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EX-32.1 - EXHIBIT 32.1 - PARK NATIONAL CORP /OH/prk-ex321x20170630x10q.htm
EX-32.2 - EXHIBIT 32.2 - PARK NATIONAL CORP /OH/prk-ex322x20170630x10q.htm
EX-31.2 - EXHIBIT 31.2 - PARK NATIONAL CORP /OH/prk-ex312x20170630x10q.htm
EX-31.1 - EXHIBIT 31.1 - PARK NATIONAL CORP /OH/prk-ex311x20170630x10q.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, 2017
  
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company    
¨
(Do not check if a smaller reporting company)
Emerging growth company
¨

 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes   ¨   No   ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 15,297,080 Common shares, no par value per share, outstanding at July 26, 2017.




PARK NATIONAL CORPORATION
 
CONTENTS
 
Page
PART I.   FINANCIAL INFORMATION
 
 
 
Item 1.  Financial Statements
 
 
 
 
 
 
 
 
 
 
 
Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (unaudited)
 
 
 
 
 
 
 
 
 
 
70 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PARK NATIONAL CORPORATION AND SUBSIDARIES
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands, except share and per share data)                    
 
June 30,
2017
 
December 31, 2016
Assets:
 

 
 

Cash and due from banks
$
128,420

 
$
122,811

Money market instruments
282,659

 
23,635

Cash and cash equivalents
411,079

 
146,446

Investment securities:
 

 
 

Securities available-for-sale, at fair value (amortized cost of $1,194,533 and $1,262,761 at June 30, 2017 and December 31, 2016, respectively)
1,196,115

 
1,258,139

Securities held-to-maturity, at amortized cost (fair value of $324,827 and $256,672 at June 30, 2017 and December 31, 2016, respectively)
322,008

 
259,833

Other investment securities
61,811

 
61,811

Total investment securities
1,579,934

 
1,579,783

 
 
 
 
Loans
5,365,437

 
5,271,857

Allowance for loan losses
(53,822
)
 
(50,624
)
Net loans
5,311,615

 
5,221,233

Bank owned life insurance
187,644

 
185,234

Prepaid assets
94,692

 
88,874

Goodwill
72,334

 
72,334

Premises and equipment, net
56,108

 
57,971

Affordable housing tax credit investments
56,219

 
52,947

Other real estate owned
14,881

 
13,926

Accrued interest receivable
19,274

 
18,822

Mortgage loan servicing rights
9,476

 
9,266

Other
18,836

 
20,750

Total assets
$
7,832,092

 
$
7,467,586

 
 
 
 
Liabilities and Shareholders' Equity:
 

 
 

Deposits:
 

 
 

Noninterest bearing
$
1,545,279

 
$
1,523,417

Interest bearing
4,416,297

 
3,998,539

Total deposits
5,961,576

 
5,521,956

Short-term borrowings
183,788

 
394,795

Long-term debt
847,388

 
694,281

Subordinated notes
15,000

 
45,000

Unfunded commitments in affordable housing tax credit investments
21,282

 
14,282

Accrued interest payable
2,394

 
2,151

Other
48,416

 
52,881

Total liabilities
$
7,079,844

 
$
6,725,346

 
 
 
 
 


 


Shareholders' equity:
 

 
 

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

 
$

Common shares (No par value; 20,000,000 shares authorized; 16,150,788 shares issued at June 30, 2017 and 16,150,807 shares issued at December 31, 2016)
306,418

 
305,826

Retained earnings
545,794

 
535,631

Treasury shares (853,708 shares at June 30, 2017 and 810,089 at December 31, 2016)
(86,252
)
 
(81,472
)
Accumulated other comprehensive loss, net of taxes
(13,712
)
 
(17,745
)
Total shareholders' equity
752,248

 
742,240

Total liabilities and shareholders’ equity
$
7,832,092

 
$
7,467,586


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,
 
2017
 
2016
 
2017
 
2016
Interest and dividend income:
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Interest and fees on loans
$
61,222

 
$
58,401

 
$
121,130

 
$
118,453

 
 
 
 
 
 
 
 
Interest and dividends on:
 

 
 

 
 
 
 
Obligations of U.S. Government, its agencies and other securities
6,892

 
7,770

 
14,030

 
16,379

Obligations of states and political subdivisions
1,664

 
591

 
3,124

 
964

Other interest income
698

 
249

 
947

 
523

Total interest and dividend income
70,476

 
67,011

 
139,231

 
136,319

 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Interest on deposits:
 

 
 

 
 
 
 
Demand and savings deposits
2,291

 
933

 
3,905

 
1,757

Time deposits
2,457

 
2,389

 
4,618

 
4,776

 
 
 
 
 
 
 
 
Interest on borrowings:
 

 
 

 
 
 
 
Short-term borrowings
184

 
82

 
419

 
246

Long-term debt
5,766

 
6,122

 
11,559

 
12,236

 
 
 
 
 
 
 
 
Total interest expense
10,698

 
9,526

 
20,501

 
19,015

 
 
 
 
 
 
 
 
Net interest income
59,778

 
57,485

 
118,730

 
117,304

 
 
 
 
 
 
 
 
Provision for loan losses
4,581

 
2,637

 
5,457

 
3,547

Net interest income after provision for loan losses
55,197

 
54,848

 
113,273

 
113,757

 
 
 
 
 
 
 
 
Other income:
 

 
 

 
 
 
 
Income from fiduciary activities
6,025

 
5,438

 
11,539

 
10,551

Service charges on deposit accounts
3,156

 
3,575

 
6,295

 
6,998

Other service income
3,447

 
3,351

 
6,251

 
5,925

Checkcard fee income
4,040

 
3,868

 
7,801

 
7,400

Bank owned life insurance income
1,114

 
1,049

 
2,217

 
2,246

ATM fees
561

 
570

 
1,103

 
1,153

OREO valuation adjustments
(272
)
 
(221
)
 
(345
)
 
(339
)
Gain on sale of OREO, net
53

 
162

 
153

 
296

Miscellaneous
1,127

 
944

 
1,744

 
1,895

Total other income
19,251

 
18,736

 
36,758

 
36,125

 
 
 
 
 
 
 
 
 



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,
 
2017
 
2016
 
2017
 
2016
Other expense:
 

 
 

 
 
 
 
Salaries
$
23,001

 
$
21,256

 
$
45,718

 
$
42,810

Employee benefits
4,919

 
4,894

 
10,100

 
9,667

Occupancy expense
2,565

 
2,639

 
5,200

 
5,187

Furniture and equipment expense
3,640

 
3,416

 
7,258

 
6,859

Data processing fees
1,676

 
1,373

 
3,641

 
2,590

Professional fees and services
6,018

 
5,401

 
10,847

 
12,068

Marketing
1,084

 
1,073

 
2,140

 
2,184

Insurance
1,517

 
1,438

 
3,087

 
2,849

Communication
1,155

 
1,353

 
2,488

 
2,574

State tax expense
943

 
798

 
2,006

 
1,724

Miscellaneous
1,588

 
1,665

 
3,083

 
6,693

Total other expense
48,106

 
45,306

 
95,568

 
95,205

 
 
 
 
 
 
 
 
Income before income taxes
26,342

 
28,278

 
54,463

 
54,677

 
 
 
 
 
 
 
 
Federal income taxes
7,310

 
8,280

 
15,164

 
15,993

 
 
 
 
 
 
 
 
Net income
$
19,032

 
$
19,998

 
$
39,299

 
$
38,684

 
 
 
 
 
 
 
 
Earnings per Common Share:
 
 
 
 
 
 
 
Basic
$
1.24

 
$
1.30

 
$
2.57

 
$
2.52

Diluted
$
1.24

 
$
1.30

 
$
2.55

 
$
2.51

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 

 
 

 
 
 
 
Basic
15,297,085

 
15,330,802

 
15,304,572

 
15,330,808

Diluted
15,398,865

 
15,399,283

 
15,415,765

 
15,402,896

 
 
 
 
 
 
 
 
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)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
19,032

 
$
19,998

 
$
39,299

 
$
38,684

 
 
 
 
 
 
 
 
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Unrecognized net holding gain on securities available-for-sale, net of federal income taxes of $1,621 and $2,343 for the three months ended June 30, 2017 and 2016, and $2,171 and $8,633 for the six months ended June 30, 2017 and 2016, respectively
3,011

 
4,352

 
4,033

 
16,032

Other comprehensive income
$
3,011

 
$
4,352

 
$
4,033

 
$
16,032

 
 
 
 
 
 
 
 
Comprehensive income
$
22,043

 
$
24,350

 
$
43,332

 
$
54,716

 
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 share and per share data)
  
 
 
Preferred
Shares
 
Common
Shares
 
Retained
Earnings
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
(Loss) Income
Balance at January 1, 2016
 
$

 
$
303,966

 
$
507,505

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

 
 

 
38,684

 
 

 
 

Other comprehensive income, net of tax
 
 

 
 
 
 
 
 
 
16,032

Dividends on common shares at $1.88 per share
 
 

 
 

 
(28,974
)
 
 

 
 

Cash payment for fractional common shares in dividend reinvestment plan
 
 

 
(2
)
 
 

 
 

 
 

Share-based compensation expense
 
 
 
792

 
 
 
 
 
 
Balance at June 30, 2016
 
$


$
304,756

 
$
517,215

 
$
(82,473
)
 
$
389

 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2017
 
$

 
$
305,826

 
$
535,631

 
$
(81,472
)
 
$
(17,745
)
Net income
 
 

 


 
39,299

 


 


Other comprehensive income, net of tax
 
 

 


 


 


 
4,033

Dividends on common shares at $1.88 per share
 
 

 


 
(28,939
)
 


 


Cash payment for fractional common shares in dividend reinvestment plan
 
 

 
(2
)
 


 


 


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

 
 
Repurchase of 50,000 common shares to be held as treasury shares
 
 
 
 
 
 
 
(5,425
)
 
 
Share-based compensation expense
 
 
 
1,389

 
 
 
 
 
 
Balance at June 30, 2017
 
$

 
$
306,418

 
$
545,794

 
$
(86,252
)
 
$
(13,712
)
 
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,
 
2017
 
2016
Operating activities:
 

 
 

Net income
$
39,299

 
$
38,684

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

 
 

Provision for loan losses
5,457

 
3,547

Amortization of loan fees and costs, net
4,604

 
3,504

Provision for depreciation
4,284

 
4,178

Amortization of investment securities, net
597

 
38

Amortization of prepayment penalty on long-term debt
3,107

 
3,069

Loan originations to be sold in secondary market
(106,685
)
 
(110,666
)
Proceeds from sale of loans in secondary market
107,046

 
108,009

Gain on sale of loans in secondary market
(2,063
)
 
(2,162
)
Share-based compensation expense
1,389

 
792

OREO valuation adjustments
345

 
339

Gain on sale of OREO, net
(153
)
 
(296
)
Bank owned life insurance income
(2,217
)
 
(2,246
)
 
 
 
 
Changes in assets and liabilities:
 

 
 

Increase in other assets
(10,610
)
 
(7,074
)
Decrease in other liabilities
(4,394
)
 
(2,543
)
Net cash provided by operating activities
$
40,006

 
$
37,173

 
 
 
 
Investing activities:
 

 
 

Proceeds from calls and maturities of:
 

 
 

Available-for-sale securities
$
83,308

 
$
570,242

Held-to-maturity securities
9,371

 
11,155

Purchases of:
 

 
 

Available-for-sale securities
(14,965
)
 
(414,700
)
Held-to-maturity securities
(72,258
)
 
(41,566
)
Net loan originations, portfolio loans
(94,207
)
 
(55,675
)
Investments in qualified affordable housing projects

 
(4,316
)
  Proceeds from the sale of OREO
1,688

 
3,092

  Life insurance death benefits
74

 
1,050

  Purchases of premises and equipment, net
(2,474
)
 
(3,929
)
Net cash (used in) provided by investing activities
$
(89,463
)
 
$
65,353

 
 
 
 
 
 
 
 

8


PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued)
(in thousands)
 
Six Months Ended
June 30,
 
2017
 
2016
Financing activities:
 

 
 

Net increase in deposits
$
439,620

 
$
276,237

Net decrease in short-term borrowings
(211,007
)
 
(183,511
)
Proceeds from issuance of long-term debt
150,000

 

Repayment of subordinated notes
(30,000
)
 

Value of common shares withheld to pay employee income taxes
(347
)
 

Repurchase of common shares to be held as treasury shares
(5,425
)
 

Cash dividends paid
(28,751
)
 
(28,822
)
Net cash provided by financing activities
$
314,090

 
$
63,904

 
 
 
 
Increase in cash and cash equivalents
264,633

 
166,430

 
 
 
 
Cash and cash equivalents at beginning of year
146,446

 
149,459

 
 
 
 
Cash and cash equivalents at end of period
$
411,079

 
$
315,889

 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

 
 
 
 
Cash paid for:
 

 
 

Interest
$
20,258

 
$
19,017

 
 
 
 
Income taxes
$
11,220

 
$
8,980

 
 
 
 
Non-cash items:
 
 
 
Loans transferred to OREO
$
2,891

 
$
2,147

 
 
 
 
Securities purchase commitments
$

 
$
4,631

 
 
 
 
New commitments in affordable housing tax credit investments
$
7,000

 
$


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 and six-month periods ended June 30, 2017 are not necessarily indicative of the operating results to be anticipated for the fiscal year ending December 31, 2017.
 
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, 2016 from Park’s 2016 Annual Report to Shareholders (“Park's 2016 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 2016 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 Financial Accounting Standards Board (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. While interest income is specifically out of scope of this guidance, management is currently evaluating the revenue streams within "Other income" to assess the applicability of this guidance. Specifically, management is evaluating the impact of this new guidance on deposit fees recorded within "Service charges on deposit accounts" and trust income within "Income from fiduciary activities."

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 affect 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. The adoption of this guidance is not expected to have a material impact on Park's consolidated financial statements, but will impact the fair value disclosures in Note 14.

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 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. 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.

10



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 was effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2016. Early adoption was permitted. The adoption of this guidance on January 1, 2017 did not have a material impact on Park's consolidated financial statements.

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 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 the 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 CECL. This committee is currently assessing the data and system requirements necessary for adoption. Management plans to run our current incurred loss model and a CECL model concurrently for 12 months prior to the adoption of this guidance on January 1, 2020.

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 current U.S. GAAP is either unclear or does 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.  As such transactions arise, management will utilize the updated guidance within Park’s consolidated statements of cash flows. 

ASU 2017-04 - Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment:  In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 from the goodwill impairment test. Instead, under the new guidance, an entity is to perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. 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 interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance with Park's April 1, 2017 annual goodwill impairment test did not have an impact on Park's consolidated financial statements.

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. 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 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

11


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 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 about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. 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.

Note 3 – Loans
 
The composition of the loan portfolio, by class of loan, as of June 30, 2017 and December 31, 2016 was as follows:
 
 
June 30, 2017
 
 
December 31, 2016
(In thousands)
Loan
Balance
 
Accrued
Interest
Receivable
 
Recorded
Investment
 
 
Loan
Balance
 
Accrued
Interest
Receivable
 
Recorded
Investment
Commercial, financial and agricultural *
$
1,006,479

 
$
3,837

 
$
1,010,316

 
 
$
994,619

 
$
3,558

 
$
998,177

Commercial real estate *
1,191,881

 
3,960

 
1,195,841

 
 
1,155,703

 
4,161

 
1,159,864

Construction real estate:
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
118,605

 
367

 
118,972

 
 
135,343

 
398

 
135,741

Mortgage
47,028

 
103

 
47,131

 
 
48,699

 
106

 
48,805

Installment
4,766

 
15

 
4,781

 
 
4,903

 
17

 
4,920

Residential real estate:
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
397,762

 
949

 
398,711

 
 
406,687

 
940

 
407,627

Mortgage
1,150,606

 
1,219

 
1,151,825

 
 
1,169,495

 
1,459

 
1,170,954

HELOC
209,251

 
873

 
210,124

 
 
212,441

 
853

 
213,294

Installment
18,948

 
52

 
19,000

 
 
19,874

 
67

 
19,941

Consumer
1,216,764

 
3,190

 
1,219,954

 
 
1,120,850

 
3,385

 
1,124,235

Leases
3,347

 
30

 
3,377

 
 
3,243

 
29

 
3,272

Total loans
$
5,365,437

 
$
14,595

 
$
5,380,032

 
 
$
5,271,857

 
$
14,973

 
$
5,286,830

* 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 $12.0 million at June 30, 2017 and $11.1 million at December 31, 2016, which represented a net deferred income position in both periods.

Overdrawn deposit accounts of $1.8 million and $2.9 million had been reclassified to loans at June 30, 2017 and December 31, 2016, respectively, and are included in the commercial, financial and agricultural loan class above.


12


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 June 30, 2017 and December 31, 2016:
 
 
 
June 30, 2017
(In thousands)
 
Nonaccrual
Loans
 
Accruing Troubled Debt Restructurings
 
Loans Past Due
90 Days or More
and Accruing
 
Total
Nonperforming
Loans
Commercial, financial and agricultural
 
$
28,179

 
$
325

 
$

 
$
28,504

Commercial real estate
 
16,459

 
5,331

 

 
21,790

Construction real estate:
 
 

 
 

 
 

 
 

Commercial
 
1,269

 
367

 

 
1,636

Mortgage
 
8

 
101

 

 
109

Installment
 
31

 
92

 
29

 
152

Residential real estate:
 
 

 
 

 
 

 
 

Commercial
 
21,149

 
86

 

 
21,235

Mortgage
 
17,752

 
10,151

 
867

 
28,770

HELOC
 
1,671

 
994

 
19

 
2,684

Installment
 
587

 
539

 

 
1,126

Consumer
 
3,273

 
736

 
1,032

 
5,041

Total loans
 
$
90,378

 
$
18,722

 
$
1,947

 
$
111,047

 
 
 
December 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
 
$
20,057

 
$
600

 
$
15

 
$
20,672

Commercial real estate
 
19,169

 
5,305

 

 
24,474

Construction real estate:
 
 

 
 

 
 

 
 
Commercial
 
1,833

 
393

 

 
2,226

Mortgage
 

 
104

 

 
104

Installment
 
61

 
95

 
12

 
168

Residential real estate:
 
 

 
 

 
 

 
 

Commercial
 
23,013

 
89

 

 
23,102

Mortgage
 
18,313

 
9,612

 
887

 
28,812

HELOC
 
1,783

 
673

 
25

 
2,481

Installment
 
644

 
609

 
60

 
1,313

Consumer
 
2,949

 
748

 
1,139

 
4,836

Total loans
 
$
87,822

 
$
18,228

 
$
2,138

 
$
108,188


13


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 June 30, 2017 and December 31, 2016.

 
 
June 30, 2017
 
 
December 31, 2016
(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
 
$
28,504

 
$
28,475

 
$
29

 
 
$
20,657

 
$
20,624

 
$
33

Commercial real estate
 
21,790

 
21,790

 

 
 
24,474

 
24,474

 

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
1,636

 
1,636

 

 
 
2,226

 
2,226

 

Mortgage
 
109

 

 
109

 
 
104

 

 
104

Installment
 
123

 

 
123

 
 
156

 

 
156

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
21,235

 
21,235

 

 
 
23,102

 
23,102

 

Mortgage
 
27,903

 

 
27,903

 
 
27,925

 

 
27,925

HELOC
 
2,665

 

 
2,665

 
 
2,456

 

 
2,456

Installment
 
1,126

 

 
1,126

 
 
1,253

 

 
1,253

Consumer
 
4,009

 
8

 
4,001

 
 
3,697

 

 
3,697

Total loans
 
$
109,100

 
$
73,144

 
$
35,956

 
 
$
106,050

 
$
70,426

 
$
35,624

 
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 June 30, 2017 and December 31, 2016.
 
 
 
June 30, 2017
 
 
December 31, 2016
(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
 
$
17,871

 
$
12,837

 
$

 
 
$
41,075

 
$
19,965

 
$

Commercial real estate
 
20,199

 
20,014

 

 
 
23,961

 
23,474

 

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
1,457

 
1,431

 

 
 
3,662

 
2,226

 

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
21,261

 
20,873

 

 
 
24,409

 
22,687

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance recorded:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial, financial and agricultural
 
17,505

 
15,638

 
3,774

 
 
810

 
659

 
152

Commercial real estate
 
1,969

 
1,776

 
290

 
 
1,014

 
1,000

 
309

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
1,592

 
205

 
44

 
 

 

 

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
362

 
362

 
29

 
 
427

 
415

 
87

Consumer
 
8

 
8

 
8

 
 

 

 

Total
 
$
82,224

 
$
73,144

 
$
4,145

 
 
$
95,358

 
$
70,426

 
$
548


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, 2017 and December 31, 2016, there were $5.7 million and $24.7 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $3.4 million and $0.2 million, respectively, of partial charge-offs on loans individually evaluated for impairment that also had a specific reserve allocated.

14


The allowance for loan losses included specific reserves related to loans individually evaluated for impairment at June 30, 2017 and December 31, 2016 of $4.1 million and $0.5 million, respectively. These loans with specific reserves had a recorded investment of $18.0 million and $2.1 million as of June 30, 2017 and December 31, 2016, 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 six months ended June 30, 2017 and June 30, 2016:

 
Three Months Ended
June 30, 2017
 
 
Three Months Ended
June 30, 2016
(In thousands)
Recorded Investment as of June 30, 2017
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
Recorded Investment as of June 30, 2016
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Commercial, financial and agricultural
$
28,475

 
$
23,320

 
$
120

 
 
$
29,779

 
$
28,600

 
$
308

Commercial real estate
21,790

 
21,768

 
240

 
 
29,889

 
22,177

 
185

Construction real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
1,636

 
1,843

 
16

 
 
6,086

 
6,395

 
15

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
21,235

 
20,732

 
61

 
 
25,070

 
24,648

 
340

Consumer
8

 
9

 

 
 
20

 
5

 

Total
$
73,144

 
$
67,672

 
$
437

 
 
$
90,844

 
$
81,825

 
$
848


 
Six Months Ended
June 30, 2017
 
 
Six Months Ended
June 30, 2016
(In thousands)
Recorded Investment as of June 30, 2017
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
Recorded Investment as of June 30, 2016
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Commercial, financial and agricultural
$
28,475

 
$
21,789

 
$
340

 
 
$
29,779

 
$
29,319

 
$
546

Commercial real estate
21,790

 
22,504

 
471

 
 
29,889

 
19,863

 
365

Construction real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
1,636

 
1,960

 
31

 
 
6,086

 
6,564

 
28

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
21,235

 
21,220

 
406

 
 
25,070

 
24,795

 
2,305

Consumer
8

 
6

 

 
 
20

 
3

 

Total
$
73,144

 
$
67,479

 
$
1,248

 
 
$
90,844

 
$
80,544

 
$
3,244




15


The following tables present the aging of the recorded investment in past due loans as of June 30, 2017 and December 31, 2016 by class of loan. 

 
June 30, 2017
(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
$
227

 
$
10,364

 
$
10,591

 
$
999,725

 
$
1,010,316

Commercial real estate
290

 
2,572

 
2,862

 
1,192,979

 
1,195,841

Construction real estate:
 

 
 

 
 

 
 

 
 

Commercial

 
24

 
24

 
118,948

 
118,972

Mortgage
155

 

 
155

 
46,976

 
47,131

Installment
133

 
50

 
183

 
4,598

 
4,781

Residential real estate:
 

 
 

 
 

 
 

 
 

Commercial
39

 
1,715

 
1,754

 
396,957

 
398,711

Mortgage
8,333

 
10,278

 
18,611

 
1,133,214

 
1,151,825

HELOC
379

 
1,118

 
1,497

 
208,627

 
210,124

Installment
250

 
308

 
558

 
18,442

 
19,000

Consumer
9,073

 
2,232

 
11,305

 
1,208,649

 
1,219,954

Leases

 

 

 
3,377

 
3,377

Total loans
$
18,879

 
$
28,661

 
$
47,540

 
$
5,332,492

 
$
5,380,032

(1) Includes $1.9 million of loans past due 90 days or more and accruing. The remaining are past due nonaccrual loans.
(2) Includes $63.7 million of nonaccrual loans which are current in regards to contractual principal and interest payments.

 
December 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
(1)
 
Total Past Due
 
Total Current (2)
 
Total Recorded
Investment
Commercial, financial and agricultural
$
371

 
$
4,113

 
$
4,484

 
$
993,693

 
$
998,177

Commercial real estate
355

 
2,499

 
2,854

 
1,157,010

 
1,159,864

Construction real estate:
 

 
 

 
 
 
 

 
 

Commercial

 
541

 
541

 
135,200

 
135,741

Mortgage
559

 

 
559

 
48,246

 
48,805

Installment
223

 
64

 
287

 
4,633

 
4,920

Residential real estate:
 

 
 

 
 

 
 

 
 

Commercial
330

 
3,631

 
3,961

 
403,666

 
407,627

Mortgage
10,854

 
9,769

 
20,623

 
1,150,331

 
1,170,954

HELOC
970

 
1,020

 
1,990

 
211,304

 
213,294

Installment
350

 
319

 
669

 
19,272

 
19,941

Consumer
12,579

 
2,094

 
14,673

 
1,109,562

 
1,124,235

Leases