
112,335

 
$
70,596

 
$
41,739

 
 
$
116,725

 
$
73,712

 
$
43,013

 
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 as of June 30, 2015 and December 31, 2014.
 
 
 
June 30, 2015
 
 
December 31, 2014
(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
 
$
20,070

 
$
6,314

 
$

 
 
$
30,601

 
$
17,883

 
$

Commercial real estate
 
13,188

 
12,916

 

 
 
27,923

 
20,696

 

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

SEPH commercial land and development
 
10,837

 
2,047

 

 
 
11,026

 
2,078

 

Remaining commercial
 
1,172

 
194

 

 
 
1,427

 
391

 

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
22,857

 
21,153

 

 
 
25,822

 
23,352

 

Consumer
 

 

 

 
 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance recorded:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial, financial and agricultural
 
18,314

 
14,115

 
2,570

 
 
1,251

 
1,223

 
981

Commercial real estate
 
4,830

 
4,731

 
688

 
 
1,310

 
1,293

 
262

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

SEPH commercial land and development
 

 

 

 
 

 

 

Remaining commercial
 
5,838

 
5,838

 
2,358

 
 
5,218

 
5,218

 
1,812

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
3,471

 
3,288

 
981

 
 
1,578

 
1,578

 
605

Consumer
 

 

 

 
 

 

 

Total
 
$
100,577

 
$
70,596

 
$
6,597

 
 
$
106,156

 
$
73,712

 
$
3,660



14


Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. At June 30, 2015 and December 31, 2014, there were $25.5 million and $32.4 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $4.5 million and $45,000, 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 June 30, 2015 and December 31, 2014 of $6.6 million and $3.7 million, respectively. These loans with specific reserves had a recorded investment of $28.0 million and $9.3 million as of June 30, 2015 and December 31, 2014, respectively.
 
Interest income on loans individually evaluated for impairment is recognized on a cash basis only when Park expects to receive the entire recorded investment of the loan. 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 six months ended June 30, 2015 and June 30, 2014:

 
Three Months Ended
June 30, 2015
 
 
Three Months Ended
June 30, 2014
(In thousands)
Recorded investment as of June 30, 2015
 
Average
recorded
investment
 
Interest
income
recognized
 
 
Recorded investment as of June 30, 2014
 
Average
recorded
investment
 
Interest
income
recognized
Commercial, financial and agricultural
$
20,429

 
$
18,220

 
$
140

 
 
$
17,628

 
$
18,867

 
$
75

Commercial real estate
17,647

 
16,850

 
123

 
 
35,138

 
35,638

 
282

Construction real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   SEPH commercial land and development
2,047

 
2,068

 

 
 
4,378

 
4,329

 
66

   Remaining commercial
6,032

 
5,611

 
6

 
 
9,954

 
10,150

 
7

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
24,441

 
24,443

 
273

 
 
28,775

 
30,212

 
307

Consumer

 

 

 
 
132

 
667

 

Total
$
70,596

 
$
67,192

 
$
542

 
 
$
96,005

 
$
99,863

 
$
737


 
Six Months Ended
June 30, 2015
 
 
Six Months Ended
June 30, 2014
(In thousands)
Recorded investment as of June 30, 2015
 
Average
recorded
investment
 
Interest
income
recognized
 
 
Recorded investment as of June 30, 2014
 
Average
recorded
investment
 
Interest
income
recognized
Commercial, financial and agricultural
$
20,429

 
$
18,830

 
$
271

 
 
$
17,628

 
$
19,456

 
$
136

Commercial real estate
17,647

 
18,058

 
286

 
 
35,138

 
38,163

 
535

Construction real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   SEPH commercial land and development
2,047

 
2,072

 
8

 
 
4,378

 
4,439

 
122

   Remaining commercial
6,032

 
5,644

 
11

 
 
9,954

 
10,227

 
54

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
24,441

 
24,864

 
528

 
 
28,775

 
30,577

 
570

Consumer

 

 

 
 
132

 
723

 

Total
$
70,596

 
$
69,468

 
$
1,104

 
 
$
96,005

 
$
103,585

 
$
1,417





 

15


The following tables present the aging of the recorded investment in past due loans as of June 30, 2015 and December 31, 2014 by class of loan.
 
 
June 30, 2015
(In thousands)
Accruing loans
past due 30-89
days
 
Past due 
nonaccrual
loans and loans past
due 90 days or
more and 
accruing*
 
Total past due
 
Total current
 
Total recorded
investment
Commercial, financial and agricultural
$
558

 
$
4,055

 
$
4,613

 
$
847,237

 
$
851,850

Commercial real estate
563

 
1,080

 
1,643

 
1,089,097

 
1,090,740

Construction real estate:
 

 
 

 
 

 
 

 
 

SEPH commercial land and development
94

 
2,043

 
2,137

 
4

 
2,141

Remaining commercial
41

 
84

 
125

 
105,326

 
105,451

Mortgage
15

 
30

 
45

 
31,534

 
31,579

Installment
98

 
79

 
177

 
6,952

 
7,129

Residential real estate:
 

 
 

 
 

 
 

 
 

Commercial
534

 
17,148

 
17,682

 
400,419

 
418,101

Mortgage
11,065

 
10,022

 
21,087

 
1,190,340

 
1,211,427

HELOC
421

 
111