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EX-31.2 - EXHIBIT 31.2 - PARK NATIONAL CORP /OH/prk-ex312x20160331x10q.htm
EX-31.1 - EXHIBIT 31.1 - PARK NATIONAL CORP /OH/prk-ex311x20160331x10q.htm
EX-32.1 - EXHIBIT 32.1 - PARK NATIONAL CORP /OH/prk-ex321x20160331x10q.htm
EX-32.2 - EXHIBIT 32.2 - PARK NATIONAL CORP /OH/prk-ex322x20160331x10q.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 March 31, 2016
  
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

15,330,807 Common shares, no par value per share, outstanding at April 26, 2016.




PARK NATIONAL CORPORATION
 
CONTENTS
 
Page
PART I.   FINANCIAL INFORMATION
 
 
 
Item 1.  Financial Statements
 
 
 
 
 
 
 
 
 
 
 
Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (unaudited)
 
 
 
 
 
 
 
 
 
 
61 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PARK NATIONAL CORPORATION AND SUBSIDARIES
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands, except share and per share data)                    
 
March 31,
2016
 
December 31, 2015
Assets:
 

 
 

Cash and due from banks
$
105,664

 
$
119,412

Money market instruments
212,239

 
30,047

Cash and cash equivalents
317,903

 
149,459

Investment securities:
 

 
 

Securities available-for-sale, at fair value (amortized cost of $1,354,661 and $1,436,714 at March 31, 2016 and December 31, 2015, respectively)
1,372,183

 
1,436,266

Securities held-to-maturity, at amortized cost (fair value of $174,528 and $151,428 at March 31, 2016 and December 31, 2015, respectively)
171,273

 
149,302

Other investment securities
58,311

 
58,311

Total investment securities
1,601,767

 
1,643,879

 
 
 
 
Loans
5,062,185

 
5,068,085

Allowance for loan losses
(56,948
)
 
(56,494
)
Net loans
5,005,237

 
5,011,591

Bank owned life insurance
182,116

 
181,684

Prepaid assets
85,373

 
80,635

Goodwill
72,334

 
72,334

Premises and equipment, net
59,025

 
59,493

Affordable housing tax credit investments
49,411

 
51,247

Other real estate owned
17,745

 
18,651

Accrued interest receivable
17,415

 
18,675

Mortgage loan servicing rights
8,949

 
9,008

Other
10,910

 
14,698

Total assets
$
7,428,185

 
$
7,311,354

 
 
 
 
Liabilities and Shareholders' Equity:
 

 
 

Deposits:
 

 
 

Noninterest bearing
$
1,360,605

 
$
1,404,032

Interest bearing
4,246,185

 
3,943,610

Total deposits
5,606,790

 
5,347,642

Short-term borrowings
219,643

 
394,242

Long-term debt
739,636

 
738,105

Subordinated notes
45,000

 
45,000

Unfunded commitments in affordable housing tax credit investments
17,464

 
20,311

Accrued interest payable
2,373

 
2,338

Other
67,578

 
50,361

Total liabilities
$
6,698,484

 
$
6,597,999

 
 
 
 
 


 


Shareholders' equity:
 

 
 

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

 
$

Common shares (No par value; 20,000,000 shares authorized; 16,150,846 shares issued at March 31, 2016 and 16,150,854 shares issued at December 31, 2015)
304,433

 
303,966

Retained earnings
511,704

 
507,505

Treasury shares (820,039 shares at March 31, 2016 and December 31, 2015)
(82,473
)
 
(82,473
)
Accumulated other comprehensive loss, net of taxes
(3,963
)
 
(15,643
)
Total shareholders' equity
729,701

 
713,355

Total liabilities and shareholders’ equity
$
7,428,185

 
$
7,311,354


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
March 31,
 
2016
 
2015
Interest and dividend income:
 

 
 

 
 
 
 
Interest and fees on loans
$
60,052

 
$
55,412

 
 
 
 
Interest and dividends on:
 

 
 

Obligations of U.S. Government, its agencies and other securities
8,609

 
9,389

Obligations of states and political subdivisions
373

 

Other interest income
274

 
217

Total interest and dividend income
69,308

 
65,018

 
 
 
 
Interest expense:
 

 
 

 
 
 
 
Interest on deposits:
 

 
 

Demand and savings deposits
824

 
486

Time deposits
2,387

 
2,622

 
 
 
 
Interest on borrowings:
 

 
 

Short-term borrowings
164

 
133

Long-term debt
6,114

 
6,242

 
 
 
 
Total interest expense
9,489

 
9,483

 
 
 
 
Net interest income
59,819

 
55,535

 
 
 
 
Provision for loan losses
910

 
1,632

Net interest income after provision for loan losses
58,909

 
53,903

 
 
 
 
Other income:
 

 
 

Income from fiduciary activities
5,113

 
4,912

Service charges on deposit accounts
3,423

 
3,381

Other service income
2,574

 
2,301

Checkcard fee income
3,532

 
3,351

Bank owned life insurance income
1,197

 
1,878

ATM fees
583

 
578

OREO valuation adjustments
(118
)
 
(304
)
Gain on sale of OREO, net
134

 
673

Gain on commercial loans held for sale

 
756

Miscellaneous
951

 
1,347

Total other income
17,389

 
18,873

 
 
 
 
 



4


PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited) (Continued)
(in thousands, except share and per share data)
 
 
Three Months Ended
March 31,
 
2016
 
2015
Other expense:
 

 
 

Salaries
$
21,554

 
$
20,982

Employee benefits
4,773

 
5,685

Occupancy expense
2,548

 
2,579

Furniture and equipment expense
3,443

 
2,862

Data processing fees
1,217

 
1,267

Professional fees and services
6,667

 
4,694

Marketing
1,111

 
1,013

Insurance
1,411

 
1,461

Communication
1,221

 
1,331

State tax expense
926

 
1,047

Miscellaneous
5,028

 
2,799

Total other expense
49,899

 
45,720

 
 
 
 
Income before income taxes
26,399

 
27,056

 
 
 
 
Federal income taxes
7,713

 
8,012

 
 
 
 
Net income
$
18,686

 
$
19,044

 
 
 
 
Earnings per Common Share:
 
 
 
Basic
$
1.22

 
$
1.24

Diluted
$
1.21

 
$
1.23

 
 
 
 
Weighted average common shares outstanding
 

 
 

Basic
15,330,813

 
15,379,170

Diluted
15,406,508

 
15,421,928

 
 
 
 
Cash dividends declared
$
0.94

 
$
0.94

 
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
March 31,
 
2016
 
2015
Net income
$
18,686

 
$
19,044

 
 
 
 
Other comprehensive income, net of tax:
 
 
 
Unrealized net holding gain on securities available-for-sale, net of income tax of $6,290 and $4,232 for the three months ended March 31, 2016 and 2015, respectively
11,680

 
7,859

Other comprehensive income
$
11,680

 
$
7,859

 
 
 
 
Comprehensive income
$
30,366

 
$
26,903

 
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, 2015, as previously presented
 
$

305,499

$
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
 
 

 
 

 
19,044

 
 

 
 

Other comprehensive income, net of tax
 
 

 
 

 
 

 
 

 
7,859

Dividends on common shares at $0.94 per share
 
 

 
 

 
(14,488
)
 
 

 
 

Cash payment for fractional shares in dividend reinvestment plan
 
 

 
(1
)
 
 

 
 

 
 

Share-based compensation expense
 
 
 
259

 
 
 
 
 
 
Repurchase of treasury shares
 
 
 
 
 
 
 
(1,783
)
 
 
Balance at March 31, 2015
 
$



$
303,362

 
$
489,040

 
$
(79,222
)
 
$
(5,749
)
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
 
$

 
$
303,966

 
$
507,505

 
$
(82,473
)
 
$
(15,643
)
Net Income
 
 

 


 
18,686

 


 


Other comprehensive income, net of tax
 
 

 


 


 


 
11,680

Dividends on common shares at $0.94 per share
 
 

 


 
(14,487
)
 


 


Cash payment for fractional shares in dividend reinvestment plan
 
 

 
(1
)
 


 


 


Share-based compensation expense
 
 
 
468

 
 
 
 
 
 
Balance at March 31, 2016
 
$

 
$
304,433

 
$
511,704

 
$
(82,473
)
 
$
(3,963
)
 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


7



PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
(in thousands)
 
Three Months Ended
March 31,
 
2016
 
2015
Operating activities:
 

 
 

Net income
$
18,686

 
$
19,044

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

 
 

Provision for loan losses
910

 
1,632

Amortization of loan fees and costs, net
1,674

 
1,565

Provision for depreciation
2,049

 
1,691

Amortization (accretion) of investment securities, net
16

 
(63
)
Amortization of prepayment penalty of long-term debt
1,531

 
1,497

Loan originations to be sold in secondary market
(40,285
)
 
(40,270
)
Proceeds from sale of loans in secondary market
36,835

 
38,254

Gain on sale of loans in secondary market
(761
)
 
(707
)
Share-based compensation expense
468

 
259

OREO valuation adjustments
118

 
304

Gain on sale of OREO, net
(134
)
 
(673
)
Gain on sale of commercial loans held for sale

 
(756
)
Bank owned life insurance income
(1,197
)
 
(1,878
)
 
 
 
 
Changes in assets and liabilities:
 

 
 

Increase in other assets
(7,018
)
 
(8,391
)
Increase in other liabilities
(8
)
 
(3,320
)
Net cash provided by operating activities
$
12,884

 
$
8,188

 
 
 
 
Investing activities:
 

 
 

Proceeds from calls and maturities of:
 

 
 

Available-for-sale securities
341,879

 
78,523

Held-to-maturity securities
4,984

 
7,179

Purchases of:
 

 
 

Available-for-sale securities
(259,756
)
 
(29,931
)
Held-to-maturity securities
(9,885
)
 

Net loan pay downs (originations), portfolio loans
10,476

 
(5,215
)
Proceeds from the sale of commercial loans held for sale

 
900

Investments in qualified affordable housing projects
(2,847
)
 
(2,591
)
  Proceeds from the sale of OREO
1,387

 
3,861

  Life insurance death benefits
765

 
5,221

  Purchases of premises and equipment, net
(1,581
)
 
(3,401
)
Net cash provided by investing activities
$
85,422

 
$
54,546

 
 
 
 

8


PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued)
(in thousands)
 
Three Months Ended
March 31,
 
2016
 
2015
Financing activities:
 

 
 

Net increase in deposits
$
259,148

 
$
387,847

Net decrease in short-term borrowings
(174,599
)
 
(37,019
)
Repayment of long-term debt

 
(79,544
)
Proceeds from issuance of long-term debt

 
25,000

Repurchase of treasury shares

 
(1,783
)
Cash dividends paid
(14,411
)
 
(14,449
)
Net cash provided by financing activities
$
70,138

 
$
280,052

 
 
 
 
Increase in cash and cash equivalents
168,444

 
342,786

 
 
 
 
Cash and cash equivalents at beginning of year
149,459

 
237,699

 
 
 
 
Cash and cash equivalents at end of period
$
317,903

 
$
580,485

 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

 
 
 
 
Cash paid for:
 

 
 

Interest
$
9,454

 
$
9,446

 
 
 
 
Income taxes
$

 
$

 
 
 
 
Non-cash items:
 
 
 
Loans transferred to OREO
$
439

 
$
7,270

 
 
 
 
Transfers from loans to commercial loans held for sale
$

 
$
144

 
 
 
 
Securities purchase commitments
$
17,156

 
$

 
 
 
 

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-month period ended March 31, 2016 are not necessarily indicative of the operating results to be anticipated for the fiscal year ending December 31, 2016.
 
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, 2015 from Park’s 2015 Annual Report to Shareholders (“Park's 2015 Annual Report”). Certain prior period amounts have been reclassified to conform to the current period presentation.
 
Park’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2015 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 2014-09 - Revenue from Contracts with Customers (Topic 606): In May 2014, the FASB issued ASU 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 2015-02 - Consolidation (Topic 810): Amendments to the Consolidation Analysis: In February 2015, the FASB issued ASU 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. The adoption of this guidance on January 1, 2016 did not have an impact on Park’s consolidated financial statements.
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 to the current U.S. GAAP model primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale securities. 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 2016-02 - Leases (Topic 842): In February 2016, the FASB issued ASU 2016-02 - Leases (Topic 842). The 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

10


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 evaluating the impact of the adoption of this guidance on Park’s consolidated financial statements.
ASU 2016-09 - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting: In March 2016, FASB issued ASU 2016-09 - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU provides simplification for several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2016. Management is currently evaluating the impact of the adoption of this guidance on Park’s consolidated financial statements.
Note 3 – Loans
 
The composition of the loan portfolio, by class of loan, as of March 31, 2016 and December 31, 2015 was as follows:
 
 
March 31, 2016
 
 
December 31, 2015
(In thousands)
Loan
Balance
 
Accrued
Interest
Receivable
 
Recorded
Investment
 
 
Loan
Balance
 
Accrued
Interest
Receivable
 
Recorded
Investment
Commercial, financial and agricultural *
$
941,481

 
$
3,592

 
$
945,073

 
 
$
955,727

 
$
3,437

 
$
959,164

Commercial real estate *
1,114,626

 
3,652

 
1,118,278

 
 
1,113,603

 
4,009

 
1,117,612

Construction real estate:
 

 
 

 
 

 
 
 

 
 

 
 

SEPH commercial land and development
2,043

 

 
2,043

 
 
2,044

 

 
2,044

Remaining commercial
129,167

 
321

 
129,488

 
 
128,046

 
321

 
128,367

Mortgage
37,295

 
74

 
37,369

 
 
36,722

 
75

 
36,797

Installment
5,941

 
20

 
5,961

 
 
6,533

 
21

 
6,554

Residential real estate:
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
411,314

 
1,007

 
412,321

 
 
410,571

 
1,014

 
411,585

Mortgage
1,207,396

 
1,733

 
1,209,129

 
 
1,210,819

 
1,469

 
1,212,288

HELOC
209,260

 
784

 
210,044

 
 
211,415

 
769

 
212,184

Installment
21,734

 
82

 
21,816

 
 
22,638

 
78

 
22,716

Consumer
979,111

 
2,896

 
982,007

 
 
967,111

 
3,032

 
970,143

Leases
2,817

 
39

 
2,856

 
 
2,856

 
14

 
2,870

Total loans
$
5,062,185

 
$
14,200

 
$
5,076,385

 
 
$
5,068,085

 
$
14,239

 
$
5,082,324

* Included within 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 $10.3 million at March 31, 2016 and $10.4 million at December 31, 2015, which represented a net deferred income position in both periods.

Overdrawn deposit accounts of $1.9 million and $1.7 million have been reclassified to loans at March 31, 2016 and December 31, 2015, respectively, and are included in the commercial, financial and agricultural loan class above.











11


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 March 31, 2016 and December 31, 2015:
 
 
 
March 31, 2016
(In thousands)
 
Nonaccrual
Loans
 
Accruing Troubled Debt Restructurings
 
Loans Past Due
90 Days or More
and Accruing
 
Total
Nonperforming
Loans
Commercial, financial and agricultural
 
$
27,813

 
$
797

 
$
8

 
$
28,618

Commercial real estate
 
16,556

 
1,512

 

 
18,068

Construction real estate:
 
 

 
 

 
 

 
 

SEPH commercial land and development
 
2,043

 

 

 
2,043

Remaining commercial
 
4,336

 
509

 

 
4,845

Mortgage
 
6

 
108

 

 
114

Installment
 
21

 
108

 

 
129

Residential real estate:
 
 

 
 

 
 

 
 

Commercial
 
24,365

 
254

 

 
24,619

Mortgage
 
20,889

 
9,691

 
536

 
31,116

HELOC
 
1,653

 
829

 
8

 
2,490

Installment
 
1,445

 
608

 

 
2,053

Consumer
 
3,498

 
678

 
818

 
4,994

Total loans
 
$
102,625

 
$
15,094

 
$
1,370

 
$
119,089

 
 
 
December 31, 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
 
$
21,676

 
$
8,947

 
$

 
$
30,623

Commercial real estate
 
15,268

 
2,757

 

 
18,025

Construction real estate:
 
 

 
 

 
 

 
 
SEPH commercial land and development
 
2,044

 

 

 
2,044

Remaining commercial
 
4,162

 
514

 

 
4,676

Mortgage
 
7

 
110

 

 
117

Installment
 
64

 
114

 

 
178

Residential real estate:
 
 

 
 

 
 

 
 

Commercial
 
25,063

 
261

 

 
25,324

Mortgage
 
20,378

 
10,143

 
851

 
31,372

HELOC
 
1,749

 
873

 
27

 
2,649

Installment
 
1,657

 
635

 
4

 
2,296

Consumer
 
3,819

 
734

 
1,093

 
5,646

Total loans
 
$
95,887

 
$
25,088

 
$
1,975

 
$
122,950


12


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 March 31, 2016 and December 31, 2015.

 
 
March 31, 2016
 
 
December 31, 2015
(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
 
$
28,610

 
$
28,596

 
$
14

 
 
$
30,623

 
$
30,595

 
$
28

Commercial real estate
 
18,068

 
18,068

 

 
 
18,025

 
18,025

 

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

SEPH commercial land and development
 
2,043

 
2,043

 

 
 
2,044

 
2,044

 

Remaining commercial
 
4,845

 
4,845

 

 
 
4,676

 
4,676

 

Mortgage
 
114

 

 
114

 
 
117

 

 
117

Installment
 
129

 

 
129

 
 
178

 

 
178

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
24,619

 
24,619

 

 
 
25,324

 
25,324

 

Mortgage
 
30,580

 

 
30,580

 
 
30,521

 

 
30,521

HELOC
 
2,482

 

 
2,482

 
 
2,622

 

 
2,622

Installment
 
2,053

 

 
2,053

 
 
2,292

 

 
2,292

Consumer
 
4,176

 

 
4,176

 
 
4,553

 

 
4,553

Total loans
 
$
117,719

 
$
78,171

 
$
39,548

 
 
$
120,975

 
$
80,664

 
$
40,311

 
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 March 31, 2016 and December 31, 2015.
 
 
 
March 31, 2016
 
 
December 31, 2015
(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
 
$
37,013

 
$
23,192

 
$

 
 
$
32,583

 
$
18,763

 
$

Commercial real estate
 
15,369

 
15,148

 

 
 
15,138

 
14,916

 

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

SEPH commercial land and development
 
10,832

 
2,043

 

 
 
10,834

 
2,044

 

Remaining commercial
 
2,474

 
1,497

 

 
 
2,506

 
1,531

 

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
22,932

 
22,806

 

 
 
23,798

 
23,480

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance recorded:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial, financial and agricultural
 
9,496

 
5,404

 
2,471

 
 
16,155

 
11,832

 
1,904

Commercial real estate
 
2,920

 
2,920

 
593

 
 
3,195

 
3,109

 
381

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Remaining commercial
 
3,348

 
3,348

 
1,456

 
 
3,145

 
3,145

 
1,356

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
2,155

 
1,813

 
410

 
 
1,951

 
1,844

 
550

Total
 
$
106,539

 
$
78,171

 
$
4,930

 
 
$
109,305

 
$
80,664

 
$
4,191



13


Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. At March 31, 2016 and December 31, 2015, there were $24.0 million and $24.2 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $4.4 million and $4.5 million, 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 of $4.9 million and $4.2 million related to loans individually evaluated for impairment at March 31, 2016 and December 31, 2015, respectively. These loans with specific reserves had a recorded investment of $13.5 million and $19.9 million as of March 31, 2016 and December 31, 2015, 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 months ended March 31, 2016 and March 31, 2015:

 
Three Months Ended
March 31, 2016
 
 
Three Months Ended
March 31, 2015
(In thousands)
Recorded Investment as of March 31, 2016
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
Recorded Investment as of March 31, 2015
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Commercial, financial and agricultural
$
28,596

 
$
29,858

 
$
238

 
 
$
20,571

 
$
19,876

 
$
131

Commercial real estate
18,068

 
17,100

 
180

 
 
16,900

 
18,977

 
163

Construction real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   SEPH commercial land and development
2,043

 
2,043

 

 
 
2,077

 
2,077

 
8

   Remaining commercial
4,845

 
4,771

 
13

 
 
5,725

 
5,697

 
5

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
24,619

 
24,897

 
1,965

 
 
25,219

 
25,373

 
255

Total
$
78,171

 
$
78,669

 
$
2,396

 
 
$
70,492

 
$
72,000

 
$
562







 

14


The following tables present the aging of the recorded investment in past due loans as of March 31, 2016 and December 31, 2015 by class of loan.
 
 
March 31, 2016
(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
$
177

 
$
7,926

 
$
8,103

 
$
936,970

 
$
945,073

Commercial real estate
570

 
1,853

 
2,423

 
1,115,855

 
1,118,278

Construction real estate:
 

 
 

 
 

 
 

 
 

SEPH commercial land and development

 
2,043

 
2,043

 

 
2,043

Remaining commercial

 
139

 
139

 
129,349

 
129,488

Mortgage
52

 

 
52

 
37,317

 
37,369

Installment
158

 
18

 
176

 
5,785

 
5,961

Residential real estate:
 

 
 

 
 

 
 

 
 

Commercial
498

 
10,296

 
10,794

 
401,527

 
412,321

Mortgage
10,369

 
9,857

 
20,226

 
1,188,903

 
1,209,129

HELOC
521

 
669

 
1,190

 
208,854

 
210,044

Installment
292

 
181

 
473

 
21,343

 
21,816

Consumer
7,352

 
2,641

 
9,993

 
972,014

 
982,007

Leases

 

 

 
2,856

 
2,856

Total loans
$
19,989

 
$
35,623

 
$
55,612

 
$
5,020,773

 
$
5,076,385

* Includes $1.4 million of loans past due 90 days or more and accruing. The remaining are past due nonaccrual loans.
 
 
December 31, 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
$
670

 
$
7,536

 
$
8,206

 
$
950,958

 
$
959,164

Commercial real estate
142

 
530

 
672

 
1,116,940

 
1,117,612

Construction real estate:
 

 
 

 
 
 
 

 
 

SEPH commercial land and development

 
2,044

 
2,044

 

 
2,044

Remaining commercial
165

 
84

 
249

 
128,118

 
128,367

Mortgage
63

 
7

 
70

 
36,727

 
36,797

Installment
200

 
46

 
246

 
6,308

 
6,554

Residential real estate:
 

 
 

 
 

 
 

 
 

Commercial
325

 
19,521

 
19,846

 
391,739

 
411,585

Mortgage
10,569

 
8,735

 
19,304

 
1,192,984

 
1,212,288

HELOC
487

 
186

 
673

 
211,511

 
212,184

Installment
426

 
318

 
744

 
21,972

 
22,716

Consumer
11,458

 
3,376

 
14,834

 
955,309

 
970,143

Leases

 

 

 
2,870

 
2,870

Total loans
$
24,505

 
$
42,383

 
$
66,888

 
$
5,015,436

 
$
5,082,324

* Includes $2.0 million of loans past due 90 days or more and accruing. The remaining are past due nonaccrual loans.







15


Credit Quality Indicators
 
Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information as of March 31, 2016 and December 31, 2015 is included in the tables above. The past due information is the primary credit quality indicator within the following classes of loans: (1) mortgage loans and installment loans in the construction real estate segment; (2) mortgage loans, HELOC and installment loans in the residential real estate segment; and (3) consumer loans. The primary credit indicator for commercial loans is based on an internal grading system that grades commercial loans on a scale from 1 to 8. Credit grades are continuously monitored by the responsible loan officer and adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded an 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher loan loss reserve percentage is allocated to these loans. Loans classified as special mention have potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of Park’s credit position at some future date. Commercial loans graded 6 (substandard), also considered to be watch list credits, are considered to represent higher credit risk and, as a result, a higher loan loss reserve percentage is allocated to these loans. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or the value of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that Park will sustain some loss if the deficiencies are not corrected. Commercial loans that are graded a 7 (doubtful) are shown as nonaccrual and Park generally charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Certain 6-rated loans and all 7-rated loans are included within the impaired category. A loan is deemed impaired when management determines the borrower's ability to perform in accordance with the contractual loan agreement is in doubt. Any commercial loan graded an 8 (loss) is completely charged off.
 
The tables below present the recorded investment by loan grade at March 31, 2016 and December 31, 2015 for all commercial loans:
 
 
March 31, 2016
(In thousands)
5 Rated
 
6 Rated
 
Impaired
 
Pass-Rated
 
Recorded
Investment
Commercial, financial and agricultural *
$
4,685

 
$
272

 
$
28,610

 
$
911,506

 
$
945,073

Commercial real estate *
14,156

 
3,052

 
18,068

 
1,083,002

 
1,118,278

Construction real estate:
 

 
 

 
 

 
 

 
 

SEPH commercial land and development

 

 
2,043

 

 
2,043

Remaining commercial
1,820

 
121

 
4,845

 
122,702

 
129,488

Residential real estate:
 

 
 

 
 

 
 

 
 

Commercial
2,438

 
1,483

 
24,619

 
383,781

 
412,321

Leases

 

 

 
2,856

 
2,856

Total commercial loans
$
23,099

 
$
4,928

 
$
78,185

 
$
2,503,847

 
$
2,610,059

 * Included within commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.


16


 
December 31, 2015
(In thousands)
5 Rated
 
6 Rated
 
Impaired
 
Pass-Rated
 
Recorded
Investment
Commercial, financial and agricultural *
$
4,392

 
$
347

 
$
30,623

 
$
923,802

 
$
959,164

Commercial real estate *
14,880

 
3,417

 
18,025

 
1,081,290

 
1,117,612

Construction real estate:
 

 
 

 
 

 
 

 
 

SEPH commercial land and development

 

 
2,044

 

 
2,044

Remaining commercial
2,151

 
122

 
4,676

 
121,418

 
128,367

Residential real estate:
 

 
 

 
 

 
 

 
 

Commercial
3,280

 
386

 
25,324

 
382,595

 
411,585

Leases

 

 

 
2,870

 
2,870

Total Commercial Loans
$
24,703

 
$
4,272

 
$
80,692

 
$
2,511,975

 
$
2,621,642

 * Included within commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.

Troubled Debt Restructurings ("TDRs")
 
Management classifies loans as TDRs when a borrower is experiencing financial difficulties and Park has granted a concession to the borrower as part of a modification or in the loan renewal process. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of the borrower's debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy. Management’s policy is to modify loans by extending the term or by granting a temporary or permanent contractual interest rate below the market rate, not by forgiving debt. A court's discharge of a borrower's debt in a Chapter 7 bankruptcy is considered a concession when the borrower does not reaffirm the discharged debt. Certain loans which were modified during the three-month periods ended March 31, 2016 and March 31, 2015 did not meet the definition of a TDR as the modification was a delay in a payment that was considered to be insignificant. Management considers a forbearance period of up to three months or a delay in payment of up to 30 days to be insignificant. TDRs may be classified as accruing if the borrower has been current for a period of at least six months with respect to loan payments and management expects that the borrower will be able to continue to make payments in accordance with the terms of the restructured note. Management reviews all accruing TDRs quarterly to ensure payments continue to be made in accordance with the modified terms.
 
Management reviews renewals/modifications of loans previously identified as TDRs to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification does not contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of the renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification. The majority of these TDRs were originally considered restructurings in a prior year as a result of a renewal/modification with an interest rate that was not commensurate with the risk of the underlying loan at the time of the renewal/modification. The TDR classification was removed on $806,000 of loans during the three-month period ended March 31, 2016. The TDR classification was not removed on any loans during the three-month period ended March 31, 2015.

At March 31, 2016 and December 31, 2015, there were $49.4 million and $41.1 million, respectively, of TDRs included in the nonaccrual loan totals. At March 31, 2016 and December 31, 2015, $35.9 million and $19.1 million of these nonaccrual TDRs were performing in accordance with the terms of the restructured note. As of March 31, 2016 and December 31, 2015, there were $15.1 million and $25.1 million, respectively, of TDRs included in accruing loan totals. Management will continue to review the restructured loans and may determine it appropriate to move certain of the loans back to accrual status in the future.

At March 31, 2016 and December 31, 2015, Park had commitments to lend $2.7 million and $2.3 million, respectively, of additional funds to borrowers whose outstanding loan terms had been modified in a TDR.
 

17


The specific reserve related to TDRs at March 31, 2016 and December 31, 2015 was $2.6 million and $2.3 million, respectively. Modifications made in 2015 and 2016 were largely the result of renewals and extending the maturity date of the loan at terms consistent with the original note. These modifications were deemed to be TDRs primarily due to Park’s conclusion that the borrower would likely not have qualified for similar terms through another lender. Many of the modifications deemed to be TDRs were previously identified as impaired loans, and thus were also previously evaluated for impairment under Accounting Standards Codification (ASC) 310.  Additional specific reserves of $25,000 and $857,000 were recorded during the three-month periods ended March 31, 2016 and 2015, respectively, as a result of TDRs identified in the respective period.

The terms of certain other loans were modified during the three-month periods ended March 31, 2016 and 2015 that did not meet the definition of a TDR. There were no modified substandard commercial loans which did not meet the definition of a TDR at March 31, 2016. Modified substandard commercial loans which did not meet the definition of a TDR had a total recorded investment as of March 31, 2015 of $131,000. The renewal/modification of these loans: (1) involved a renewal/modification of the terms of a loan to a borrower who was not experiencing financial difficulties, (2) resulted in a delay in a payment that was considered to be insignificant, or (3) resulted in Park obtaining additional collateral or guarantees that improved the likelihood of the ultimate collection of the loan such that the modification was deemed to be at market terms.  Modified consumer loans which did not meet the definition of a TDR had a total recorded investment of $2.0 million and $4.5 million, as of March 31, 2016 and 2015, respectively. Many of these loans were to borrowers who were not experiencing financial difficulties but who were looking to reduce their cost of funds.

The following tables detail the number of contracts modified as TDRs during the three-month periods ended March 31, 2016 and 2015, as well as the recorded investment of these contracts at March 31, 2016 and 2015. The recorded investment pre- and post-modification is generally the same due to the fact that Park does not typically provide for forgiveness of principal.

 
Three Months Ended
March 31, 2016
(In thousands)
Number of
Contracts
 
Accruing
 
Nonaccrual
 
Total
Recorded
Investment
Commercial, financial and agricultural
7

 
$
131

 
$
716

 
$
847

Commercial real estate

 

 

 

Construction real estate:
 
 
 
 
 
 
 
  SEPH commercial land and development

 

 

 

  Remaining commercial

 

 

 

  Mortgage

 

 

 

  Installment

 

 

 

Residential real estate: